neweconomicperspectives | One of the “tells” that reveals how embarrassed Lanny Breuer (head of the Criminal Division) and Eric Holder (AG) are by the disgraceful
refusal to prosecute HSBC and its officers for their tens of thousands
of felonies are the
false and misleading statements made
by the Department of Justice (DOJ) about the settlement. The same
pattern has been demonstrated by other writers in the case of the
false and disingenuous statistics DOJ has trumpeted to attempt to disguise the abject failure of their
efforts to prosecute the elite officers who directed the “epidemic” (FBI 2004) of mortgage fraud.
HSBC was one of the largest originators of fraudulent mortgage loans through its acquisition of Household Finance.
Three recent books by “insiders” have confirmed earlier articles
revealing the decisive role that Treasury Secretary Geithner has played
in opposing criminal prosecutions of the elite banksters and banks whose
frauds drove the financial crisis and the Great Recession.
Bair, Sheila, Bull by the Horns: Fighting to Save Main Street from Wall Street and Wall Street from Itself” (2012); Barofsky, Neil, Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street (2012); Connaughton, Jeff, The Payoff: Why Wall Street Always Wins (2012).
Geithner’s fear is that the vigorous enforcement of the law against
the systemically dangerous institutions (SDIs) that caused the crisis
could destabilize the system and cause a renewed global crisis. I have
often expressed my view that the theory that leaving felons in power
over our largest financial institutions is essential to producing
financial stability is insane. Geithner, it turns out, is very
sensitive to that criticism.
To sum it up:
the regulators and Treasury opposed having HSBC admit the truth – that
it violated the money-laundering statutes. They warned that such a
guilty plea could cause a systemic crisis because HSBC was an SDI. When
Treasury warns DOJ that a prosecution could cause a global crisis there
is no chance that the AG will override Treasury’s warning on his own
initiative. That is why line prosecutors urged Holder to meet
personally with Geithner to urge him to withdraw his objections to the
proposed prosecution, but Holder apparently declined to seek a meeting.
Instead, Breuer emphasized that DOJ accepted Treasury’s warning that
HSBC was too big to prosecute because doing so would cause a global
systemic crisis.
Note the disingenuous statement made by the Treasury to the press.
Yes, DOJ makes the “decision” whether to prosecute, but if DOJ were to
prosecute in a case where Treasury had warned that the sky would fall if
there were a prosecution – and the sky did fall – then the DOJ’s
leaders would be the idiots who ignored Treasury and blew up the world’s
economy.
The Treasury statement completes setting the stage for the tale I
promised to complete about Geithner’s sensitivity to his role in
blocking prosecutions becoming better known. Breuer and I were
interviewed by NPR about the HSBC settlement. I criticized it and I
explained why settlement negotiations were unique in such circumstances
because the government’s overriding priority was in reducing its
fine to a level that it was sure would not pose any meaningful risk to
the health of the SDI. When the government fears that any SDI failure
will cause a global systemic crisis the government’s paramount priority
in negotiating a recovery is to restrict rather than maximize its
recovery in order to ensure there is no meaningful risk of the
settlement leading to the SDI’s failure. The government’s press flacks
find it easy to “spin” settlements with profitable SDIs because their
capital and profits are so enormous that the government can negotiate a
fine that sounds very large to the public but is relatively minor from
the SDI’s perspective. The settlement is both a “record” amount and a
modest cost of doing (fraudulent) business for HSBC.
When the NPR story ran originally it contained a quotation from me
noting Geithner’s long-standing opposition to prosecuting SDIs and the
government’s incentive to reduce greatly the penalties on HSBC because
it was an SDI. My quotation mentioning Geithner was removed from the
NPR story at the request of Treasury and replaced with this
“Clarification.”
Clarification: In an early radio
version of this story, a former regulator was quoted speculating that
Treasury Secretary Timothy Geithner did not want to put HSBC out of
business. We should have made it clear that it is the Justice
Department, not the Treasury Department that made the decision to defer
prosecution of HSBC.
I was not “speculating” that “Geithner did not want to put HSBC out
of business.” My statement was not only factual; it wasn’t
controversial given the many insider exposes that have confirmed
Geithner’s position on SDIs. (A position now parroted by Breuer.) The
statement that Treasury got placed in the “clarification” is the same
carefully crafted disingenuous statement that Treasury is using to
obscure the continuing success of Geithner’s efforts to prevent
prosecutions of the SDIs. What we now know definitively is how
hyper-sensitive Geithner is to anything that brings to greater public
attention his pusillanimous role in ensuring that fraudulent SDIs and
the banksters that control them can commit their crimes with impunity
from the criminal laws. As always, I emphasize the ultimate culpability
for the shameful “too big to prosecute” indulgence granted to the
criminal enterprise known as HSBC rests with President Obama and Prime
Minister Cameron. It is also worth noting that the Republican Party and
Governor Romney never protested this failure to prosecute and that
Obama is largely continuing President Bush’s failure to even investigate
seriously the banksters. Welcome to crony capitalism.
