By Erin Sherbert
By Erin Sherbert
By Leif Haven
By Erin Sherbert
By Chris Roberts
By Kate Conger
By Brian Rinker
By Rachel Swan
You would think that AIG's Joseph Cassano would also be prosecuted for securities fraud. As boss of AIG Financial Products, he made ungodly amounts of money by selling credit default swaps (CDS), which were side bets on collaterized debt obligations (CDO) swelled with subprime-mortgage toxins. In fact, the AIG arm sold so many credit default swaps that it lost track of the number, but they totaled more than the entire value of AIG, which was one of the world's biggest companies. The ensuing collateral calls to satisfy the deals choked AIG nearly to death, triggered the financial crisis of September 2008, and led to the biggest bailout of all: $182.5 billion to keep AIG afloat as an 80 percent government-owned company.
A grand jury was reportedly convened to look at Cassano. Again, the DOJ won't confirm or deny the existence of a probe, but given the remarks of Cassano's lawyer, F. Joseph Warin, in September, the grand jury probably exists. Warin said that his client was cooperating and that AIG had known about Cassano's deeds. Will the Justice Department seek to indict AIG's leadership, including its CEO, chief financial officer, and boardroom audit committee? No comment.
You have to go back to the George W. Bush era for the only real prosecution related to the subprime crisis. Bear Stearns hedge fund managers Ralph Cioffi and Matthew Tannin are accused of securities fraud for not telling investors in 2007 about the shaky nature of their fund — based on subprime mortgages — before it collapsed. While the act was typical of the times, the two are far from the top rungs of Wall Street, and there seems to be little else going on in the justice process. Elite white-collar defense attorneys report no clamor for their counsel from major financial managers. Regulators talk of no demand for their services and for evidence from prosecutors. As they say in the trade, there's no buzz.
So far, then, the common person has reaped little relief. Well, maybe clearer credit card statements, plain vanilla mortgages with slightly less fine print, and probably some "green" infrastructure jobs. But these have been slow to arrive, and so far, there is no great morality-based thrust as there was in the New Deal. About $1 billion has been dedicated to putting and keeping "cops on the street." Remember the poignant vignette during the State of the Union address, in which Obama talked about saving 57 police jobs in Minneapolis? Well done and warranted, yes, but keeping the public safe from financial criminals is another story: The administration and Congress have failed to bulk up white-collar fraud enforcement with either new FBI agents or new forensic specialists.
Which annoys the hell out of proven financial-crime fighter Bill Black. Athletic and red-bearded, he looks more like a lumberjack than a scholar, criminologist, and bureaucrat who, in 2005, wrote The Best Way to Rob a Bank Is to Own One, the definitive history of the S&L debacle as well as an insider's report. A legend among regulators, he faced down House Speaker Jim Wright and the "Keating Five" senators (including McCain), who fought to protect that corrupt industry, and overcame stiff resistance from within the Reagan administration and from Keating himself.
Wright, who later resigned in disgrace over ethics charges, called Black a "red-bearded son of a bitch." Keating hired detectives to get dirt on Black. When that failed, the thrift magnate told his Washington lobbyists to "kill him dead," which he probably meant figuratively, in the sense that Keating wanted Black's power shut off. It wasn't, and Keating, though he was as plugged in to the Republicans as Franklin Raines is to the Democrats, ended up doing hard time.
Black always has a big smile and a ready joke, but he burns with the intensity of an Old Testament prophet, especially against "control fraud," the lawlessness that emanates from the top of legitimate businesses. He contends that it causes bigger financial losses than all other forms of property crime combined. Corporations practice these frauds with crooked accounting and perverse compensation systems, using bonus formulas that lead executives to loot their companies rather than serve them.
Now an associate professor of law and economics at the University of Missouri at Kansas City, Black has continued the fight against fraud and for regulatory controls as a consultant to a gamut of agencies from the FBI — where he trained agents in white-collar forensics — to the World Bank.
In 2007, Black was hired by the Office of Federal Housing Enterprise Oversight to investigate the problems at Fannie Mae. His 70-page report plainly described how Raines and his lieutenants used "fraudulent accounting" and "perverse incentives," and took "unsafe and unsound risks" that "collectively caused Fannie to violate the law and deceive its investors and regulators."
So almost two years before the financial crisis broke in late 2008, Black, the FBI, and others outlined the structural problems that would wreck the economy, but Washington did nothing and continued to exercise "regulatory forbearance." In fact, the crisis did not have to happen, and there was certainly no need for Washington's panicky response to it last fall.