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Posts Tagged ‘Fannie May’

In the City of God St. Augustine narrates an anecdote,( which in all probability was drawn from Cicero-de republica)), where Alexander the Great confronts a pirate. When that king had asked the man what he meant by keeping hostile possession of the sea, he answered with bold pride, ‘What thou meanest by seizing the whole earth; but because I do it with a petty ship, I am called a robber, whilst thou who dost it with a great fleet art styled emperor.’ Augustine’s argument is that, in fact, the existence of justice is the only qualitative difference between legitimate and illegitimate coercive power: “Justice being taken away, then, what are kingdoms but great robberies?”

Isn’t this anecdote relevant even these days?

Have you noticed how law is weighted in favor of majority than small in numbers? Let me give an example: the President of a nation with his superior numbers may invade a country and in the ensuing war the casualties mount. Is he hauled before the law of the land and tried as a warmonger? On the other hand a man gets into a brawl after drinking one too many and kills one. Do you think he shall escape the law because of he was drunk? The President whose rhetorics led to a war situation and after so many provocations ratcheting between the two states, shall become all the more laudable despite the deaths of some 20, 000 deaths. He may even win a second term for the many advantages of war being added to the Treasury of the State. He may retire with the aura of a statesman. Not so with the individual who killed another one in a drunken stupor. Certainly he shall be squeezed dry in the rigmarole of legalities that face him and its trauma haunt him for the rest of his life.

Now we see similar situation in the world of finance. One of the few things not in dispute in the criminal case against Abacus Federal Savings Bank is that it began with a mortgage closing on Friday, Dec. 11, 2009, for a two-family home in the Bensonhurst section of Brooklyn.

On May 31 of 2012, the Manhattan district attorney’s office announced criminal charges against the bank and 19 former employees, some facing up to 25 years in prison. “Mortgage fraud became institutionalized at Abacus Bank,” District Attorney Cyrus Vance Jr. said at a news conference. Abacus, like many banks, had sold its loans to Fannie Mae (FNMA), taking the proceeds and lending them back out to earn more interest. The huge government-backed company in turn bundled those mortgages into securities it sold to investors. Abacus lied about applicants, Vance charged, because otherwise its loans wouldn’t have met Fannie Mae’s income requirements, and the bank depended on Fannie’s money for a significant chunk of its profit.(bloomberg businessweek of Jan 31,2013/drake bennet)

But why was that bank prosecuted and why was Goldman Sachs or Chase not prosecuted? Legal authorities consider it not feasible to go after companies of a certain size, while Abacus is a small fry and easier to succeed if they threw the book at them. While it may be more satisfying to go after the bigger companies, to quote a SEC commissioner who talked about “shot selection,” like in basketball, bureaucracies go for the baskets with the greatest chance of scoring.

It’s not just about poor people. The agencies hesitate before they decide to proceed against a well-heeled, well-defended company [against which] they’re going to have to fight for years and years and years just to get the case in court.

This situation isn’t anything new. It goes back to the Clinton years: Clinton signs on to welfare reform, Clinton and the Democrats begin to court the financial services sector and begin to adopt deregulatory policies.

So now you have political consensus in both parties on both issues; both have the same approach to poverty, to people at the bottom, and they have the same approach to enforcement. And so what begins as deregulation of Wall Street concludes, ultimately, in potentially non-enforcement of crime; and what begins as being “tougher” on welfare cheats in the ’90s, and being tougher on the whole process of giving out benefits, devolves into something pretty close to the criminalization of poverty itself … And that’s just something that happens naturally when you have a political consensus, which is what we have now.

Holder, as deputy attorney general in the Clinton years, outlined what was actually sort of a “get tough on crime” document. He gave prosecutors all these tools to go after big corporations. But, at the bottom [of the memo], he outlined this policy called “collateral consequences,” which was — all it really said was, if you’re a prosecutor and you’re going after a big corporation that employs a lot of people, and you’re worried about innocent victims, you can seek other remedies. Instead of criminally prosecuting, you can do a deferred prosecution agreement, a non-prosecution agreement or, especially, you can levy fines.

When he wrote that, it was nearly a decade before the too-big-to-fail era, but when he came back to office [as Obama’s attorney general], this idea, which initially had been completely ignored becomes the law of the land now, insofar as these systemically important institutions are concerned.

Consequently the agencies think about collateral consequences before they go against companies like HSBC and UBS because they’re worried about what the impact might be on the world economy.

What’s interesting about it is that this idea suddenly matches this thing that happened with our economy where we have the collapse of the economy in 2008, [and] instead of breaking up these bad companies, we merged them together and made them bigger and more dangerous. Now they’re even more unprosecutable than before, now this collateral consequences idea is even more applicable. And that’s the reality we live in now; it’s just this world where if you can commit an offense within the auspices of a company like that, the resolution won’t be a criminal resolution, it will be something else.(‘It’s total moral surrender’/Matt Talibbi from his book The Divide/interview with Salon/Elias Isquith)

benny

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