Push for cuffs in banking scandal.
If the Obama administration plays its cards right, liberal critics say it might finally get to do what voters angry over the financial crisis have wanted for years: slap some cuffs on banking’s bad actors.
The Libor controversy — over whether big international banks were manipulating a key interest rate — has fallen straight into the administration’s lap at the perfect time, they say.
If the Justice Department files charges in the coming months, far from a certainty given the tricky legal questions involved, President Barack Obama gets to contrast himself – a president who went after the worst of the worst bankers – with his vision of Mitt Romney — a billionaire Wall Street tycoon who now keeps his money offshore.
Populist critics have latched on to the moment as a prime opportunity to punish Wall Street.
“Considering the importance of the financial markets to the U.S. economy from the perspectives of employment, growth and tax revenue, we believe that continuing to let criminals off the hook is an intolerable situation that must end,” Occupy the SEC, the wonky wing of the Occupy Wall Street movement, wrote on its website.
Four years after the complete meltdown of the country’s financial system the president and his Justice Department have been under fire from liberals who say he has little to show for his promise to go after Wall Street players responsible for the worst recession since the Great Depression.
Financial regulators and the Justice Department have dealt hundreds of millions of dollars in fines against big banks including JPMorgan Chase & Co, Citigroup Inc and Wells Fargo & Co in civil cases, but often without making them admit to the shady practices that they’ve been accused of.
Diehard proponents of cracking heads on Wall Street have been agitating for more action from an administration whose record on the issue, they say, leaves much to be desired.
Enter the Libor scandal.
“This should be a slam dunk criminal case,” said Dennis Kelleher, president of Better Markets, a Washington based nonprofit that bills itself the “Wall Street watchdog.” “It will be inexcusable if people aren’t arrested pretty quickly here.”
Last month, London’s Barclays bank was fined hundreds of millions of dollars after being accused of manipulating a benchmark interest rate during the financial crisis that measures the cost of bank’s lending to one another and is used as a baseline for a wide range of consumer loans.
With U.S. and British authorities investigating which other of the 18 banks involved in Libor may have taken part in the scheme, the scandal seems poised to grow bigger. And over the weekend, the New York Times reported that the Justice Department is building criminal cases against several financial institutions and individuals at the center of the international controversy – charges that could hand down more hefty penalties and, more importantly, jail time.
“The Criminal Division has an ongoing criminal investigation into other institutions and individuals,” DOJ spokeswoman Alisa Finelli said on Tuesday in response to a question about the Libor probe. She said the agreement entered into with Barclay’s last month “applies only to the institution, not to any individuals and as part of the agreement, Barclay’s agreed to continue cooperating.”
If criminal charges are filed, the move could help Obama shed the image of an administration that talks the talk but doesn’t walk the walk when when it comes to Wall Street malfeasance.
“If the narrative that you’re trying to build is one of cracking down, putting people in jail in handcuffs is a lot more effective than fines because frankly voters can’t tell difference between – and most people, can’t really tell the difference between $100,000, $1 million, $500 million and $5 billion — they’re all just a lot of money,” said Doug Usher, a consultant with the bipartisan consulting firm Purple Strategies. “But a CEO resigning, a CFO going to jail — that’s really palpable”
High profile charges against Wall Street power brokers could also lend itself to the Obama campaign’s effort to draw a contrast Romney.
In recent months, the Obama camp has been ratcheting up its attacks on the presumptive Republican presidential nominee’s private sector experience – most recently labeling Romney the “outsourcer-in-chief” — as it continues to try to paint the former Massachusetts governor as a wealthy, out-of-touch venture capitalist whose allegiance lies with big corporations over every day, middle-class Americans.
The interest rate manipulation controversy comes as Romney struggles to shed his Wall Street image while being pummeled for not releasing more of his tax returns.
“The Republicans have now nominated someone from the financial sector at a time when the financial sector is an extremely bad odor,” conservative columnist George Will said Sunday on ABC’s “This Week.” “Hardly a day goes by – the Libor scandal, TARP, the condition of the country to believe that we’re allowing the banks to keep profits private and socializing losses – all of this conditions the atmosphere in which this is occurring.”
It is far from certain what type of cases can be brought as a result of the the Libor scandal and the Justice Department has repeatedly emphasized that its legal decisions about the financial crisis are not affected by political pressures.
“Every decision that’s being made by our prosecutors around the country is being made 100 percent based on the facts of that particular case and the law that we can apply,” Lanny Breuer, the head of the DOJ’s criminal division, told “60 Minutes” in December.
Finelli declined to comment about the timing of any possible charges.
Criminal prosecutions are not expected to be easy slam drunks — far from it. Legal experts say prosecutors will face significant challenges trying to prosecute individuals over interest rate manipulation, and there is plenty of speculation about whether attorneys will be able to demonstrate intent to lie and conscious wrongdoing.
Jill Fisch, a law professor at the University of Pennsylvania who is an expert on securities regulation, said she has yet to see criminal conduct arising out of the financial crisis.
“I know there’s public appetite for that, but you need some actual criminal wrong doing to file criminal charges,” she said. “It’s misguided to focus on sort of individual witch hunts. The Libor scandal is one more example of either insufficient regulation or insufficient oversight or inappropriate incentives.”
The rate-setting scandal also poses potential political headaches for the president.
Treasury Secretary Timothy Geithner was the head the New York Federal Reserve when the alleged misdeeds were taking place. The New York Fed recently released documents showing that Geithner made suggestions to his British counterparts in 2008 for tightening up the system, and Republicans are expected to press him in hearings this month about what exactly he knew and how much he pushed to have his suggestions put into practice.
The administration could also face questions from Republicans about the timing of any perp walks or criminal charges so close to an election.