Eric Holder: The Reason Why Wall Street Criminals Are Not Behind Bars

Eric Holder testifies before Congress: Republicans grilled him on everything except his
willingness to let criminal bankers go free and grow richer. (Screeen capture from
YouTube video)

By Dean Baker
The big news item in Washington last week was Attorney General Eric Holder decision to resign. Undoubtedly there are positives to Holder’s tenure as attorney general, but one really big minus is his decision not to prosecute any of the Wall Street crew whose actions helped to prop up the housing bubble. As a result of this failure, the main culprits walked away incredibly wealthy even as most of the country has yet to recover from the damage they caused.

Just to be clear, it is not against the law to be foolish and undoubtedly many of the Wall Streeters were foolish. They likely believed that house prices would just keep rising forever. But the fact that they were foolish doesn’t mean that they didn’t also break the law. It’s likely that most of the Enron felons believed in Enron’s business model. After all, they held millions of dollars of Enron stock. But they still did break the law to make the company appear profitable when it wasn’t.

In the case of the banks, there are specific actions that were committed that violated the law. Mortgage issuers like Countrywide and Ameriquest knowingly issued mortgages based on false information. They then sold these mortgages to investment banks like Citigroup and Goldman Sachs who packaged them into mortgage backed securities. These banks knew that many of the mortgages being put into the pools for these securities did not meet their standards, but passed them along anyhow. And, the bond-rating agencies rated these securities as investment grade, giving many the highest possible ratings, even though they knew their quality did not warrant such ratings.

All three of these actions - knowingly issuing mortgages based on false information, deliberately packaging fraudulent mortgages into mortgage backed securities, and deliberately inflating the ratings for mortgage backed securities - are serious crimes that potentially involve lengthy prison sentences. Holder opted not to pursue criminal cases against the individuals involved.

In the last couple of years Holder did bring civil cases against these banks that led to multibillion settlements. These settlements won big headlines that gave the appearance of being tough on the banks.

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