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December 10, 2009

"Senators Express Foolish Belief That All Problem Have Criminal Justice Solution"

The title of this post is my alternative headline for this new article in The National Law Journal, which is actually headlined "Senators Express Impatience With Scope of Fraud Prosecutions."  Here is how it begins:

The federal government's highest-ranking officials for investigating financial fraud defended their work Wednesday, under questioning from U.S. senators who want them to do more about those who might have contributed to the credit crisis and the recession.

Senators of both parties expressed concern that some fraud continues to go unpunished, and Democrats wondered why more corporate executives and directors haven't been charged. "Why haven't we seen more boardroom cases?" asked Sen. Ted Kaufman, D-Del., who was chairing a hearing of the Senate Judiciary Committee.

Assistant Attorney General Lanny Breuer, head of the U.S. Justice Department's Criminal Division, replied that prosecutors need time to build them. The alleged crimes, he said, "took a long time in developing and hatching, and investigating them will take a long time, but they will be brought."

Breuer, testifying one month after a Brooklyn, N.Y., jury acquitted two former Bear Stearns hedge fund managers of fraud, said the case would not deter the Justice Department. "It shows, of course, these are tough cases, but we're going to continue to bring them," said Breuer, a former partner at Covington & Burling in Washington....

None of the officials said his agency needs more resources. In May, President Barack Obama signed legislation appropriating $330 million over two years to the Justice Department, largely for financial fraud. The SEC received $40 million over two years.

The officials were also reticent about supporting other changes in federal law.  Sen. Orrin Hatch, R-Utah, said he thinks some traders are abusing the rules for short-selling stock, but Khuzami, former general counsel for the Americas at Deutsche Bank, would say only that the SEC is studying the issue.  Sen. Al Franken, D-Minn., wondered why there hadn't been prosecutions of ratings agencies that have been accused of improperly valuing securities; Breuer and Khuzami said there are multiple challenges to such cases, including the agencies' claims of First Amendment protection.

This story provides, in my view, a window into many problems with how legislatures respond to societal challenges.  Rather than seriously seej to confront structural and systemic issues that contribute to social problems, legislature are often quick to look to attributed problems to a few bad apples and are eager to call for bad apples to subject to harsh criminal justice sanctions.  Though there certainly are bad apples out there (see, e.g., Bernie Madoff), the criminal justice system can often only deal with the worst symptoms of a broader societal disease.

December 10, 2009 at 02:45 PM | Permalink

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Comments

Doug --

I agree (sorry, I know this might ruin your reputation).

The amount of deceit going on in this country is simply staggering. The banking crisis was essentially a product of a little cheating here and a little there, multiplied a million times. The result was horrendous: thousands of people were thrown out of work, and thousands lost their life savings and retirement security.

Some of this is in fact a violation of federal law and should be prosecuted (for the first time ever I find myself in agreement with Al Franken). But at its base, it's a cultural and not a legal problem. Having been dumbed down for two generations (at least) with "situational ethics," we now find that sleazy, deceptive and flat-out dishonest behavior is all over the place, from "I did not have sex with that woman..." to climate change "science" to credit card companies to half the stuff that shows up in your e-mail in box.

The law is no match for a culture so thoroughly degraded. This is not to say that crooks, from deadbeat mortgage applicants to high-flying bankers, should not face the prosecutions they have earned. It is to recognize, however, that the law can't do everything, and curing the culture of deceit is beyond its power.

Posted by: Bill Otis | Dec 10, 2009 6:26:50 PM

The Senators should have themselves arrested if they want to capture the real culprits. They caused this catastrophe.

They forced banks to lend to full time adherents to the Roman Orgy lifestyle in the ghetto. Who passed the Community Reinvestment Act?

They were the ones to approve an Ivy educated twit who slammed the brakes on liquidity at the Federal Reserve too suddenly. They allowed an incompetent gangbanger criminal to be named head of a major relender. They ran up huge deficits out of proportion to increases in productivity.

Oh yeah, these vile traitors passed laws that slaughtered the productivity and innovative ability of the nation. Why? To generate make work government jobs, in lawyer rent seeking.

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