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Neil Barofsky Meets with Occupy Wall Street

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Neil Barofsky met with several Occupy Wall Street working groups Sunday for nearly two hours. Barofsky is relaxed, thoughtful, and direct a Q&A format.

One of his major themes was that the unwillingness to mete out meaningful punishments to miscreant banks means that the authorities are providing incentives to engage in criminal activity. It’s now more profitable to break rules than abide by them. Barofsky stressed that the current form of corruption was worse than having officials take bribes; at least you could catch people like that and when you did, their behavior was recognized as outside the pale. By contrast, Barofsky stressed that the officialdom honestly believes things that most of us would regard as nonsensical, such as bank executives can be relied upon to behave responsibly, the SEC and Department of Justice have done a good job on the financial services front given their limited resources. Barofsky stressed didn’t see a way to break the dynamic. He believes a crisis is inevitable, given that we are now rewarding predatory, destructive behavior, and thinks that financial services industry critics and the public need to be ready to put forward a reform agenda when it occurs.

This, needless to say, is not the most cheery prognosis. Some participants pointed out that we just went through a global financial crisis and nothing much got fixed in its wake. Barofsky said that some important measures in fact almost got through, such as Brown-Kauffman, which would have imposed size limits on banks. It had the votes to pass both houses until Larry Summers and Timothy Geithner lobbied key Congressmen personally. He also said there is much wider recognition of the problem, as well as more people who have credibility on the side of reform.

Barofsky discussed the failure to prosecute HSBC for money laundering. He seemed a bit discouraged that there was not more outrage. He was willing to accept the proposition that indicting the bank would be too destabilizing, but did not see that as a justification for a cost-of-doing-business level fine. He laughed at the Department of Justice’s claim that a deferred prosecution agreement was a sword of Damocles hanging over the bank: “If they aren’t willing to indict them now, they aren’t willing to indict them in a few years.” He argued for having the bank be broken up as a condition of the deferred prosecution agreement, so it would be reduced to a size the various new entities could be prosecuted. Failing that, he felt the bank needed to pay a fine that was equal to several years of earnings, not a mere six weeks.

Barofsky also addressed why the various enforcement agencies were so bad at doing their jobs He attributed it to a loss of skills. In the early 2000s, there was still some expertise in prosecuting accounting fraud at the DoJ and the FBI. But FBI resources were diverted to terrorism and the SEC focused more on insider trading. When Barofsky worked at SIGTARP, he found the staffers at the DoJ didn’t know how to conduct the investigation; their reflex was to look at trading records, which is not where you go digging with accounting fraud. Barofsky enlisted the Post Office’s fraud unit, which was very capable but has since been taken out of the business of pursuing complex white collar frauds as a result of budget-cutting.

The former SIGTARP chief also pointed out that the various agencies have a resource allocation problem: do they allow some insider trading cases to go unpunished to invest the time and staff members to rebuild skills in prosecuting complex financial frauds? Nevertheless, they have also become demoralized. When he was at a prosecutor in the Southern District of New York, a new boss asked the various prosecutors who had won all their cases. Barofsky was one of the people who put their hand up. The boss called them chickenshit because anyone who is taking on tough cases is bound to lose some. With their new marching orders, the office’s acquittals indeed went up, but they never felt bad about losing these cases. By contrast, Barofsky said it was difficult to get the SEC and DoJ interested in pursuing a complex case prior to the Bear Stearns hedge fund case, which was an embarrassing loss, and he got a much chiller response afterwards.

And proscecutorial caution feeds on itself and produces negative outcomes due to the collateral damage done by the lack of confidence. Barofsky recounted how he was on a case where a famous defense lawyer came in and met with his team and gave them a speech about how there was evidence that exonerated his client and they’d suffer reputational damage if they went forward with the case. After the attorney left the room, Barofsky and his colleagues scoffed at the idea. But if they had doubts in their capabilities, they might spend another six months investigating and double checking before proceeding. This matters not simply because resources are wasted but more important, because speed works to the advantage of the prosecution. The faster it moves, the less time for the defense to get its ducks in a row and devise plausible-seeming rationales for bad conduct.

Barosky also said he was under no illusions about getting the nod to head the SEC, but that having his name thrown into the ring did serve to widen the spectrum of candidates that might be considered acceptable. He stressed the need to get in not only a strong head of the agency but also an effective enforcement chief. Given that some candidates to lead the SEC had been withdrawn due to pundit and popular opposition, he thought it was also worth putting similar focus on the Department of Justice, both a replacement for Eric Holder and more prosecution-minded assistant AGs.

It’s too bad that we can’t have Barofsky kicking ass and taking names, but at least he’s giving the officialdom a hard time for its abject failure to do the same.

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39 comments

  1. Bhikshuni

    Did he have any suggestions about what anyone (we) can meaningfully DO to help pull our country’s leaders out of the cesspool of corruption?

    1. acuteobserver

      Many people asked that question throughout the panel. Neil was quick to remind us that he’s a prosecutor, not a community organizer (like Obama – which of course drew many laughs). His biggest suggestion was to keep these issues in the national and local media and to keep pressing our district and state representatives. Our Congresspeople in particular tend to have more of a listening ear to constituent concerns. Pushing for legislation that would break up the big banks would be a good start in lieu of prosecution.

      But truly he wasn’t optimistic that anything of substance will happen in the next 4 years. Why? Because the Obama administration and Democrats in general believe that holding the big banks responsible for their crimes would disrupt the entire global financial system. First too big to fail, now too big to jail. We need a DOJ with a backbone.

      1. Aquifer

        A DoJ with a backbone – hmmm, well we won’t get that until we get a Pres. with a backbone, and we won’t get that until, well i really do think we all KNOW the rest, we just don’t get around to doing it ….

      2. psychohistorian

        Think about the slope we are slipping down

        Too big to fail

        Too big to prosecute.

        And these are “people” My Friends……..

        Wheeeeeeee…such a ride to the bottomless pit of genocide to make more lipstick for the global inherited rich of our class based social system.

      3. hunkerdown

        Let’s not keep perpetuating the “Democrat = spineless” meme. They have backbones; they simply don’t use them against their own class interests.

  2. Clive

    “Barofsky discussed the failure to prosecute HSBC for money laundering. He seemed a bit discouraged that there was not more outrage.”

    Well, that makes two of us, along with probably the entire readership of NC.

    The problem is, as intermediaries, any bank wrongdoing is inherently “white collar crime” without any obvious victim. It’s not like HSBC was pushing crack on your street corner or that it started a gunfight with local law enforcement.

    Recent events have ably demonstrated that it is possible to have public opinion changed when people see a clear link between actions and consequences. Would it not be possible for Occupy to do a bit of following the money, demonstrating which drug cartels or what terrorist groups had their wire transfers processed by HSBC and what they did with the funds ?

    At the moment it is too dry and academic an argument for most people, myself included. And I really care about this. If I cannot conjure up an image of how this hurt real people (and I’m sure that it did) then how is anyone to be moved further than a shrug of the shoulders ?

    Of course this does take effort and determination to progress which requires volunteers with either time or money on their hands (preferably both) which is why the big guys get to keep winning… unfortunately.

    1. diptherio

      I think the reason the outrage over HSBC isn’t really there in the streets because of the way the MSM has portrayed, nay spun, the story. Record fines and all that.

      But I don’t think the arguments are dry or academic. HSBC helped terrorists and king-pins to carry on their business more smoothly. Instead of saying “money-laundering for X,Y, and Z”, why not say “assisted in the financing of X, Y, and Z?” Might get the masses riled, is why.

      1. Crazy Horse

        Not long ago we had a national election at a cost of several billion dollars. Of course the election has been largely forgotten about by now, but one of the candidates (the one belonging to a cult founded by an extremely horny charismatic leader) got his start in business by facilitating death squads in El Salvador.

        Mitt Romney secured the funds to start Bain Capital by courting Salvadorian oligarchs responsible for an estimated 50,000 murders over a decade in Central America. When the story was broken by Democracy Now it was completely ignored by the Mainstream Media. And they were correct of course. Americans don’t care about justice or morality, especially if the victims are peasant farmers who look like the Indians we exterminated from the Homeland or are people who haven’t been Born Again and happen to live in lands above OUR oil.

        So why should we care if HSBC simply facilitated one of the most profitable business opportunities in the Americas? After all the drug business is the only viable way to achieve the American Dream in many poor communities. And think of all the multiplier effects of interjecting drug money into the economy. Insurance payments to replace goods stolen to maintain addiction. Police salaries and armored vehicles to facilitate order in the business and arrest low level participants. Hospitals supplied with a steady stream of gunshot customers and OD cases. And the American prison business couldn’t have become the largest in the world without an illegal drug market to keep the cells overflowing.

        No, rather than wringing our hands over the failure of the Dept. of Justice to prosecute HSBC, we should thank it for maintaining one of the keystones of the economy.

        1. Observer

          “When the story was broken by Democracy Now it was completely ignored by the Mainstream Media. And they were correct of course. Americans don’t care about justice or morality, especially if the victims are peasant farmers who look like the Indians we exterminated from the Homeland or are people who haven’t been Born Again and happen to live in lands above OUR oil.”

          I have to hope that Americans would care if they had all the facts. The mainstream media reports dishonestly and Americans are under under the delusion that we have a free press.

          1. mary

            @Observer – that was a good comment.

            @whomever – it’s “beyond the pale” not “outside” and I’d suggest you look up the origins of that phrase.

          2. DANNYBOY

            Dear Observer,

            Of course, “Americans don’t care about justice or morality”, I know that.

            But that doesn’t exclude appealing to those lower base instincts, like personal greed, and the like, which Good Americans do have, in great quantity.

            Appealing to personal greed alone could get a movement going to rein in these offending governments.

            (Also, if you’d like, I can go into great detail on why our government couldn’t be this horrific, were it not for the horrifics of our citizens.)

  3. Norman

    I believe someone once said: “a little revolution now and then, is a good thing”. Well, what’s the hold up?

    1. Neo-Realist

      -We’ve got more distractions of consumer toys and social media than we used to have–Super Mario, Hitman, Farmville, Facebook, and twitter. Pour your systemic discontent into killing CGI figures, bragging about the phad thai you ate or spewing vitriol on facebook about somebody who broke up with you.

      –It’s possible that the increased use of technology that requires sitting on our butts and staring at a computer screen probably makes for less of an interest in physical confrontation and possibly less courage in fighting for broader systemic change when one can fullfill fantasy and other needs of the id via the isolated safety of the internets.

      –New and improved “disruptions” of movements.

  4. DANNYBOY

    Mr Barofsky,

    I think you are missing a significant point, that would help explain a great deal, when : “He seemed a bit discouraged that there was not more outrage.”

    THERE IS REAL OUTRAGE RIGHT NOW, IT IS NOT PUBLIC BECAUSE OF THE CONTROL THE GOVERNMENT HAS PLACED ON THE PUBLIC.

    Ask OWS about this. I can testify that after one government department accused me unduly and threatened to turn their threat over to Treasury, I DECLINED A DOCUMENTATION’S REQUEST TO EXPOSE THEM. I feared further reprisals.

    Don’t look for public demonstrations of outrage, that has been controlled.

    Look rather for individual acts.

  5. sk

    Yes, indeed, it’s too bad that we can’t have Barofsky kicking ass but, at least, he is doing what he can do:
    going around and calling names to all corrupt, sissy morons and SOBs in our government.

    1. Lady Liberty

      Sickening he has chosen the bankers over the seniors!

      more on that here

      http://dailybail.com/home/hot-links-jamie-dimons-tax-hypocrisy-exposed.html?lastPage=true&postSubmitted=true

      and here

      Report:Tax Hikes and Cuts in Social Security Coming

      http://www.economicpolicyjournal.com/2012/12/reporttax-hikes-and-cuts-in-social.html

      As for the bankers that no longer shocks me they paid him off for years as a junior senator and holder’s as corrupt as they come!

      The Second Great Betrayal: Obama and Cameron Decide that Banks are above the Law

      http://neweconomicperspectives.org/2012/12/the-second-great-betrayal-obama-and-cameron-decide-that-banks-are-above-the-law.html

      CORZINED: Obama And Holder Owned By Wall Street

      http://dailybail.com/home/corzined-obama-and-holder-owned-by-wall-street.html

      Let’s start with the numbers. Why is a first term Senator pulling down almost $300,000 a year from Goldman Sachs, Lehman Brothers, Bear Stearns, Fannie Mae, Freddie Mac, AIG, Countrywide Financial, and Washington Mutual? He has not even completed his fourth year in the Senate and received a total of $1,093,329.00 from these eight companies and their employees. (all data from OpenSecrets.org).

      http://www.noquarterusa.net/blog/4939/baracks-wall-street-problem-is-now-americas/

      1. Brooklin Bridge

        Good links.

        Note how there is virtually no mention of Democratic Senators or Representatives in this. They are so much in O-Betrayal’s pocket that they don’t even get mentioned as part of the equation. It’s simply assumed they are bobble-heads in the geezers to cord-wood for a sustainable climate on Wall Street bill.

        A nice touch that would get a smile, perhaps even a muted snicker, out of O-Betrayal would be if Elizabeth Warren were chosen to deliver the votes personally to the White House.

  6. James Cole

    The focus on prosecuting “banks” is misguided. Focus on prosecuting actual individuals at banks, since someone (i.e. some actual human beings) had to make the decisions to do these things.

    1. DANNYBOY

      James,

      When one works in a bank, she quickly learns that The Chosen Few perform godly feats and are Elevated to Positions of Honor.

      The Lowly sinners are abruptly Cast Out for their errors.

      So…

      I guess that leaves no one to prosecute.

      1. James Cole

        I take your comment to mean that elites are simply not prosecuted, which is true.

        I am just pointing out that the notion that banks themselves are “too big to prosecute” doesn’t really address the possibility of prosecuting individuals. I don’t know why we allow the imaginary institutional wall around what we call a “bank” to insulate the humans inside it, except as a cover for protection of elites, which, although real, is not legitimate or in keeping with rule of law.

        Our host, YS, has waxed eloquent many many times about the failure of our prosecutors to use Sarbanes-Oxley for the purpose for which it was intended and I concur wholeheartedly.

        1. Ms G

          Thank you for making this point. It was on my mind as well. Did Mr. Barofsky address this issue of the refusal to indict *individuals* at banks (as opposed to the *banks*)?

          Diamond of Barclays was canned (not quite an indictment, but he was tossed) and Barclays remains in business.

          So the “too big too indict” rationale for the astonishing inaction by DOJ vis a vis banks that aid and abet money laundering for terrorists and international drug dealers does *not* address why there are no indictments of the individuals who were directly (and in supervisory positions to those directly) involved.

          For instance, it was clear that Mr. Lok — based on the emails that were provided to Congress — would have been a slam dunk indictment. Same with figures bigger and smaller in HSBC.

          I would love to hear Barofsky weigh in on this.

          1. different clue

            Why not in theory consider the possibility of prosecuting individuals AND banks? Imprison the imprisonable and de-Charter the de-Charterable.

  7. sierra7

    As to the “why” of HSBC (remember BCCI?):

    “The Politics of Heroin” Alfred McCoy
    http://www.amazon.com/s/ref=nb_sb_ss_i_0_17?url=search-alias%3Dstripbooks&field-keywords=politics+of+heroin&sprefix=Politics+of+heroi%2Cstripbooks%2C302

    “Laundering drug money” is another way for the intelligence agencies in this great country to glom more money “under the table” for their “black” projects which may or may not be scrutinized by Congress or a very small handful of elected “elitist” politicians.

    We are continuing the slippery slope to hell…..

  8. wendy davis

    “Barofsky discussed the failure to prosecute HSBC for money laundering.”

    I read what he cross-posted here, but I was, and am still, perplexed that he missed the other huge part of the story that Emptywheel found: they were laundering money for banks in Saudi Arabian banks that *did* fund ‘terrorists’. That makes the crime on our books more hideous, and failure to prosecute that…so hypocritical it’s stunning. Yes, we’ve come to be less than shocked about the OBomba/Holder DOJ, but still.

    I clipped the most relevant parts that Marcy found digging through the documents.

    http://my.firedoglake.com/wendydavis/2012/12/13/cost-of-doing-business-with-banks-funding-terrorists-er-not-much/

    1. psychohistorian

      People need to understand that our world is run by the global inherited rich and country boundaries mean nothing to them other than each “chess” piece having a different control and extraction potential within a specific culture context.

      When you write history you get to say who are the terrorists and who are the “freedom fighters”.

      Laugh the global inherited rich out of control of our world. The global inherited rich are not listed in the Forbes 500……that is for little wannnaabeees.

      1. Nathanael

        You are really wrong about this. The Forbes 400 actually are among the guys in charge. Although the people in power are indeed “inherited rich”, they are usually only a few generations from the source of wealth.

        That source is generally theft.

        Read _Theory of the Leisure Class_ again. It will clarify your confusion. Kleptocracy is the name of the game, and the “old money” doesn’t fare well in a kleptocracy. The most ruthlessly sociopathic thieves rise to the top.

  9. Wat Tyler

    The corruption is obvious. Corporations help elect “business friendly” politicans and promote “government is the problem” myths in order to reduce the budgets of regulatory and oversight resources. This enables bad behavior which leads to greater profits, some of which are recycled back to the political/propaganda process. Wash, rince, repeat.

    This would have been like letting Al Capone set the “Untouchables” budget.

    I have starting calling this period of American history “The Great Swindle” rather than the great recession.

    Jim

  10. charles sereno

    Notwithstanding the utmost admiration I have for Neil Barofsky, if I had a chance, I’d ask him how he, or anyone else for that matter, could be sure, or at least worried, about the destabilization of financial life as we know it in the event of a failure of a TBTF bank such as HSBC. It wouldn’t happen, in my opinion. To think so implies that we’re at a “Jonestown” moment. We’re not there…yet.

    1. DANNYBOY

      Jim,

      In response to your question: “I’d ask him how he, or anyone else for that matter, could be sure, or at least worried, about the destabilization of financial life as we know it in the event of a failure of a TBTF bank such as HSBC.”

      I can testify with full certainty that I am sure that the failure of ANY bank would not permanently destabilize your financial life.

      So now you can sleep well at night. And now you can make sure that Bank criminality is prosecuted.

      And if my testimony is not enough for you to rest easy, or to demand persecution of heinous crimes, then I can add (as I have contributed before), that the Chairman of one of the world’s largest banks (U.S.-based, some know of my role there) PUBLICLY STATED AND THE MEDIA PUBLICLY REPORTED, that “his” bank could fail without uncontainable collateral damage to the financial system..So, now you’ve heard this from two of us.

      Expecting any prosecutions?

  11. Bob of Newton

    This is the most telling statement:
    “Barofsky enlisted the Post Office’s fraud unit, which was very capable but has since been taken out of the business of pursuing complex white collar frauds as a result of budget-cutting…”
    Emasculate the regulators and you pay less taxes and face less scrutiny. It is a real win-win for the oligarchs.

  12. Jerome A. Grossman

    Time for a revival of “Spoon River Anthology” (http://spoonriveranthology.net/spoon/river/). Nearly a century ago, Edgar Lee Masters wrote things that would be topical today. For example, “Daisy Fraser”:

    “Did you ever hear of Editor Whedon
    Giving to the public treasury any of the money he received
    For supporting candidates for office?
    Or for writing up the canning factory
    To get people to invest?
    Or for suppressing the facts about the bank,
    When it was rotten and ready to break?
    Did you ever hear of the Circuit Judge
    Helping anyone except the “Q” railroad,
    Or the bankers? Or did Rev. Peet or Rev. Sibley
    Give any part of their salary, earned by keeping still,
    Or speaking out as the leaders wished them to do,
    To the building of the water works?
    But I Daisy Fraser who always passed
    Along the street through rows of nods and smiles,
    And caughs [sic] and words such as “there she goes.”
    Never was taken before Justice Arnett
    Without contributing ten dollars and costs
    To the school fund of Spoon River!”

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