I am delighted to be proven to be wrong on the premise of the last post, which is that lying pays and it has become so routine that an op-ed writer for a liberal newspaper can point that out without being concerned about the broader ramifications. But this is almost certain to fall into “the exception that proves the rule” category.
Lanny Breuer, former Covington & Burling partner and more recently head of the criminal division at the Department of Justice, had his resignation leaked today. The proximate cause may be a Frontline show that ran two nights ago, part of a series on the financial crisis. The segment in which Breuer speaks is below and of course on the PBS website (the last of four segments).
Breuer has been criticized for his lack of interest in prosecuting banks and more important, bank executives for their conduct during the crisis (and before you argue that such cases are difficult to make, please read Charles Ferguson’s Predator Nation, which selects specific banks and shows how, simply based on public information, a clear and compelling case exists, or look at some of our posts, for instance, here). He also was the DoJ co-chairman on the do-virtually-nothing residential mortgage task force formed as a way to suborn Eric Schneiderman, who was leading a group of state attorney generals that were on their way to putting in place tougher sanctions in the banks. We’ve noted how it was Breuer who had taken to embarrassing Schneiderman for his choice:
The Administration started undercutting Schneiderman almost immediately. He announced that the task force would have “hundreds” of investigators. Breuer said it would have only 55, a simply pathetic number (the far less costly savings & loan crisis had over 1000 FBI agents assigned to it). And they taunted him publicly by exposing that he hadn’t gotten a tougher release as he has claimed to justify his sabotage….
Marcy Wheeler, who has called repeatedly for Breuer’s resignation, was early to catch that Breuer would be departing. It’s not clear whether the proximate cause was just his performance or whether that plus the ham-handed pushback, which created a Twitter storm, was what made his cause irredeemable:
Here are is one howler from his Frontline performance (the bold is the Frontline interviewer):
But it has nothing to do with the financial crisis, the meltdown, the packaging of bad mortgages that led to the collapse that led to the recession.
First of all, I think that the financial crisis is multifaceted. But even within that, all we can do is look hard at this multifaceted, multipronged problem. And what we’ve had is a multipronged, multifaceted response.
When a criminal case can be brought, whether it’s from an originator, whether it’s from a bank executive who acted with criminal intent, we’ve brought those cases.
But in those cases where we can’t bring a criminal case — and federal criminal cases are hard to bring — I have to prove that you had the specific intent to defraud. I have to prove that the counterparty, the other side of the transaction, relied on your misrepresentation. If we cannot establish that, then we can’t bring a criminal case.
But we don’t let these institutions go. We’ve brought civil cases. We’ve brought regulatory cases. And the entire approach here is to have a multipronged, comprehensive approach to what gave rise to the financial crisis.
This is nonsense. We’ve discussed at length how top bank executives could be prosecuted for making false certifications under Sarbanes Oxley, which requires at a minimum that the bank certify the adequacy of internal controls, which for a large trading firm, includes risk management. We’ve also written about collusion and lack of arm’s length pricing in the CDO market, which would lend themselves to antitrust charges (price fixing is criminal under the Sherman Act). This is a Department of Justice that has been willing to pursue creative, more accurately, strained legal theories to go after John Edwards, and used a weak case to destroy Aaron Swartz, but becomes remarkably unimaginative as far as big bank misdeeds are concerned.
Here is another howler, from a speech in September last year:
One of the reasons why deferred prosecution agreements are such a powerful tool is that, in many ways, a DPA has the same punitive, deterrent, and rehabilitative effect as a guilty plea: when a company enters into a DPA with the government, or an NPA for that matter, it almost always must acknowledge wrongdoing, agree to cooperate with the government’s investigation, pay a fine, agree to improve its compliance program, and agree to face prosecution if it fails to satisfy the terms of the agreement. All of these components of DPAs are critical for accountability.
Huh? Notice no mention of indictment? The mere threat of indictment got Hank Greenberg, one of the most litigious and tenacious people on the planet, forced out of AIG pronto. That’s because an indictment is a death knell to a levered financial firm. Many customers and counterparties have to stop dealing with it immediately. That does not mean this weapon should be used casually. But the key element is not to destroy viable businesses through a prosecution, but to punish executives. There are ways to be far more aggressive and imaginative (for instance, under Sarbanes Oxley, the language for criminal violations tracks the language for civil violations'; a successful civil case could lay the groundwork for the related criminal action). But you’d never see that from Breuer, who as Marcy Wheeler pointed out, uncritically accepted presentations by economists hired by miscreant institutions who warned that indicting their client would be Too Terrible To Contemplate.
But sadly, Breuer’s resignation is unlikely to be a bellwether that lying does not pay. He simply didn’t lie well enough and that made him an embarrassment.
Update: As readers pointed out in comments, and as the article that in the Washington Post indicates, Breuer was also under attack from the right for “Fast and Furious.” So while his departure was likely in the cards, the fact that it was leaked so closely after his embarrassing Frontline performance (clearly understood to be embarrassing by virtue of the sharp reaction from the DoJ) suggests that it was leaked now so as to head off calls for his resignation or other forms of criticism. Why get worked up about a lame duck?