By Jeff Connaughton. Connaughton was the chief of staff to Senator Ted Kaufman during the financial reform fight in 2009-2010. He is the author of the new book The Payoff: Why Wall Street Always Wins. Connaughton was a special assistant to Senator Joe Biden, a lawyer in the Clinton White House, and a co-founder of Quinn Gillespie & Associates, one of DC’s premier lobbying firms. He’s now retired from politics and lives in Savannah, Georgia. Cross-posted from JeffConnaughton.com.
Why has President Obama so far avoided responsibility for one of the most notorious failures of his administration, deciding not to pursue potential Wall Street crimes? Because Obama’s negative ads – and Mitt Romney’s own foibles — have successfully defined Romney as the candidate for the 1 percent. A recent Esquire/Yahoo! News poll shows that 58 percent think Romney would pursue policies that favor the wealthy, while just 23 percent say the same about Obama.
In reality, the willful failure of the Obama administration to investigate Wall Street executives is the political issue that should most frighten the Obama campaign – and I have little doubt it was the prime motivation for the unusual timing of the filing yesterday of a case against JPMorgan/Bear Stearns by New York State Attorney General Eric Schneiderman. Ignoring potential criminal wrongdoing by his largest 2008 campaign donors discredits the Obama message across the board: He hasn’t always fought the 1% on behalf of the 99%, and he’s the main reason Wall Street plays by different rules than Main Street. If an already dispirited Obama base – those who by the millions originally sympathized with the anger that drove the Occupy Wall Street movement – were constantly reminded by the Romney campaign of this odious Obama failure, some of them might stay home in November. And it might be a tipping point for independents. A recent Labaton Sucharow survey found that 61% of Americans will significantly factor a candidate’s commitment to rooting out corporate wrongdoing in their voting decision in November.
Our political system desperately needs this debate. In February 2009, before a Senate committee, then deputy FBI Director John Pistole testified that the fraud in the financial crisis “dwarfs” that of the Savings & Loan crisis of the late 1980s, when hundreds of S&L executives were jugged. Yet the Obama Justice Department didn’t indict a single Wall Street executive.
Regardless, with a brazenness that is shocking to those who are paying attention, Attorney General Eric Holder, in a February 2012 speech at Columbia University, asserted that in the last two years the department had indicted more than 2,100 people for mortgage fraud and that the administration’s “record of success has been nothing less than historic.” Trumpeting prison sentences for small-fry mortgage brokers ignores the central question: Did the Justice Department make a timely, purposeful, and concerted effort to investigate Wall Street executives? The President essentially admitted that the answer is no, when he appointed Schneiderman to co-chair a second task force to investigate Wall Street mortgage fraud.
The truth is that the department’s response during the past four years has been passive, desultory, and decentralized, when it should’ve been aggressive, systematic and creative. Moreover, in a recent speech, Assistant Attorney General Lanny Breuer admitted the department sometimes decided not to indict Wall Street banks due to “the collateral consequences” to the bank, its innocent employees and the financial markets. Breuer praised the effect of the department’s use of non-prosecution agreements on bank compliance programs. Incredibly, instead of focusing on responsible individuals for further investigation and possible indictment, Breuer is giving speeches on how bank CEOs — with their lawyers “and economists” — should make “compelling” presentations to the department about how indicting the bank would have unfortunate consequences for “the health of an industry” and innocent employees, while promising to enhance internal compliance measures.
Why hasn’t the Romney campaign exploited this vulnerability? Predictably, Mitt Romney won’t turn to President Obama during tonight’s debate and say “Your administration failed to hold specific Wall Street executive accountable. If I’m elected president, my administration will prosecute the powerful when they break the law.” That’s because, when it comes to Wall Street, we don’t have a two-party system. We have an ongoing Wall Street contribution party.
Regardless, Romney should attack the Obama administration’s inaction against individual wrongdoing as unconscionable, a stain on the American justice system and a sell-out of Main Street for the interests of the privileged few. He should make Obama defend the timing of the Schneiderman announcement, as it has lead observers to suspect whether political motivations are now driving the president’s task force. Another round of civil charges against the major banks, this time lead by Schneiderman (which can be settled using shareholder money after Election Day), will not deter financial fraud. Even Romney’s Wall Street supporters should understand that by leaving culpable individuals unpunished, our financial markets have lost credibility. If Romney doesn’t remind voters and Wall Street of these facts, America will be worse off for it.