NYT’s William Cohan Blasts “Holder Doctrine” of Headfake Bank “Settlements” With No Prosecutions

Even though there is tacit acceptance, or perhaps more accurately, sullen resignation, about regulators’ failure to make serious investigations into financial firm misconduct (probes on specific issues don’t cut it), occasionally a pundit steps up to remind the public of the farce that passes for bank enforcement.

Today William Cohan tore into Attorney General Eric Holder, and by implication the Administration, for its raft of bank “settlements” which have come is a sudden spurt, no doubt intended to boost the Democrat’s flagging standing in the runup to the Congressional midterms. We’ve pointed out that the comparatively few commentators who have looked past the overhyped Department of Justice press releases into the details of the agreements have been appalled at the embarrassing lack of detail, meaning the almost total absence of any admission of wrongdoing. It’s critical to understand why this silence is important. It means that regulators have accepted as a condition of the settlement that they are to protect the bank from private suits by remaining as silent as possible about precisely what horrible things were done. The absurd part is that regulators and prosecutors could easily call the banks’ bluff by threatening to go a few rounds in court: “Would you rather have us start discovery and see what we can get in the record, or would you rather make some admissions right now?”

But of course, the dirty secret here is the Administration is not just protecting the banks. It now also needs to hide how cronyistic its behavior has been. As we wrote last month:

What is revealing here is that the Administration seems to think that the public buys this sort of enforcement theater. The public has lost interest in these deals. They know the banks got away with murder and pacts that are cost-of-doing business level fines don’t get their attention. They want to see managers and executives prosecuted, or at least pay hefty fines (enough to inflict financial pain) and they’d like to see the bad acts exposed too. Of course, the reason this can never be allowed to happen is that that course of action would facilitate private litigation, and that might lead to uncontrolled outcomes, like exposure of really bad conduct (embarrassing the Administration for not going after it themselves) and hefty damages.

Cohan in his article focuses on the deep internalization by Holder and the DoJ generally of the “protect the banks” mentality, which he calls the “Holder Doctrine”. That mindset was also reflected in a widely-criticized interview of assistant attorney general Lanny Breuer by Frontline, in which he stated that he lay awake some nights worrying about whether pending investigations might hurt financial firms. From his article:

That Mr. Holder prefers large settlements to prosecutions is no surprise to anyone familiar with the so-called Holder Doctrine, which stems from his now-famous June 1999 memorandum — when he was deputy attorney general — that included the thought that big financial settlements may be preferable to criminal convictions because a criminal conviction often carries severe unintended consequences, like loss of jobs and the inability to continue as a going concern. (See Andersen, Arthur, for instance.)

That Mr. Holder, as attorney general, is following through on an idea that he proposed as a subordinate 15 years ago does not make his behavior any less infuriating. The fact is that by settling with the big Wall Street banks for billions of dollars — money that comes out of their shareholders’ pockets — Mr. Holder is allowing them to avoid the sunshine that Louis Brandeis wrote 100 years ago was the best disinfectant. Instead of shining the bright light on wrongdoing that took place at the Wall Street banks, Mr. Holder’s settlements allow them to cover it up permanently.

And that helps no one. The American people are deprived of knowing precisely how bad things got inside these banks in the years leading up to the financial crisis, and the banks, knowing they will be saved the humiliation caused by the public airing of a trove of emails and documents, will no doubt soon be repeating their callous and indifferent behavior.

Instead of the truth, we get from the Justice Department a heavily negotiated and sanitized “statement of facts” about what supposedly went wrong. In the case of JPMorgan, the statement of facts was 21 pages but contained little of substance beyond the fact that an unidentified whistle-blower at the bank tried to alert her superiors to her belief that shoddy mortgages were being packaged and sold as securities. Her warnings went unheeded and the mortgages were packaged and sold all the same.

As solid as Cohan’s piece is, let’s highlight some offensive features of Administration enforcement theater that he could have hit harder. One was the shift, starting with the “no admission, so what was Citi paying for” $4.5 billion in cash mortgage settlement by Citigroup, which of course was presented as a much bigger number ($7 billion), since the convention is to let the banks throw in all sorts of stuff they intended to do anyhow and pretend they had to have those big bad meanie regulators force them to take profitable actions. The reason this is even more putrid than past settlements is that regulators used to want to get the extra headlines and cheap brownie points of regulatory injunctions (promises to shape up, which in fact are rarely enforced) which requires court approval. After Judge Jed Rakoff had the temerity to give these pacts real scrutiny, rather than just rubber stamping them, the officialdom appears to have decided to go the path of least resistance and just cut deals with the miscreants directly.

And in the headlined “$13 billion” JP Morgan settlement (actually roughly $9 billion in cash), Cohan attributes the large amount to a criminal case the DoJ was threatening to file, the details of which remain secret as a result of the deal. In fact, this settle consisted of a bundle of pending actions all heaped together to increase the total amount and thus make it sound more impressive. The biggest single item was in fact not the DoJ action, but a FHFA suit on mortgage putbacks launched by Ed DeMarco. Readers of this site may recall that the Administration demonized him for well over a year before finally replacing him with Mel Watt. So it was perverse to see the Administration take a victory lap for a settlement where their Mortgage Enemy No. 1 deserved a good bit of credit.

So Cohan has provided an important service in trying to penetrate the official echo chamber and remind the powers that be that the public has not been fooled by these settlements. Unfortunately, Washington DC looks more and more like Versailles circa 1788, and our elites ,like the Bourbons, seem incapable of learning anything.

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  1. Paul

    Aiding and abetting a continuing criminal enterprise has gotten AG’s and their associates in trouble before. John Mitchell and Richard Nixon et al of most recent note. No wonder Cass Sunstein argues that prosecuting public officials risks a cycle of criminalizing public service.

  2. Worker-Owner

    I get that he did us a service. I wonder why he and the Grey Lady just had a epiphany all these many years later? Any guesses on what the subtext is?

    1. Vatch

      Perhaps the statute of limitations has expired for some of the crimes that caused the Great Financial Collapse. If there is less risk that Important People will be sent to prison, it becomes socially acceptable to demand criminal penalties.

  3. Christopher Dale Rogers


    Funny that Cohan only opens his mouth now, nearly seven years after the fact and strangely the Federal governments Statute of Limitations on prosecutions, most of which in relation to the GRC occurred prior to the crisis itself in September 2008.

    Had Cohan perhaps read this and numerous other sites, he may have been all but aware that the much trumpeted settlements were a farce and constituted a “get-out-of-jail” card for years of criminality by the financial ruling elite.

    Consider this juxtaposition for a moment, what would have been the outcome if someone like Lawsky or William Black were at the commanding heights, Black in particular being a pro-jail advocate as a means of mitigating against criminality within all corporations, not just those concerned with finance. The message under Holder and Obama has been clear, the looting and criminality continues apace and has indeed been strengthened by SCOTUS.

    So Cohan is just espousing hot air, hot air 6 years too late, which means little for all of us who have been economic victims of the GFC.

    1. Vatch

      After I replied to Worker-Owner, I see that you preceded me with a comment about the expiration of statute of limitations for crimes that caused the Collapse. Fortunately, not all crimes have the same limitation. I’m not a lawyer, but I think that some white collar crimes have 10 year limits. So there’s still a tiny bit of hope that justice will be served.

      1. Doug Terpstra

        Another sliver of silver lining (?): you can place a huge derivative bet that they’re still committing those same crimes and new ones (subprime auto), so the prosecution clock resets daily. Scorpions just can’t help themselves, and in due time we’ll have regulators and prosecutors with very heavy boots.

    2. Fool

      I agree: Cohan’s such a tool. There’s a lot of bankster-this-bankster-that punditry out there, but with nothing really new to say; throw in some palpable self-confidence and a more polished pen and this would describe a Cohan op-ed in a nutshell. Does the Dealbook piece — or any Dealbook piece for that matter — say anything that a typical Wall Street professional would disagree with? (Indeed, hardcover-edition Cohans line the mahogany bookshelves of Park Avenue living rooms).

      What’s infuriating is that his background would suggest far more informative, groundbreaking content; but all we get instead, as you mentioned, is hot air. I swear, if the right sleazeball was creative enough he would have invented a William Cohan.

  4. Jim Haygood

    All you need to know about Eric Holder is that in 2001 he signed off (as then-deputy AG) on the infamous Marc Rich pardon. Holder was rewarded by Obama with the AG slot, while the Clintons got $450,000 for their library from the Riches. Think like a criminal.

  5. Walt Guthrie

    Mr. Cohen writes, “. . . the banks . . . will no doubt soon be repeating their callous and indifferent behavior.”

    I had thought that banks were criminal, and guilty of theft. It is comforting to know that they were merely “callous and indifferent.”

    1. Yves Smith Post author

      Since they haven’t been prosecuted, or even indicted, he’d be way over his skis saying that. That is the rather deliberate circular position that authorities have created by not going after this conduct. The facts have been exposed only on certain types of abusive conduct. But the fact that no one has gone after things like foreclosing on homes that didn’t even have mortgages on them shows the level of elite corruption.

  6. cnchal

    The President of the United States has said that no crimes were committed in the time period leading up to the GFC. That was leadership in action, and the underlings are taking their leader’s word as gospel. Just following orders.

    Mr. Holder is allowing them to avoid the sunshine that Louis Brandeis wrote 100 years ago was the best disinfectant. Instead of shining the bright light on wrongdoing that took place at the Wall Street banks, Mr. Holder’s settlements allow them to cover it up permanently.

    And that helps no one.

    Mr Holder is doing the job he was assigned with brilliance. and as far as helping no one, he has helped the criminals. Aren’t they a big somebody?

    The people have to adjust their thinking. What words mean and really mean are open to interpretation. Like capitalism and socialism, where everyone seems confused. There should be no confusion about the definition of Attorney General any more, and it is “accessory to the crime”, and the actions of the Attorney General are “obstruction of justice”.

    1. RUKidding

      Quite a number of Judges have told us proles that the very wealthy simply do not LIKE jail, so, therefore, all things being very unequal, it is customary to simply not Jail the wealthy, no matter what they do. Judges truly have pretty much stated this, perhaps not in re to Wall St or the Banks or the Hedge funds. But there are some notable cases where the wealthy have engaged in clear criminal activities, but the poor dears simply cannot abide by a Jail term. So: case closed. Go home and continue to SIN with impunity. You have a Get Out of Jail Pass for Life!

  7. impermanence

    When a system becomes as corrupt as this one, nobody does/cares much because they are culpable, as well. This is why you see the entire professional class sitting on their hands, only concerned that they will be able to hang on to the financial scraps they have picked out of the dumpster in the back alley.

  8. Chauncey Gardiner

    Yves, thank you for highlighting this and thereby not allowing them to consign their massive crimes to the Memory Hole, which is clearly one of the primary objectives besides that of avoiding criminal prosecution.


    Hopefully the regulators’ findings, and those of the Department of Justice and FBI, are being retained in the National Archives.

  9. Anthony Alfidi

    The financial capture of the regulatory structure prevents justice. Fines are a normal cost of doing business. Banks will continue their wrongdoing until a non-captive political regime brings them to heel.

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