Behind the Veil at the EPA Beachhead
Along with Don Benton, State Senator Doug Ericksen appears to have no future with the Environmental Protection Agency—not in DC nor at its Seattle regional office.
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The great 2008 Financial Crisis was a catastrophe for many Americans and for ten of millions worldwide. Americans alone lost an estimated $4.2 trillion in home equity; fully 8.7 million Americans lost their jobs; and just in 2007 and 2008 over 3.6 million Americans lost their homes to foreclosure. Overall, middle-class households lost over 35% of their wealth between 2005 and 2011. And it was general - I don’t have to enumerate more because the great recession affected almost every American - and continues to do so as the rich continue to get richer and the poor poorer.
What caused this crisis? One factor was massive fraud by financial institutions, as in the earlier Savings and Loan crisis . Over One thousand felony convictions were meted out to S&L fraudsters during the Reagan Administration, which is commendable. How many fraudsters were prosecuted, let alone convicted, for their role in the 2008 collapse? One! How did this happen, or rather, not happen? It’s complex, but here is a very good example of regulatory failure at the highest level - the refusal of the DOJ’s New York Prosecuting Attorney, Preet Bharara, to act on clear and compelling evidence of fraud presented to him by Richard Bowen, a courageous whistleblower who lost his job in order to do the right thing. From the article by economist Bill Black:
Bowen held a senior position with Citigroup supervising a staff of several hundred professionals that conducted risk assessments on roughly $100 billion in annual mortgage purchases – a majority of which Citigroup resold to Fannie and Freddie or mortgage securitizers. Citigroup was exposed to enormous losses on these mortgages because the sellers had strong incentives to provide false “reps and warranties” to Citigroup and sell them fraudulently originated loans that were particularly likely to default and suffer larger losses upon default. Citigroup could only sell these fraudulently originated mortgages to others through making essentially the same fraudulent reps and warranties that it received from the original sellers. Bowen’s staff found originally that 60% of the loans it was buying had false reps and warranties. He warned his superiors about the problem, but they responded by weakening Citigroup’s already inadequate underwriting by buying pervasively fraudulent “liar’s” loans. Bowen put Citigroup’s senior management, including Robert Rubin, on written notice of the growing crisis and called for immediate intervention to stem the crisis. Citigroup’s senior management responded by removing Bowen’s staff and responsibilities. The incidence of fraud grew to 80 percent.
What did Bowen the whistleblower then do? He went to the authorities:
Bowen met with the SEC staff and five Assistant U.S. Attorneys (AUSAs) in four different districts (including Bharara’s) to provide them with the critical facts and documents. Each failed to prosecute the elite Wall Street officials who drove the three epidemics of fraud that drove the financial crisis. What is different is that because his [Bharara’s] office had jurisdiction over the elite frauds and the staff to conduct sophisticated investigations and prosecutions he could have drained the Wall Street swamp. Bharara simply had to take advantage of the courage and competence of whistleblowers like Bowen and Fleischman who brought him cases against the top managers of two of the world’s largest banks on a platinum platter. Bharara also could have taken advantage of the expertise and experience of regulators and prosecutors who worked together to produce over 1,000 felony convictions in “major” cases against financial executives and their co-conspirators in the savings and loan debacle. Bharara (and Lynch and their counterparts) failed to take either approach. Bharara knew how to drain the Wall Street swamp. He had the facts, the staff, and the jurisdiction to drain the Wall Street swamp. Bharara refused to do so.
It’s corrupt and scandalous but you wouldn’t know it from the NY Times, which published an homage to Mr. Bharara aka “a prosecutor who knew how to drain the swamp”. What they fail to mention is that despite knowing how to “drain the swamp”, he utterly failed to do so.