Individuals Causing the 2008 Housing Crisis Receive No More Than a Slap on the Wrist

Following the 2008 housing crisis, several of the banks involved paid large settlement fines. JPMorgan Chase was one of those banks. The Justice Department used evidence from an anonymous whistleblower in the prosecution, but until recently the whistleblower remained anonymous. Matt Taibbi recently released an article in Rolling Stone describing why the whistleblower, Alayne Fleischmann, has gone public with what she knows. Ironically, the Justice Department wasn’t committed to bringing “justice” to those individuals who contributed to the fall of the economy through fraudulent activities. In fact, Attorney General Eric Holder said the following:

“I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy, and I think that is a function of the fact that some of these institutions have become too large.”

What is the Justice Department doing if they aren’t bringing justice to those responsible for major crimes? When Fleischmann realized that much of what she reported to the SEC and the Justice Department was not being fully pursued, she decided she had to go public with what she knew.

Penalties of Fraud

Fraud perpetrators can be especially difficult to prosecute. As a result, many fraudsters lose their jobs, but face little or no other repercussions. The fraudsters then get a job at a new company that usually has no idea that their new employee has been involved in suspicious behavior. The individual defrauds this new employer, gets fired and the cycle continues. Eventually the fraudster gets caught doing something that produces enough evidence to prosecute the individual. Many times, fraud prosecutions dig up a history of fraudulent behavior at several previous employers. By keeping the penalties for fraudulent acts fairly low, we encourage future frauds.

Because of this, I get concerned when I read the following (via LAT):

Los Angeles County’s top prosecutor has warned that a budget proposal by Gov. Arnold Schwarzenegger would so weaken court sentencing guidelines that if a swindler such as Bernard Madoff were to be brought to justice in California he would not face state prison time.