James Kidney was an attorney with the Securities and Exchange Commission who had been with the agency since 1986. He retired this month, but upon his leaving he remarked that the SEC was too “tentative and fearful” to bring Wall Street leaders to justice after the 2008 economic crisis.
“The SEC possesses an inherent responsibility to ensure that financial regulations are upheld and obeyed,” said Peter Mougey, securities attorney with Levin, Papantonio P.A. “Any amount of slack in regulation stands a good chance of being exploited by Wall Street bankers.”
The SEC has become “an agency that polices the broken windows on the street level and rarely goes to the penthouse floors,” said Kidney. “On the rare occasions when enforcement does go to the penthouse, good manners are paramount. Tough enforcement, risky enforcement, is subject to extensive negotiation and weakening.”
Kidney wanted to bring charges against top Wall Street executives during the 2010 case against Goldman Sachs. However, according to Kidney, higher-ups in the SEC cared more about promotions and increased pay salaries after leaving their government jobs. Kidney said the SEC’s penalties have become “at most a tollbooth on the bankster turnpike.” This statement is true because when banksters get popped for malfeasance, they pay a fine and continue about their business.
The SEC’s lack of pursuit has drawn harsh criticism from financial reform advocates, and rightfully so. Wall Street banksters are being given too much leeway for crimes that should be punishable with jail time and asset forfeiture.
The Goldman Sachs case was high-profile and the bank agreed to pay a $550 million settlement for misleading investors by packaging and selling collateralized debt obligations connected to subprime mortgages, but the punishments handed to similar banks were light-handed and these big fish were essentially thrown back into the pond.
JP Morgan paid a record $13 billion for a scam similar to that of Goldman Sachs, and, even then, no one was prosecuted or thrown in jail. Do these fines bother the big banks at all? Not in the slightest. JP Morgan will recoup most of that expense within two years, and, also, big banks create accounts specifically for fines and legal woes so any settlements won’t hurt their profits.
Sen. Elizabeth Warren (D-Mass.) has criticized the SEC for its spineless treatment of financial misbehavior. She wants the Wall Street CEOs thrown in jail for damaging the economy, crippling the housing market, and killing millions of jobs. The economy has improved, indeed, but only in the macro sense and that improvement is concentrated among the one percent. Everyone else has stagnated or gotten worse.
Everything has remained the same in the realm of financial-regulation enforcement since the 1980s, and until the SEC can grow a pair and actually drop the hammer on Wall Street banksters, it always will.
“They [SEC leaders] mouthed serious regard for the mission of the commission, but their actions were tentative and fearful in many instances,” said Kidney.