In bailouts, the death of sovereign nations.
By John Titus, Creator of Bailout.
Article is the first of two parts.
Obama and the Criminal International Banking Cartel
In Bailout, we showed over and over how criminal frauds perpetrated by huge banks victimized Main Street on a colossal scale. One theme throughout the movie is that bailouts are, in their essence, a perversion of the Rule of Law that can only grow like a cancer.
It now appears that the bailout cancer has metastasized with the renunciation of the Rule of Law by the United States Attorney General, without objection or much of a ruckus, before the Senate Judiciary Committee:
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. – Eric Holder, March 6, 2013.
As an initial observation, is that not a strange way for any law enforcer, much less the top cop in the world's powerful nation, to speak—in the passive voice, of being “hit,” in an effort to rationalize his own failure to enforce the law? And who’s issuing “indications” that make the head of the DOJ shrink in fear of discharging his duties anyhow? We’ll answer the latter question with a list of names in Part Two.
For now, let’s be clear about what’s on the table when the U.S. Attorney General comes before Congress to testify: it includes the status of the U.S. as a sovereign nation. And that’s simply because the enforcement of criminal law falls within the exclusive province of a state’s authority.
“Sovereignty is the power of a state to govern itself, such as making, executing, and applying laws; imposing and collecting taxes; making war and peace; and forming treaties or engaging in commerce with foreign nations.”
Private citizens cannot bring criminal actions. States bring them, often even when private victims do not wish to press charges, as retribution for harms to the public. That perogative is inherent in a state's sovereign power to protect itself from criminals. In the U.S., executing federal criminal law is the duty of the U.S. Attorney General, “the head of the Department of Justice and chief law enforcement officer of the Federal Government.” Above him in the executive branch org chart, there is but one entry: President Barack Obama.
Execution of the law was squarely in the crosshairs when Eric Holder testified before the Senate. Specifically at issue was the DOJ’s wholesale failure to prosecute any large banks or any of their executives despite seemingly endless waves of uncontested evidence of criminal behavior (not to mention the disappearance of at least $13 trillion in a financial crisis driven by fraud).
We’re not talking about a few slip-ups here and there by the DOJ, or a couple of favors done with a nudge and a wink. We’re talking about what looks very much like a green light for big banks to commit crimes with wild abandon while pretending that fines levied in lieu of prosecution (a) are something other than a small tax paid by the banks doing business as criminal enterprises, (b) cannot simply be paid for from the fruit of additional crimes in the future, and thus (c) do not guarantee more crime.
Eric Holder did not materialize before the Senate out of the blue. Rather, his testimony followed an unbroken pattern of prosecutorial inaction and deference by the DOJ towards big bailed out banks, a sample of which includes:
- In April 2010, Richard Bowen, a former Citigroup risk officer, told the Financial Crisis Inquiry Commission, among other things, that Citi sold MBS products despite knowing—based on information that Bowen provided to the top ranks of the company, including ex-CEO Robert Rubin—that huge swaths of mortgages owned by Citi were defective to the tune of between 60 and 80%. Citi continued its multi-billion-dollar sales of defective MBS products that it knew to be falsely rated. The DOJ filed no criminal referrals and prosecuted no one at Citigroup.
- In June 2010, it emerged that Wells Fargo (nee: Wachovia) “had made a habit of helping move money for Mexican drug smugglers. Wells Fargo & Co., which bought Wachovia in 2008, has admitted in court that its unit failed to monitor and report suspected money laundering by narcotics traffickers -- including the cash used to buy four planes that shipped a total of 22 tons of cocaine.” The DOJ filed no criminal referrals and prosecuted no one at either Wells Fargo or Wachovia.
- In September 2012, Lanny Breuer, then the head of criminal enforcement at the DOJ, traveled from Washington, D.C. to give a speech to the New York City Bar Association. Breuer's house call to the corporate defense bar included statements that he would “not always” be convinced not to prosecute large institutions that made “compelling presentations” to Breuer, in “his conference room,” concerning the negative economic ramifications of such prosecutions.
- In December 2012, Lanny Breuer admitted that HSBC “permit[ted] narcotics traffickers and others to launder hundreds of millions of dollars through HSBC subsidiaries and to facilitate hundreds of millions more in transactions with sanctioned countries." What is more, “senior bank officials were complicit in the illegal activity" and indeed one HSBC executive “argued that the bank should continue working with the Saudi Al Rajhi bank, which has supported Al Qaeda." The DOJ filed no criminal referrals and prosecuted no one at HSBC—despite the fact that “most of HSBC's senior management has been replaced since the conduct at issue, which stretched from the mid-1990s to 2010.”
- On January 22, 2013, Lanny Breuer appeared in PBS Frontline’s “The Untouchables,” which investigated fraudulent mortgages originated and sold by Bank of America (nee: Countrywide). Breuer stated that for large financial institutions, “pursuing justice… in any given case” meant that he “should speak to experts, because if I bring a case against institution A, and as a result of bringing that case, there’s some huge economic effect — if it creates a ripple effect so that suddenly, counterparties and other financial institutions or other companies that had nothing to do with this are affected badly — it’s a factor we need to know and understand.”
As a result of the latter, “[l]ess than 24 hours after 'The Untouchables' aired on PBS, its main target, Justice Department criminal-division head Lanny Breuer, abruptly resigned.”
Breuer’s disclosure—made with no hint of irony or shame, nor with any legal authority for support—that the DOJ was deferring to unnamed experts whenever large financial institutions were involved was not the only such admission by the Justice Department.
In yet another criminal case that saw no prosecutions, namely, Libor manipulation by UBS, a Swiss Bank, Eric Holder used language essentially identical to that which led to Breuer’s resignation: “We reach out to experts outside of the Justice Department to talk about what are the consequences of actions that we might take, what would be the impact of those actions if we want to make particular prosecutive decisions or determinations with regard to a particular institution.”
Finally, on January 29 of this year, Congress seemed to connect this untrammeled crime spree with the DOJ's docility when Senators Sherrod Brown (D-OH) and Charles Grassley (R-IA, the ranking member of the Judiciary Committee) fired off a letter to Eric Holder. Among other things, they demanded “the names of all outside experts consulted by the Justice Department in making prosecutorial decisions regarding financial institutions with over $1 billion in assets.” They also demanded to know how the “DOJ ensure[d] that these experts provided unconflicted and unbiased advice to DOJ.”
The importance of the latter point is impossible to overstate given the DOJ's responsibility for bringing criminal cases at the federal level. By demanding to know what measures the Justice Department was taking to insure against self-dealing by experts, the senators touch on something far deeper than a garden variety conflict of interest.
The real question they are posing is whether the DOJ’s “outside experts” are in reality the large financial institutions themselves, because if they are, their “opinion” that prosecution should be foregone—which the DOJ has followed without exception—is a bald assertion of sovereign immunity: huge banks are claiming their own exemption from criminal prosecution based on their identities as huge banks, and Eric Holder's DOJ has never disagreed.
And here we run up against that word again: sovereign.
Before considering the IMPLICATIONS should it turn out that the international cartel of bailed out banks is exempting itself from the reach of the law by "advising" the DOJ on prosecutions of its members, it is worth examining the claim, articulated by Holder, that "negative economic consequences" would attend the criminal prosecution of any cartel members.
In different contexts and guises, we have heard that claim of "systemic failure" before, and its public failure on the merits is so impressively robust that to see the DOJ so much as entertain the discredited claim at this point--much less fall for it hook, line, and sinker--is so breathtaking that it begs the question: what's really behind the DOJ's capitulation to the banks?
(1) In September 2008, Treasury Secretary Henry Paulson told Congress that the nation would descend into martial law unless TARP was passed. Paulson's urgency was driven by toxic assets on the banks' books. Unless $700 billion of these toxic assets were removed immediately through a massive Treasury purchase, Paulson said, Armageddon would quickly follow.
Immediately after Congress passed TARP, however, Paulson changed his mind without batting an eye and used the $700 billion to directly recapitalize the bailed out banking cartel, toxic assets be damned. Whether Paulson intentionally deceived the public when he made his initial claim is beside the point. What matters is that his threat--buy the toxic assets or plunge into Depression--proved toothless as a matter of fact: none of the TARP money was used to purchase toxic assets, and yet the country avoided the cliff dive Paulson had sworn would result.
Did Eric Holder simply sleep through this episode?
(2) Less than a year later, the cartel floated a miniature version of its Armageddon claim in federal district court.
In Bloomberg v. the Federal Reserve Board of Governors, the Federal Reserve argued that disclosing, in response to FOIA requests, the names of (and amounts borrowed by) bailed out banks using the Fed’s Primary Dealer Credit Facility (PDCF) would result in “competitive harm” to the institutions involved. In support, the Fed submitted a rash of expert affidavits from bankers explaining how competitive harm would come to the banks that used the Fed's PDCF facility if the FOIA disclosures were made.
The Chief Judge of the Federal District Court for the Southern District of New York, Loretta Preska, dismissed the bankers' argument:
At best, the proffered affidavits suggest that the borrowers' competitors may use the knowledge that a borrower participated in a Federal Reserve lending program in order to determine when the borrower is “in a weakened condition" and spread that information to the borrowers' shareholders or the market in general. But the risk of looking weak to competitors and shareholders is an inherent risk of market participation; information tending to increase that risk does not make the information privileged or confidential under Exemption 4.
In other words, tough shit: bankers must cope with the real world just like the rest of us no matter how big or important they think they are. Know what happened next? The FOIA disclosures went forward without so much as a ripple in the financial markets.
More fundamentally, though, if the cartel's narrow argument that mere competitive harm would afflict a group of banks is legally flawed, then its far broader claim that Armageddon would befall the earth if a single bank (or banker, for that matter) were prosecuted is dead on arrival as a matter of law.
So why does Eric Holder accept the absurdly overbroad claim at face value as a legal proposition each and every time it is made?
(3) From 2008-11, Neil Barofsky was the Special Inspector General of the Troubled Asset Relief Program (SIGTARP), in charge of ensuring that TARP funds were distributed to the bailed out banks with a minimum of fraud. He wrote about his day-to-day battles with banking apologists, including Treasury Secretary Tim Geithner, in Bailout, published last year. At the end of the book, Barofsky relays a stunning admission by Geithner: the claim that an insitution is "systemic" is in all actuality a conclusory label rather than a meaningful analytical tool for assessing what might happen in the future. Says Geithner: “You won’t be able to make a judgment about what’s systemic and what’s not until you know the nature of the shock.” (See p. 222)
If Tim "Bailouter-in-Chief" Geithner, a man with no formal education in either law or economics, is able to see that claims of systemic importance are intellectually bankrupt, why can't the U.S. Attorney General?
This brings up another clue about who the anonymous DOJ experts are through the process of elimination: they aren't from the U.S. Treasury, which we know from the Senate Banking Committee hearing in February 2013. There we learned that “Treasury told the Department of Justice it was not in a position to assess whether HSBC should be prosecuted.”
If the DOJ's anonymous experts turn out to be the international cartel of bailed out banks, the implications are grave for at least three reasons.
First, the entire legal doctrine of sovereign immunity is very likely unconstitutional in the first place, premised as it is on the notion that "the King can do no wrong." Duke Law Professor Erwin Chemerinsky, the author of a leading treatise on constitutional law, makes this very point when he demonstrates, in his Stanford Law Review article “Against Sovereign Immunity,” that “sovereign immunity is inconsistent with three fundamental constitutional principles: the supremacy of the Constitution and federal laws; the accountability of government; and due process of law.” (p. 1210).
Second, the doctrine of systemic importance, even aside from being thoroughly meritless for the reasons explained above, is impossibly vague in scope. That became clear in the HSBC case. There, the bank had "already sacked all the senior staff involved in the scandal, and agreed to stringent monitoring – the first time a foreign bank has agreed to such oversight." Thus, even fully crediting the theory that prosecuting HSBC would have posed systemic risk, that same theory does not and cannot explain why prosecuting criminals outside of the bank would have posed any risk at all, much less "systemic" risk. Lanny Breuer must have been grateful for the mainstream media's failure to ask him why systemic immunity extends to ex-employees outside the system, or where such immunity ends.
It sure looks as if the international bailed out banking cartel claims immunity for individual bankers based on a calculation that extends protection to anyone in a position to name names. Whatever the case, it is the whim of a cartel, and not any Rule of Law, that determines who is prosecuted and who isn't--a system that democracies have sought to avoid since the Magna Carta was signed 800 years ago. How's that for regressive?
Third, and most seriously, criminal sovereign immunity is legally limited to the President of the United States. That should tell you something about where the international cartel of bailed out banks stands if it turns out to be the entity asserting governmental immunity from the consquences of its own crimes.
While sovereign immunity is considered a civil law doctrine, that's merely a practical reality rather than a legal limitation. Criminal cases are brought in the names of sovereign authorities themselves, either by the United States or by individual states, and sovereign immunity is a doctrine asserted as a defense. A case in which a sovereign asserted a sovereign immunity defense in response to criminal charges brought by a sovereign would be a rarity indeed.
Nevertheless, there is legal authority that directly addresses the scope of criminal sovereign immunity. The issue arose and was addressed during Watergate: “the Office of Legal Counsel ('OLC') prepared a comprehensive memorandum in the fall of 1973 that analyzed whether all federal civil officers are immune from indictment or criminal prosecution while in office, and, if not, whether the President and Vice President in particular are immune from indictment or criminal prosecution while in office.”
Criminal immunity was found to extend only to the President: “The OLC memorandum concluded that all federal civil officers except the President are subject to indictment and criminal prosecution while still in office; the President is uniquely immune from such process.”
That same year, in a different case (the grand jury investigation of Vice President Spiro Agnew), Robert Bork, then the Solicitor General of the U.S., reached precisely the same conclusion as the OLC: “the President, unlike the Vice President, could not constitutionally be subject to such criminal process while in office."
That ought to make the dead seriousness of criminal immunity for the cartel of bailed out banks crystal clear. If these financial institutions and the anonymous experts relied on by the DOJ are one and the same, then they have arrogated to themselves sovereign legal power that's available under the law to the Chief Executive of the United States and no one else. As things stand now, people who've been fired from a bank in Hong Kong are on the same legal footing as the President of the United States.
But let's get down to brass tacks. Since there can't be two kings in a kingdom, it’s the international criminal banking cartel—not President Obama—who’s the real sovereign authority here. Obama's top law enforcer, Eric Holder, admits--fully in practice and nearly so in his own words--to being trumped. Obama's announcement that bailed out banks have not committed any crimes, in the face of overwhelming and undisputed evidence to the contrary, quite accurately summarizes the system of sovereign immunity that is in effect: the real King--banks--can do no wrong. The President is merely their messenger.
In Part Two, we’ll present compelling evidence that the anonymous “experts” are indeed the so-called systemically important financial institutions, and that the U.S. government is functioning not only as the agent of the criminal banking enterprise, but as its weapon.
If that sounds like a control fraud after a few hundred steroid-and-bromo-mescaline cocktails, you've got an inkling of what's headed our way if we don't right the ship forthwith.
Author John Titus has litigated patents in federal courts for nearly 20 years.
Previously from John Titus:
Image by William Banzai7