Who decided U.S. megabanks are too big to jail?

Tom Hanks has a knack for playing the roles that define American generations. In “Saving Private Ryan,” he embodied the courage of the men who landed on the Normandy beaches under heavy fire. In “Apollo 13,” he conveyed calm and ingenuity under intense pressure: “Houston, we have a problem.” And Forrest Gump revealed much about America before, during and after the Vietnam War.
If Hanks turns his attention to our most recent decade, which character should he choose? My suggestion is Assistant Attorney General Lanny Breuer, the head of the criminal division at the Justice Department and the man responsible for determining whether anyone should be prosecuted for the financial crisis of 2008.
In an on-camera interview, which aired recently, Breuer stated plainly that some financial institutions are too large and too complex to be held accountable before the law. Bipartisan pressure is now being applied on the Justice Department to reveal exactly how this determination was made. Breuer, however, has announced he will leave government March 1.
Breuer made the comments for a documentary aired by the PBS program “Frontline.” The investigative report, titled “The Untouchables,” asked why no senior Wall Street executive has been prosecuted for apparently well-documented illegal acts, such as authorizing document forging, misleading investors and obstructing justice. Breuer was shockingly candid.
“Well, I think I am pursuing justice,” he said. “I think I and prosecutors around the country, being responsible, should speak to regulators, 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.”
Attorney General Eric Holder expressed similar views in the context of discussing why more severe charges weren’t brought against Zurich-based UBS AG last year for manipulating the London interbank offered rate. And Neil Barofsky, a onetime senior prosecutor and former inspector general of the Troubled Asset Relief Program that administered the bank bailouts, provided a scathing assessment of Justice Department policy. Last week, Sens. Sherrod Brown, an Ohio Democrat who serves on the Banking Committee, and Charles Grassley of Iowa, the ranking Republican on the Judiciary Committee, wrote to Holder, seeking more details about this policy.
David Cohen, Treasury’s undersecretary for terrorism and financial intelligence, told the New York Times: “We did not believe we were in a position to offer any meaningful assessment. The decision of how the Justice Department exercises its prosecutorial discretion is solely theirs and Treasury had no role.” And it would seem that then-Treasury Secretary Timothy Geithner didn’t meet with Holder on this issue.
Treasury is possibly being economical with the truth – and Cohen should testify to the details under oath. And if Justice isn’t talking to Treasury, who are the “experts” involved? It’s safe to assume that it isn’t the Financial Stability Oversight Council, the panel of financial regulators created by the Dodd-Frank Act, because the chairman of that body is the Treasury secretary.
Is there a written list of too-big-to-jail banks, or is that status conferred on the fly? Are there objective criteria that could be reviewed by the Government Accountability Office or another responsible government body?
America’s past was dramatic and not always glorious. Our present is sordid. Financial shenanigans damaged the economy, and now a handful of powerful executives and their companies have received get-out-of-jail-free cards.
Very big banks should be broken up immediately. That won’t happen. For his next movie, Hanks should focus on the ruin of democracy – aided and abetted by the Justice Department. •


Simon Johnson is a professor at the MIT Sloan School of Management as well as a senior fellow at the Peterson Institute for International Economics. Distributed by Bloomberg View.

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