After years of lengthy investigations into collateralized debt obligations (CDO), the “toxic” mortgages that brought about our financial crisis, the Securities Exchange Commission (SEC) has brought civil actions against only two small-time bankers. No major investment banker has been brought up on criminal charges stemming from the financial crisis.
Occupy Wall Street has brought attention to this farce. There is a revolving door between the SEC and the major investment firms. Players swap jobs regularly. S.E.C. employment boosts one’s resume.
The S.E.C. has trouble prosecuting its past and future employers. The CDO’s were purely investment scams to enrich the Wall Street bankers.
As ProPublic reporter Jesse Eisinger explains:
These bankers brought in savvy (and cynical) investors to buy pieces of the deals that they could not sell. These investors bet against the deals. Worse, they skewed the deals by exercising influence over what securities went into the C.D.O.’s, and they pushed for the worst possible stuff to be included.
The investment banks did not disclose any of this to the investors on the other side of the deals, or if they did, they slipped a vague, legalistic disclosure sentence into the middle of hundreds of pages of dense documentation. In the case brought last week, Citigroup was selling the deal, called Class V Funding III, while its own traders were filling it up with garbage and betting against it.
By the S.E.C.’s own investigations of and settlements with Goldman Sachs, JPMorgan Chase and Citigroup, and by reporting like my ProPublica work with Jake Bernstein and early stories by The Wall Street Journal, we know that these breaches were anything but isolated. This was the Wall Street business model. (Goldman, JPMorgan and Citigroup were all able to settle without admitting or denying anything, which, of course, is part of the problem.)
People ask what change should the Occupy movement look for. Prosecuting those who profited from the CDOs and later got bailed out by the federal government would be a good start.