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Why didn't Eric Holder do more to prosecute big banks?

Holder's DOJ talked a big game on banks ... but not a lot more.
Holder's DOJ talked a big game on banks ... but not a lot more.

If you only casually follow news from the financial sector, you could be forgiven for thinking the Eric Holder-era Department of Justice has cracked down on the banks that helped create the financial crisis. The DOJ has repeatedly spoken of its commitment to holding banks accountable. The White House has, as well: in his 2012 State of the Union address, President Obama announced a renewed push toward prosecuting mortgage fraud. And the DOJ has made headlines with a list of settlements with Wall Street (including the record-setting $17 billion agreement with Bank of America).

But when it comes to exacting punishment from the banks that helped cause the crisis, the real legacy of the Holder DOJ may be its lack of big actions against big banks.

The most damning evidence of this may be a March 2014 report from the DOJ Inspector General. In that report, which dug into the department's efforts against mortgage fraud from 2009 to 2011, the IG found a pattern of big talk on mortgage fraud, with little action to back it up.

"DOJ did not uniformly ensure that mortgage fraud was prioritized at a level commensurate with its public statements," the IG wrote. "For example, the Federal Bureau of Investigation (FBI) Criminal Investigative Division ranked mortgage fraud as the lowest ranked criminal threat in its lowest crime category."

Indeed, at one point, the DOJ's financial fraud task force gave statistics about its work that turned out to be wildly incorrect.

On October 9, 2012, the [Financial Fraud Enforcement Task Force] held a press conference to publicize the results of the initiative. During this press conference, the Attorney General announced that the initiative resulted in 530 criminal defendants being charged, including 172 executives, in 285 criminal indictments or informations filed in federal courts throughout the United States during the previous 12 months. The Attorney General also announced that 110 federal civil cases were filed against over 150 defendants for losses totaling at least $37 million, and involving more than 15,000 victims. According to statements made at the press conference, these cases involved more than 73,000 homeowner victims and total losses estimated at more than $1 billion.

As it turns out, the record wasn't so stellar. The Inspector General found that the DOJ had misstated the statistics, and by a wide margin:

[T]he number of criminal defendants charged as part of the initiative was 107, not 530 as originally reported; and the total estimated losses associated with true Distressed Homeowners cases were $95 million, 91 percent less than the $1 billion reported at the October 2012 press conference.

Furthermore, the DOJ took a year to correct its mistake.

When it comes to charges that the government hasn't done enough to punish banks, the Holder DOJ has given its critics an arsenal of ammunition to prove the department has had a scattershot record on holding banks accountable. Holder at one point said the size of banks was "an inhibiting factor" in prosecuting them, but later insisted no banks were "too big to jail," as the New Republic's Jeff Connaughton wroteMatt Taibbi has declared the Bush administration tougher on finance than the Obama White House — citing some prosecutions in the wake of the Enron accounting scandal. Experts on the banking industry have also said that the punishments levied on big banks have been too slow in coming to really deter the sorts of risky practices that led up to the financial crisis, as I wrote last month. And the government has failed to prosecute the top executives involved in the crisis.

There are all sorts of reasons why the department might have been timid — going up against banks' well-funded legal defense teams would be tough, particularly when trying to prove wrongdoing to a jury in the byzantine world of finance, says James Angel, associate professor at the Georgetown University McDonough School of Business. In an article in the July/August edition of Politico Magazine, Glenn Thrush writes that a test criminal case against bankers ended in an acquittal, which scared Holder away from actual prosecution against individual bankers.

In addition, the Justice Department simply had a lot of other things on its plate in the last few years: terrorism and voting rights, for example. But if the Obama DOJ simply doesn't have the manpower to handle all of the problems thrown at it, that may signal that it's time for a new structure, says one expert.

"Now, one can argue that going after terrorists, drug dealers, narco lords, and child pornographers is a higher priority, and I agree with that, but at least say so," says Angel. "What this whole mess points out is that we need a separate law enforcement agency that won't get distracted by other seemingly more important things."

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