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Too Big To Fail Should Never Mean Too Big to Jail

Last updated on March 27th, 2013 at 11:43 am

America is a nation of laws, and allegedly follows the rule of law implying that every citizen is subject to the law in contrast to the idea that the powerful and wealthy are above the law by divine right. However, the law is hardly applied without distinction in this country evidenced by the disproportionate number of African Americans in the penal system, or the curiously small number of wealthy bankers and powerful financial leaders imprisoned for crashing the world’s economy during the financial meltdown of 2008. There is a glimmer of hope that justice does catch up to the powerful financial institutions, but just like the concept that financial institutions are too big to fail, the people behind private equity firms, investment banks, and Wall Street institutions are too big to jail.

Over the past couple of months, large financial institutions have begun being held accountable for malfeasance that cheated investors and earned billions of dollars in the process, but aside from paying fines in plea bargains and possibly compensating bilked investors, it is impossible to jail a bank or corporation. One of the financial giants on  Wall Street, Goldman Sachs, is facing monetary damages in a lawsuit involving eToys and Bain Capital, and they suffered a setback when the U.S. Supreme Court upheld a decision forcing it to face charges it misled investors regarding mortgage securities that lost value in the 2008 financial crisis.

The eToys case involves Goldman Sachs undervaluing IPO shares and then spinning off shares to preferred clients. GS deliberately set an artificially low price of $20 a share so institutional investors could reap a fortune on the first day’s run-up when the stocks ended the day at $77, and then demanded the easy profits be kicked back to Goldman Sachs in the form of commissions. eToys received about $17 a share from Goldman that raised $164 million in one day. According to the lawsuit, the Goldman Sachs executive heading the underwriting team knew the market demand and made a bet with colleagues the price would reach $80 a share at the opening. The creditors suing Goldman Sachs asked an important question; who was Goldman Sachs working for during the IPO rigging in 1999? Readers of this column may recall Willard Romney’s firm, Bain Capital, ended up with eToys for next to nothing, and the company mysteriously failed and went through bankruptcy because the profits from the IPO never made it to eToys. The good news is that the lawsuit is still on going, but despite the outcome, no-one will go to jail.

In September 2012, the 2nd U.S. Circuit Court allowed a group of investors that owned mortgage-backed certificates underwritten by Goldman Sachs to sue on behalf of investors in certificates it did not own, but were backed by mortgages from the same lenders.  Goldman appealed to the conservative Supreme Court for relief, but the High Court let the Appeals Court ruling stand and forced Goldman to defend itself against claims it misled investors. Goldman and other banks are facing myriad lawsuits by investors hoping to recoup losses on mortgage securities, but GS complained the  2nd Court’s decision could end up costing them billions of dollars. A lawyer for Goldman warned the Supreme Court that if the lawsuits are successful, financial institutions will be liable for tens-of-billions of dollars that will eat into their obscene profits.

In December 2012, the United States Justice Department failed to criminally prosecute HSBC as a result of money-laundering schemes, because although the conservative Supreme Court ruled “corporations are people,” banks and corporations are not really people when they break the law and therefore cannot be jailed. However, like Goldman Sachs, Bain Capital, and HSBC, the people responsible for raping investors and stealing companies can be prosecuted and jailed but they are too rich, too powerful, and too big to jail. One of the arguments the Justice Department makes is that “in considering collateral consequences, prosecutors must determine whether they would be disproportionate harm to investors, pension holders, customers, and employees who were not personally culpable as well as the impact on the public arising from the prosecution.” And yet, if an African American youth steals a loaf of bread because his family is hungry, he will certainly be prosecuted, convicted, and go directly to jail.

Lloyd Blankfein, Goldman Sachs CEO, told an interviewer he believes banks have divine right to special treatment because they are “doing God’s work.”  According to Blankfein, “We’re very important, we help companies to grow by helping them to raise capital. Companies that grow create wealth. In turn, it allows people to create more growth and more wealth. It’s a virtuous cycle.” If Blankfein sounds eerily like Willard Romney, it is because he repeated the same spiel defending Bain Capital, and like Bain, wealth never reaches the people and goes directly to CEOs offshore accounts. The mindset among the wealthy corporate heads, private equity firms, and investment banks is “We have a social purpose, and we’re doing god’s work” and with a failed justice system, they are too big to fail.

Financial institutions may not face prosecution because they cannot go to jail, but the men and women committing fraud, money laundering, and shorting investors can be criminally prosecuted and sent to jail. However, financial institutions can be forced to make restitution for billions and billions of dollars they stole from investors and struggling firms, and if they fail, it will send a message to other banks, Wall Street firms, and private equity firms that untoward activities and illegal stock manipulation will incur punitive consequences. There is a reason Romney pledged his first day in office he would repeal the financial reform law preventing banks from being “too big to fail,” and why Sheldon Adelson donated millions of dollars to Willard’s campaign to avoid a Justice Department investigation; the system is easily corrupted and tilted in favor of the rich and powerful.

The rule of law cannot be arbitrary based on whether or not a financial giant is prosecuted and fails, or if men like Blankfein or Romney claim they are “doing god’s work” and “serving a social purpose.” Remember, Blankfein’s twisted social purpose drove him to attempt to convince the President to support raising the retirement age to 70 because “we can’t afford” Social Security or Medicare. The problem with the financial sector is Republicans have given them free rein to rape and pillage the public, pay no taxes, crash the economy, and come out of the recession they created earning record profits with impunity.  All the while, investors lost everything, retirement funds were decimated, and firms like Goldman Sachs have the temerity to warn the Supreme Court they will lose tens-of-billions of dollars if they are held accountable for their crimes.

There is a solution, but the Justice Department is too timid to enforce the law equitably. If they cannot prosecute and jail a corporation or bank, they certainly can prosecute the individuals who are culpable for facilitating financial malfeasance. Martha Stewart spent time in prison for getting insider tips on stocks, and yet Willard Romney is free after lying on FEC and SEC disclosures and profiting from a Bain law firm’s bankruptcy scheme. If justice is blind, and every citizen is subject to the law, then every bank, private equity firm, and financial corporation’s leaders should be held accountable and pay fines, pay investors, and go to jail because anything less is raw injustice. The good news is that with the court system allowing investors to sue companies like Goldman Sachs, maybe the tide is turning, and one hopes that those who caused the financial meltdown in 2008, and cheated eToys investors will at least have to provide restitution, but until they are sitting in a prison cell, justice will not be served. American justice is not blind, it just turns a blind eye when criminals are rich and too big to jail.


Audio engineer and instructor for SAE. Writes op/ed commentary supporting Secular Humanist causes, and exposing suppression of women, the poor, and minorities. An advocate for freedom of religion and particularly, freedom of NO religion. Born in the South, raised in the Mid-West and California for a well-rounded view of America; it doesn't look good. Former minister, lifelong musician, Mahayana Zen-Buddhist.

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