= Subscriber content; or subscribe now to access all American Banker content.

'Frontline' Learns Firsthand Why Wall Street Is 'Untouchable'

Why haven't any senior Wall Street executives gone to jail for the financial crisis?

Since the financial system's collapse four years ago, that question has been asked over and over again. The question has sparked editorials, Congressional commissions, Oscar-winning documentaries and the Occupy Wall Street protests – but no criminal prosecutions. It is a question without enough satisfactory answers, and so it is a question that will persist even as it becomes less and less likely that any bankers ever will wind up in jail for the crisis.

The television program "Frontline" is the latest news organization to ask that question, in a worthwhile if occasionally frustrating hour airing Tuesday evening on PBS in most markets. "The Untouchables" provides an overview of some of the factors that led up to the financial crisis: the subprime mortgages recklessly churned out by lenders including Countrywide, the ravenous demand from Wall Street banks for raw material for their mortgage-backed securities, the shoddy oversight from big banks' credit departments.

"It was like a party," one former loan underwriter tells "Frontline's" Martin Smith. "We were getting through these loans as quick as we can. They were not being looked at like they should've been looked at."

Smith's interviews of contract underwriters are the program's most compelling parts, as they simply and devastatingly recount the housing industry's gross negligence leading up to the financial crisis. But making the case for specific criminal prosecutions proves more difficult for "The Untouchables" – as it obviously has for government officials.

"Frontline" efficiently summarizes the government's efforts in that direction: the signing of the Fraud Enforcement and Recovery Act; President Obama's creation of the financial crimes task force; the acquittal of two Bear Stearns hedge fund managers who were prosecuted for their roles in the crisis; the Financial Crisis Inquiry Commission and the Congressional hearings that summoned JPMorgan Chase (JPM) Chief Executive Jamie Dimon, Goldman Sachs (GS) CEO Lloyd Blankfein and other senior Wall Street executives to account for their roles in the financial crisis.

Most of this territory is familiar to those who have followed the financial crisis fallout, but "The Untouchables" effectively highlights some of the most infuriating or inexplicable lapses. Smith interviews Richard Bowen, the Citigroup (NYSE:C) whistleblower who found that the bank was buying huge amounts of bad mortgages. In 2007, Bowen alerted the chairman of Citi's executive committee, former Treasury Secretary Bob Rubin, to the problems with an email marked "URGENT — READ IMMEDIATELY — FINANCIAL ISSUES."

Summoned before the FCIC in 2010, Rubin haplessly defended his response to the panel: "I do recollect this [email] and that either I or somebody else – and I truly do not remember who – but either I or somebody else sent it to the appropriate people."

Why haven't any senior executives gone to jail? This is such a familiar question by now that anyone asking it for the first time needs to be more specific. Name names, and the laws allegedly broken.

"The Untouchables" stops short of doing so. It paints an unflattering portrait of former Countrywide CEO Angelo Mozilo, who presided over a blithe "Fund 'Em" strategy for mortgage lending. It leaves the viewer thinking Rubin might have responded to that "URGENT" email with slightly more alacrity and in so doing could have helped Citigroup avoid an eventual $45 billion in government bailouts. We see Congressional testimony from Blankfein and Dimon. But it's left to the audience to infer that some of these executives should be on the government's short list for prosecutions – and which bankers, under which statutes? (The show also ignores some of the more recent industry scandals, from Libor-rigging and money-laundering violations at several big banks to the London Whale trading losses at JPMorgan. Once again, the U.S. government has yet to hold any senior bank executives personally responsible for those problems.)

Lanny Breuer, assistant attorney general of the Justice Department's criminal division and "Frontline's" designated villain for the government's inaction, was "overly fearful" of losing any criminal cases, the program says, citing two former department prosecutors (neither identified by name).

Breuer tells Smith that when the government doesn't have enough evidence to bring a case, "we have … an ethical obligation not to bring those cases.  But it's not for lack of trying."

Ultimately, while "The Untouchables" ably catalogues plenty of bad behavior, it sets itself up for the nearly impossible task of proving on television what the government, with its awesome powers and vast resources has been unable (or afraid to try) to prove in court: That specific individuals committed specific crimes.

Why haven't any bankers been criminally prosecuted for the financial crisis? Every time that question is asked, it seems to become more and more unanswerable.

Maria Aspan is the National Editor at American Banker. The views expressed are her own.


(19) Comments



Comments (19)
Unfortunately there exists a "lack of manpower" to investigate the Wall Street and Bankers that committed fraud. While these actions earned these individuals millions in stocks/salaries, etc. they understand that the longer time that they are away form their respective firms the less likely they will be prosecuted. These are not stupid people that easily manipulate the Feds ... Keep in mind they have been doing it since the time of the Medici's. One suggestion I made to the Feds was to put a reward on fraud reporting that proved to be accurate.
At my firm, one of our platforms is to "dig in" and uncover fraud. For information contact:
Posted by Rstarr | Monday, February 11 2013 at 7:52AM ET
Software is a tool used by humans. Software didn't invent no-doc loans nor pick-a-payment loans nor decide to make high interest rate loans to people with high credit scores, who deserved lower rates.
When a broker sells a stock or bond to an individual, they are required to make sure that it is a "suitable" investment. No such requirement governed the mortgage business.As long as mortgages are sold like used cars, problems will remain for investors and borrowers alike.
Posted by andkel | Monday, January 28 2013 at 8:21AM ET
The real answer is simple - in 2000 the industry handed over loan underwriting to software underwriting programs which effectively removed accountability for assessing risk from human beings. However, the software analyzed the risk of loss instead of the risk of default, and it assumed real estate values would always go up and that people would always tell the truth. By 2007, after seven trillion dollars of new, software approved loans had been made, those assumptions were proven dead wrong.

Everyone involved knew better, but we chose to believe some software programming nerds were smarter than we were. Find the people responsible for allowing software to supersede human judgment, and you will have found the real culprits in this debacle.
Posted by rickbaron | Sunday, January 27 2013 at 8:11PM ET
I am the George Hartzman Rolling Stone's Matt Taibbi wrote of the other week, and I believe Wachovia CEO Robert Steel bought Wachovia's stock in a breach of trust, confidence and his fiduciary duty to shareholders while in possession of material, nonpublic information.

On July 9, 2008, Robert Steel became president and CEO of Wachovia after working for Goldman Sachs from 1976 to 2004 and the US Treasury under former Goldman Sachs CEO Henry Paulson from October 10, 2006 until July 9, 2008. Mr. Steel was "the principal adviser to the secretary on matters of domestic finance and led the department's activities regarding the U.S. financial system, fiscal policy and operations, governmental assets and liabilities, and related economic matters," according to Wikipedia's biography. Mr. Steel most likely knew about other firm's borrowings via his time spent at the U.S. Treasury Department.

On July 22, 2008, Mr. Steel personally purchased 1,000,000 shares of Wachovia's stock as the company's undisclosed Federal Reserve Term Auction Facility (TAF) borrowing reached $12.5 billion, which appears not to have been disclosed in securities filings audited by KPMG.

In an interview with CNBC's Jim Cramer On Monday, September 15, 2008, Robert Steel said "I think it's really about...transparency. People have to understand the assets and really be able to say, this is what I own... Complete disclosure. ...we can work through this with transparency, liquidity and capital. ...Our strategy was to give you all the data so you could make your own model. We tell you what we're doing... ...we're raising capital ourselves by basically shrinking the balance sheet, cutting the dividend, cutting expenses. We can create more capital ourselves that way... for now, we feel like we can work through this..." After Jim Cramer asked "Should there be any sort of quick regulatory relief from the SEC that would make life easier to be able to make your bank much stronger?", Mr. Steel responded "I don't think it's about my bank."

After not reporting TAF loans, Wachovia's CEO wrote "I, Robert K. Steel, certify that: I have reviewed this Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 of Wachovia Corporation; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report" on October 30, 2008.

Mr. Steel was at least aware of Wachovia's Federal Reserve loans since July, 2012, if not the undisclosed loans to multiples of other financial institutions.

If Mr. Steel was "the principal adviser...on matters of domestic finance and led the department's activities regarding the U.S. financial system, fiscal policy and operations", how could he not have known and acted on undisclosed material information?

On June 22, 2010, Robert Steel was appointed Deputy Mayor for Economic Development by New York City Mayor Michael Bloomberg, after which, Steel resigned his seat on the Wells Fargo board. According to Morningstar data, Mr. Steel owned 601,903 shares of Wells Fargo in 2010, which would be worth $20,446,644.91 as of October 26, 2012.

George Hartzman
Greensboro , North Carolina
Posted by Hartzman | Sunday, January 27 2013 at 1:22PM ET
I wish someone would ask Bob Rubin if he sensed any responsibility to follow up on this email marked "URGENT" with those undisclosed "appropriate persons" he forwarded it to or with the boards and committees he was on. As an high official of this institution, does he not have such a responsibility? This was not some customer complaint about a lost statement. It was from a senior credit risk officer warning of credit policies being ignored and risk of huge financial losses. What happened to that email? Who was next in the chain that did nothing to stop the maddness? Unfortunately irresponsibilty is not a crime in the business world. You must prove that Mr. Rubin and others had intent
Posted by emauelp | Thursday, January 24 2013 at 4:13PM ET
And the Big Banks still enjoy Federal Preemption status which is their first position of defense in court!
Posted by 1mojoehen | Thursday, January 24 2013 at 11:25AM ET
Hopefully, Frontline's exposure of Breuer's willful incompetence has elevated the credence of rumors of his departure from DoJ to the point where they are published in the Washington Post.
The piece reminds readers that Breuer is the same guy who couldn't find anyone culpable in the "fast & furious" guns for drugs fiasco.
Posted by jim_wells | Thursday, January 24 2013 at 10:36AM ET
Hard to believe that with the help of a guy like Tom Leonard, a serious investigator couldn't track mortgages of dubious quality from due diligence screenings into pools securitized by folks like Goldman Sachs, and sold as AAA investments even though the company knew they were sh*tty.
Posted by jim_wells | Wednesday, January 23 2013 at 8:38PM ET
@gsutton - Yes - based on the internal Bear emails, whistleblowers who worked with the Bear traders on the rmbs desk - Tom Marano knew about his team not only stealing bns from their own clients via the double dipping scheme I 1st reported at The Atlantic but he also knew about the influence Bear had over the due dilly men and women we say in the Frontline film. All of this news has been reported and documented by me at a couple of publications I wrote for over the last two year and highlighted on RT's Keiser Report.
Posted by Teri Buhl | Wednesday, January 23 2013 at 8:03PM ET
I thought the Frontline piece was interesting but it got too caught up in insinuating that DOJ incompetence was the explanation for the lack of prosecutions without offering more than the accusation. That may be the case but in the end I thought the program failed to explain why these cases would be either easy or hard to prosecute and that is the core of the story. As it was, there were only allegations and they went both ways. The prosecutions of S&L people in the 80s usually involved people that falsified the bank's own records. The current issues mostly involve securities fraud which is making false representations to investors. Did the heads of the largest banks themselves knowingly make false representations to investors? It takes more than an e-mail to prove that. I especially hoped the program would explain why the prosecution of two hedge fund managers at Bear Stearns resulted in an acquittal.
Posted by gsutton | Wednesday, January 23 2013 at 5:01PM ET
by the way... the lending business is an assembly line. Most of the assemblers have licenses for their part in the loan process. Everyone has to sign off on their work upon completion (loan office, Appraiser, Underwriter, Vice president, Title Co., Closing Attorney, Legal Department, Realtor's, Buyers, Sellers, Borrowers, The Tax Return Preparer, The Rating Agencies, The Investment bankers, etc...)

It's not like someone went into the banks in the dark of night and robbed the bank with masks on.

Do the "math."
Posted by dfsammarone | Wednesday, January 23 2013 at 12:42PM ET
Lending money is the second oldest profession (prostitution being THE oldest), that being said.

Lending money has very tried and true guidelines set up up and the basics have been used for years. When making a loan there are three components.
#1) Income. (can they pay it back over time)
#2) Credit. (how is thee borrowers history of paying everyone else over time)
#3) Equity. (not IF but WHEN they default, can i sell the collateral at any given time and get the money back)

I was a mortgage Banker for years. There is no laws prohibiting me from making a bad loan.
Theres no law prohibiting me from selling this bad loan to someone . When a bad loan is sold as a good loan thats fraud. Whether it is sold to a another banker or as a security to the public.

just like the meat suppliers selling to the supermarket or McDonald's, the meat is graded. The mortgages sold were rated and sold as "AAA-Grade A" Meat and it actually the loans turned out to be low grade dog food. So as the old FBI saying used to say "if you want to catch them, follow the money chain.'

If the authorities really "wanted" to catch someone for fraud, they can.
Posted by dfsammarone | Wednesday, January 23 2013 at 12:35PM ET
Agree. So pleased that Martin was able to include Breuer's nonsensical comments to the NY Bar Association that HSBC was Too Big To Prosecute for money laundering for Mexican drug cartels and financing of terrorist organizations because it might damage the organization. Former-Senator Ted Kaufman's reaction to this was priceless, especially when compared to Breuer's disingenuous responses at earlier Oversight Committee hearings. One would have to be deaf, dumb & blind not to recognize that the primary reason for the lack of prosecution for crimes surrounding the Financial Crisis is the lack of testicular fortitude in those responsible for taking action. Thank you Ms. Buhl for your contribution to the narrative.
Posted by jim_wells | Wednesday, January 23 2013 at 12:09PM ET
I thought Martin and his team did a great job. But wish they had named some of the Bear traders names leading the fraud that I reported out at The Atlantic and at like Tom Marano and his head of alt-a and subprime trading. They are named in the FHFA suit against Bear/ JPM and detailed in the civil fraud suits by Paterson Belknap. They also interviewed me about these Bear executives.

The Lanny Breuer statement that he'd interviewed our whistleblowers from EMC is just a flat out lie or he is really doesn't know what his staff does. It was great to see Martin go after him with hard Q's.
Posted by Teri Buhl | Wednesday, January 23 2013 at 11:55AM ET
Having watched the program last night, one explanation for the lack of prosecutions is obvious: the decicison makers at the DOJ are cautious to the point of cowardice. Heads should roll not just among the banksters, but at the Justice Dept. To the extent still possible new and more aggressive blood should be brought in to go after prosecutions. Elliot Spitzer's not doing much, why not give somebody of his proven skills a shot?
Posted by j.doe | Wednesday, January 23 2013 at 10:33AM ET
Last night's edition of Frontline showed that Wall Street firms and their staff are "Untouchable." Absolutely shocking to see the case against the banks that precipitated the Financial Crisis laid out so thoroughly, along with the proactive ineptitude of the government in holding them accountable. Clearly a case of the government working against the best interests of its citizens. Stark contrast to a government that sent over 1,000 bankers to jail for their roles in the S&L Crisis.
Posted by jim_wells | Wednesday, January 23 2013 at 7:08AM ET
The hard thing to understand is how a company like Countrywide could pump so many bad assets into the securitization markets without violating the securities laws. A recent report on 60 Minutes said a third of the outstanding loans made by Countrywide were in default or foreclosure. That is an astonishing number if it is true. And, if it is true, I cannot understand how the risks in those loans could have been adequately disclosed to investors or how rating agencies could rate them investment grade. That is where the system broke down causing the Great Recession and where policy makers should be paying the most attention. If that doesn't violate the securities laws the laws need to be fixed.
Posted by gsutton | Tuesday, January 22 2013 at 4:46PM ET
History repeats itself. When government holds bankers to task, like Charles Keating in the 1980s tax payer bailout/savings and loan scandal, there will always be some politicos trying to prevent regulators from acting in the public's interest, instead of the criminals (see Keating Five's John McCain). I recall that Angelo Mozillo had lots of friends too.
Posted by andkel | Tuesday, January 22 2013 at 4:03PM ET
There are two reasons we don't name names. First, we don't know many of the names because we do not have access to them. Second, we have libel laws. You can't call people criminals without exposing yourself to vicious and destructive litigation. The second problem is exacerbated by the repeated statements from the Obama Administration that there was recklessness or negligence, but no intentional fraud.
Posted by Ed Walker | Tuesday, January 22 2013 at 3:46PM ET
Add Your Comments:
Not Registered?
You must be registered to post a comment. Click here to register.
Already registered? Log in here
Please note you must now log in with your email address and password.