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Wednesday, 09 January 2013 09:52

When US Doesn't Prosecute Wall Street Fraudsters, Taxpayers Get the Blowback

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MARK KARLIN, EDITOR OF BUZZFLASH AT TRUTHOUT    bullish Blowback from the Wall St. Bull

BuzzFlash at Truthout practices journalism, not law, so it would be hard put for us to state categorically that A.I.G. and Goldman Sachs executives should have been found guilty of anything in the Wall Street collapse that cracked the back of the US economy.  In any case, that's what investigations and trials are supposed to sort out.

But since the economic meltdown, it is clear that there was plenty of smoke, while the Department of Justice (DOJ) didn't want to hold anyone criminally accountable for the fire.  So the DOJ, along with the Securities and Exchange Commission (SEC), assessed a lot of large fines to Wall Street firms at the epicenter of the financial implosion, but clearly weren't interested in serious criminal investigation or prosecution.

What happens when the government gives a get out of jail free pass to executives who run financial entities "too big to fail"?  The US taxpayers get the blowback.

The stockholders of A.I.G. -- the company which most came to symbolize egregious arrogance and double standards of banks and hedge funds ("no government financial regulation, but the taxpayers should bail us out when we gamble and lose") -- are in the process of suing the federal government.  Furthermore, A.I.G. as a corporate entity is considering joining the shareholder lawsuit whose goal is basically to reclaim profit that the agreed upon taxpayer bailout generated for the US treasury.

As The New York Times (NYT) reports in an article entitled, "Lawmakers Warn A.I.G. Not to Join Lawsuit Against U.S.",

With A.I.G. having fully repaid its $182 billion bailout only weeks ago, the prospect of the company trying to claw back some of the $22 billion in profit that its rescue generated for shareholders doesn't sit right with several members of Congress.

At issue is the possibility that insurer may join a lawsuit filed by its former chief executive, Maurice R. Greenberg, claiming that the 2008 bailout shortchanged investors and violated their Fifth Amendment rights. The board is scheduled to meet on Wednesday to hear presentations from Mr. Greenberg and representatives from the Treasury Department and the Federal Reserve Bank of New York, the architects of the bailout.

But the "taxpayer assumes responsibility for our gambling, but we get all the profits from being bailed out" attitude doesn't sit well with some lawmakers, such as newly elected Sen. Elizabeth Warren (D-MA), according to The NYT. Warren issued a statement that included a stern rebuke to A.I.G. and its shareholders:

A.I.G.’s reckless bets nearly crashed our entire economy. Taxpayers across this country saved A.I.G. from ruin, and it would be outrageous for this company to turn around and sue the federal government because they think the deal wasn’t generous enough. Even today, the government provides an ongoing, stealth bailout, propping up A.I.G. with special tax breaks — tax breaks that Congress should stop. A.I.G. should thank American taxpayers for their help, not bite the hand that fed them for helping them out in a crisis.

Meanwhile, the honchos at Goldman Sachs just executed a scheme to avoid higher tax rates on their multi-million dollar bonuses, as reported by journalist Susan Antilla:

By the time the ball dropped in Times Square, regulators had been notified that $65 million in Goldman stock had been granted a month early, helping a cluster of powerful multimillionaire executives trim their tax tab.

Among the 10 who shared that $65 million, Chief Executive Officer Lloyd Blankfein, Chief Operating Officer Gary Cohn and Chief Financial Officer David Viniar wound up with $8.4 million apiece in Goldman stock.

As Antilla, who regularly writes for the Bloomberg View, opines:

Goldman and its too-big-to-fail brethren are banks that accepted welfare and are in debt to U.S. taxpayers for averting disaster. This hasn't been about hard-nosed capitalism since those first TARP wire transfers made their way into Goldman Sachs' coffers.

While the DOJ and SEC should have been regarding the 2007 economic crash as a crime scene, they treated it like something deserving a parking ticket for the financial elite.

As a result, the same people who were responsible for so much economic misery have been emboldened to once again let greed trump accountability.

(Photo: DonkeyHotey)