(scheduled for Sunday, 16 February 2014, disrupted by snow)
I was tough on Dean Starkman when I wrote about his new book, The Watchdog That Didn’t Bark: The Financial Crisis and the Disappearance of Investigative Journalism (Columbia University Press, 2014). I don’t think newspapers could have prevented what happened in 2008 by getting up on their hind legs. Nor has investigative reporting disappeared, even though metropolitan newspapers have taken a special beating in the scramble for ad revenue.
I do, however, buy Starkman’s concept of accountability reporting. I admired his account of journalistic muckraking in markets for subprime debt and penny stocks in the years after 1988. In the case of the crisis, it’s even more important after the event than before.
Last week Better Markets, a non-profit advocacy group in Washington, D.C., headed by a former Skadden, Arps, Slate, Meagher & Flom litigator, went to court to challenge the validity of the Justice Department’s $13 billion plea bargain with J.P. Morgan over claims that the bank cut corners in packaging and selling mortgage-backed securities.
The Obama administration’s settlement deal with the giant bank was not reviewed or approved by any court – a violation of the spirit of Constitutional separation of powers, according to the complaint.
The Justice Department ought not to act as “investigator, prosecutor, judge, jury, sentence, and collector, without any checks on its authority,” Better Markets asserted. Its complaint was filed in the US District Court for the District of Columbia.
The lawsuit is the brainchild of Dennis Kelleher, 55, a Skadden partner who retired after a series of stints as a senatorial aide on Capitol Hill: first, in 1996, to Edward M. Kennedy for a year; then, after 2004, to Barbara Mikulski (D-Md.), and finally to Byron Dorgan (D-ND).
In October 2010 he founded Better Markets. Backing for the twelve-person office comes entirely from Michael Masters, an Atlanta hedge fund operator who, according to an article by Annie Lowrey in The New York Times, “believes that markets are as imperfect as the people participating in them.”
Kelleher’s suit may not succeed. Out-of-court settlements are common in Federal courts. Prosecutors have broad discretion in negotiating backroom deals they think will serve the public interest, rather than trying lengthy, expensive and uncertain cases.
Still, the initiative comes against a backdrop of rising discontent in some Federal courts themselves about prosecutorial timidity where the big banks are concerned. Last month, in the Southern District of New York, Judge Jed Rakoff, a former federal prosecutor himself, took to the pages of The New York Review of Books to ask Why Have No High-Level Executives Been Prosecuted?
Rakoff offered three possible reasons – government attorneys were shorthanded, preoccupied insider-trading cases and Ponzi schemes; they knew the government itself was partly to blame; they understood how much easier it is to negotiate agreements with corporate attorneys than to laboriously “go up the ladder” to attempt to prove guilt in the upper echelons of white-collar crime. Still, he ventured, the deterrent value of prison terms for a few high-level managers probably “far outweighs the prophylactic benefits of imposing internal compliance measure that are often little more than window-dressing.”
The Better Markets lawsuit should at least compel Attorney General Eric Holder to explain why the Justice Department didn’t bring suit to make public the results of its investigation of bank practices before settling its complaint with no significant disclosure. The rub in the J.P. Morgan case has to do with the secrecy, and the historic importance of the crisis to which the bank’s securitization contributed. The Financial Times, which has been following the story closely, editorialized last week,
While the magnitude of the penalty hints at significant wrongdoing, the bank has been able to get away without admitting any significant details about its past misconduct, the identities of those responsible or the magnitude of its violations.
The $13 billion fine is to be shared out among several states whose attorneys general sued the bank, the Justice Department, several federal agencies, and even some mortgage borrowers. It was announced in November, the capstone to a year in which J.P. Morgan agreed to pay fines totaling $20 billion. A few weeks later, directors gave chief executive Jamie Dimon a 74 percent raise, to $20 million, over his 2012 compensation.
Two other lawsuits, now slowly working their way towards courtrooms in Washington, London and New York, promise richer veins of new information. One is the claim by former American International Group chief executive Maurice (Hank) Greenberg that AIG shareholders were shortchanged when the government took an 80 percent share of the company at the height of the crisis. The other involves the complaint now going forward in London that Barclays and Deutsche Bank rigged LIBOR interest rates against their customers.
All this – and more – is grist for the mill of accountability journalism.