I began working as an Assistant U.S. Attorney in 1990, just this side of the Savings and Loan crisis caused by the implosion of the real estate market and the criminal dealings in that industry. To understand how quickly history repeats itself, check out this interesting analysis by the FDIC and its ironic title – “History of the 80s – Lessons for the Future” criticizing, in part, the “go-go” mentality that existed in the Savings and Loan industry at the time.
In the late 80s, early 90s financial institution fraud was the enforcement priority of the Department of Justice and hundreds of bankers were convicted as a result of that initiative.
Syracuse University has a fascinating database called the Transactional Records Access Clearinghouse, which has compiled government records since 1989. TRAC records indicate that in 1995, banking regulators referred more than 1,500 cases to DOJ (more on this later).
The current financial crisis that now burdens the world financial system reached the point of critical mass in the Fall of 2008. As we now know, that crisis was and is fueled in substantial measure by mortgage fraud, but TRAC records tell us that from 2006-2010, the average number of referrals was just over 70 – SEVENTY! At the height of the financial crunch – 70 odd regulatory referrals a year! In the words of Vizzini from “The Princess Bride” – “inconceivable!”
So, what is the deal? In November 2009 DOJ announced the formation of the Financial Fraud Enforcement Task Force, which has produced shockingly few prosecutions. I guess in an effort to shore up that unit, last month the President announced the formation of a new task force, the Residential Mortgage-Backed Securities Working Group. In fact, it turns out that Task Force is just going to be a unit of the previously formed Task Force.
So, how do we find ourselves, more than 3 years out from financial crisis and by all accounts, a law enforcement effort that has been minimal? We’ll look at this more in coming days.