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The Lucrative Revolving Door Between Washington and Wall Street --- At What Cost to Ourselves and Our Economy?

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Martin Smith questioning Lanny Breuer in the "The Untouchables" on Frontline:

"You made a reference to losing sleep at night worrying about the possibility of larger financial consequences as a result of a lawsuit against one large financial institution.   Is it really the job of a prosecutor to worry about anything other than simply pursuing justice?"

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Lenny Breuer's reply:   In a case like this, I think a responsible prosecutor should speak to regulators and experts first.   Why?   Because if I bring a case against institution A, and as a result of bringing that case there's some huge economic effect, a kind of ripple effect, so that counter-parties and other financial institutions, or other companies that had nothing to do with this, are then very badly affected, then that's a factor we should know about, understand, and consider in advance -- before we go ahead with the prosecution.   (Note:   Lanny Breuer was originally employed at a very prestigious Washington law firm and left his job at the Justice Department a week after this interview was broadcast, presumably to eventually go back to Wall Street's big bucks.)  

But think about what Breuer is saying here.   He's essentially telling us that some individuals are so systemically important that they can't be arrested and put in jail!   Now consider the unspoken but implied corollary to that, which is that if some people are too systemically important to arrest, there are other people who can be safely be arrested.   In other words, the assistant attorney general is dividing society into two classes:   one that is arrestable, and another that is not arrestable -- which flies in the face of one of the sacred principles (equal justice under the law) on which this country was founded.   Bottom line:   there's really no good reason the Justice Department couldn't have indicted a number of individuals from some of these companies and put them on trial if the jury thought that was warranted.

Historically, we've always put bad guys on trial, no matter how big their corporate standing.   Even under the Bush administration, if you go back just ten years, there was WorldCom, Enron, and Adelphia.   We took the leading individuals of these companies and put them on trial to make an example out of them.   And this is exactly what we're not doing now.   But why not?   Those three companies just mentioned were systemically important then.   So why not do the same thing now?

More on Mary Jo White

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As a law firm partner, Mary Jo White was pulling down $10-15 million a year at Debevoise and Plimpton, and she essentially received that money from a specific group of clients -- and now, at the SEC she is being put in charge   of policing them, these very clients to which she had been beholden.   This doesn't really comport with how aggressive a prosecutor must be.   It compromises what her attitude towards the people she's supposed to be policing should be.   (You'd much rather see a career civil servant doing her job.   Or let someone like her do the job if there was a law forbidding her from going back into private practice at any of the firms on which she had ruled.)

Ms. White is too cozy with Wall Street.   She has served as a director of the Nasdaq stock exchange and on its Executive, Audit and Policy Committee.   And, as The W.S. Journal pointed out, she should face questions over her role as defense attorney for Bank of America's former head Kenneth Lewis in his civil trial.

In 1997, aides to Manhattan District Attorney Robert M. Morgenthau accused her of trying to thwart a state insider-trading investigation by allowing a defendant charged by the district attorney's office to plead guilty to federal charges.   Doing so effectively ended Mr. Morgenthau's case, but Ms. White was unapologetic.  

So, when Mary Jo White leaves her job as head of the SEC and makes the move that a lot of top regulators make -- leaving government to make boatloads of money working for the people she used to police, then what rewards will be in store for her at any of the companies she used to police, based on the breaks she gives them while head of the SEC?    In other words, how much of a break will she give them in anticipation of eventually taking an unprecedentedly large, multimillion-dollar salary at one or more of these firms, if she plays her cards right?

As a clue that should help answer this question, consider the case of an SEC investigator Gary Aguirre who was pursuing an insider trading case against the future CEO of Morgan Stanley.   Aguirre asked for permission to interview that future CEO, John Mack.   Permission denied.   Note that this denial stemmed from the communication between Morgan Stanley's lawyer, who at the time was Mary Jo White, and the higher ups at the SEC, which included the director of enforcement, Linda Thomsen.   Aguirre persisted, and was consequently fired, for complaining about having his investigation squelched.   In a nutshell, Aguirre blew the whistle and for that reason was fired, leading to the SEC being forced to pay a $750,000 wrongful termination suit to Aguirre because of this wrongful firing.  

What's especially significant is that Aguirre's boss, the guy who killed that case against Morgan Stanley, then went to work for Mary Jo White's firm (Morgan Stanley) nine months after the case died, presumably to collect a very handsome reward for his good service to them while at the SEC.   And, sure enough, he was there rewarded with a multi-million dollar position at the company, for the favor he did them while he was at SEC.  

Regulators at the SEC know that there's a very lucrative job out there waiting for them if they play their cards right.   So how hard are they really going to try to regulate these companies when they know they can later pick up that extraordinarily lucrative job?

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In Washington, people just kind of shake their heads at something like this because it's so common.   Lawyers regularly move from government back to these high priced legal defense firms that represent the banks.   And then they go back to government again.   Bottom line:   There's a coterie of between a 100 and 200 lawyers who run this entire charade.   It's all the same people on both sides, going back and forth between Washington and Wall Street.   Yes it's a charade, a pretense of effective regulation.   But at what cost to America is this complete lack of real regulation?

Jack Lew, Obama's pick for Treasury secretary

Jack Lew, the incoming secretary of the Treasury, served three years at Citigroup.   His record there, according to The Wall Street Journal was not very lustrous for a man who's about to take over the Treasury Department.   No surprise then that the W.S. Journal suggests he got his job at Treasury not because he had the experience, but because he was a crony -- and perhaps an agent? -- of Citigroup's Robert Rubin.

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Several years after receiving my M.A. in social science (interdisciplinary studies) I was an instructor at S.F. State University for a year, but then went back to designing automated machinery, and then tech writing, in Silicon Valley. I've (more...)

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