By Rachel Brody |
This week the nation's chief law enforcement officer told a Senate committee that he was concerned that prosecutions of large banks could endanger the country's financial system. As a result, the Justice Department may not prosecute cases against these banks that it would bring against ordinary citizens or smaller banks.
The immediate issue at hand was the decision not to prosecute the bank HSBC because of its involvement in laundering money for Mexican drug gangs. Just to be clear, these drug gangs were not just people that sold drugs to willing buyers, they also engage in kidnapping, murder, torture, and a variety of other criminal activities. Attorney General Eric Holder told the Senate Judiciary Committee that big banks may be able to share the profits with such outfits with impunity because prosecuting them could lead to financial instability.
There are two possible stories here. In one case the concern about financial instability is nonsense but is being used to protect powerful financial interests. The second possibility is that the Justice Department really is concerned that its prosecutions of big banks could bring down the financial system.
The first possibility is quite plausible. When Enron was about to collapse in 2002, former Treasury Secretary Robert Rubin, who was at the time a top Citigroup executive, called a former aide at Treasury. He asked him to intervene with the bond rating agencies to get them to delay downgrading Enron's debt. Citigroup owned several hundred million dollars in Enron debt at the time.
The Treasury official refused. When the matter became public, Robert Rubin claimed that he was concerned about instability in financial markets. It is entirely possible that the reluctance to prosecute big banks represents the same sort of fear of financial instability as motivated Robert Rubin. In other words, it's a hoax.
But let's say that we really do have to worry that prosecuting the criminal activities of Bank of America or J.P. Morgan really would sink the economy. How can we justify allowing such dangerous behemoths to exist? The country ostensibly has an antitrust policy to prevent corporations from becoming this powerful.
In principle we would use antitrust law to break up a phone company because it was charging us $10 a month too much on our cable. How could we not use antitrust policy to break up a bank whose size allows it to profit from dealing with murder rings with impunity?
About Dean Baker Codirector of the Center for Economic and Policy Research
Hester Peirce Senior Research Fellow at the Mercatus Center
Wallace Turbeville Senior Fellow at Demos