Ignore Dick Thornburgh

After John Ashcroft and Alberto Gonzales, former Attorney General Dick Thornburgh doesn't seem so bad. Sure, he didn't think that federal prosecutors should play by the same ethical standards that bind defense attorneys. Yes, he rabidly fought the drug war. But at least he didn't run the entire Constitution through a paper shredder. And unlike Gonzales, who took instruction from Karl Rove, Thornburgh was once sued by Rove.

In yesterday's New York Times, Thornburgh argues that white collar criminals deserve to be prosecuted, and urges the Obama administration to hire more FBI agents and prosecutors, but not to change any laws. He has it just about backwards.

Thornburgh seems to understand the problem. [more ....]

Unfortunately, the Federal Bureau of Investigation has moved so many agents out of its crime-fighting ranks into anti-terrorism activities that sufficient staff and spending may not be available for the painstaking task of following the sophisticated paper trails that are characteristic of major white-collar offenses.

This misallocation of resources should first be solved by a sensible reallocation. Tell the IRS to stop chasing drug crimes and to investigate white collar crime instead. Reduce the number of agents and prosecutors who are trying to scare up terrorism prosecutions and put them to work on financial crimes. Only after resources are allocated responsibly should the Justice Department decide whether it needs more accountants, agents, or prosecutors. "More cops on the street" might be unnecessary if we use the cops already on the street more effectively.

It's interesting to read Thornburgh's advice against passing "new laws purporting to supplement our already top-heavy inventory of crime-fighting tools." Did Thornburgh think his inventory was top-heavy when he was AG? Of course, Thornburgh didn't have the Patriot Act.

Thornburgh's vague claim that a "wave of new legislation could pose a genuine threat to economic stability and prospects for a recovery" sounds like an endorsement of continued deregulation of the financial industry. Thornburgh calls for the prosecution of Bernard Madoff for an "apparent $50 billion scam" while arguing that Madoff's case "illustrates the inability of federal regulatory agencies to prevent unlawful conduct." Inability or unwillingness? When an agency's prevailing philosophy is "We don't want to get in your way by looking over your shoulder or asking you to do any paperwork," crime prevention takes a back seat to profit promotion.

New legislation (whether arriving in a wave or a gentle ripple) might define unlawful conduct more clearly or require more detailed disclosures of complex financial investments, allowing regulatory agencies to do their jobs more effectively. It's hard to believe that new laws safeguarding against another financial industry meltdown -- laws that ordinary investors should welcome -- would harm the economy. They are more likely to strengthen faith in a recovery.

Here's better advice for the Obama administration: ignore Dick Thornburgh.

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    One is compelled to wonder (5.00 / 1) (#1)
    by scribe on Tue Dec 30, 2008 at 04:30:41 AM EST
    how much of Thornburgh's new religion stems from having been a defense attorney defending the Dr. Cyril Wecht persecution brought by Mary Beth Buchanan in Pittsburgh's federal court.

    He's gotten to see first hand what a nightmare the federal system can be, and how the out of control prosecutions can ruin and destroy.  Of course, he can't bring himself to ssay that, given that he and Buchanan are nice, good Repubicans all and one Republican never speaks ill of another.

    And, as you note, he proposes - essentially - more of the same as in the past, with a little tweaking around the edges.  But no core changes.

    I would argue that, on a practical level, if the feds want to add people to clean up the financial crimes which have put us in these straits - let them do it on a temporary basis and let the people they hire be the quants, accountants, bankers and lawyers who've taken layoffs when the I-banks and supporting firms cratered at the hands of Bushco.  That will give those folks about 3 years' worth of work and allow time to straighten out the underlying regulatory void.

    Of course, I also suggested that Obama hire Spitzer as the MFIC of cleaning up Wall Street, as he knew where the bodies are buried and would not have to spend time on a learning curve, and has proven his ability to build a large, effective team in turning the NYAG's office from a Sleepy-land of blase monitoring of charities for misappropriations into a place where law students competed for internships and jobs because it's where the action was.  Cuomo is well on his way to reversing those achievements.

    I made too much sense, I guess, which is why it will never happen.

    On a deeper, philosophical level, the core issue confronting the financial industry (and by extension everyone else) is that no one believes anyone's valuations of anything.  Someone on another site noted a lot of that is being blamed that on a lack of "confidence" or "trust", but also pointed out that it's really more of a lack of ability parties have to exercise unbridled suspicion of their counterparties and then find out whether or not what the counterparties are saying (relative to value, etc.) actually is true or not.  If there's one place "confidence" and "trust" should not be the reason to go forward with a deal - it's the financial industry.  It has to be the guiding assumption that everyone is in it for themselves and will say or do anything to get that last dollar.  Anyone who argues differently is really just insulting the intelligence of their audience.

    The lack of belief stems from the moral corruption which Bushco (and his predecessors going back to Reagan's days) have turned into the coin of the realm in the financial industry.

    Valuations are worthless, because the ratings agencies only get work when their valuations meet or exceed the needs of the people whose properties/choses in action are being valued.  If you don't give the rating required, you don't get work.  Period.  About 8 or 10 years ago, a colleague represented a guy who was being sued for real estate valuations which were alleged to have been made to "make the deal" - in other words, if the property had to be worth $100k for the deal to go forward then, it was alleged, the valuation said it was worth $100k regardless of whether it actually was.  While the big banks spared neither time nor effort to come after him - and him alone - they made no effort to go after the mortgage brokers, agents, and all the other people in the chain who participated in the 500-plus "bad" deals that were the subject matter of their suit.  If you believed them, it was all this one guy, working out of his car, who caused the quater billion or so dollars in damages they were claiming.  

    Not that they had any chance of recovering a cent, mind you - there was a reason he was working out of his car.  But, suing him would give the banks a perp to point at and blame, allow them to check the appropriate boxes on their forms, and move on.  

    And that's where we are with the financial industry as a whole.  A couple little guys will take the fall, likely because they will have some personal characteristics which make for appealing press condemnation - they're ugly, they were unpopular in the firm, they ran over a dog with their BMW - whatever.  It will be loud, and showy.  It will be determined to have been All Their Fault and most definitely not the fault of the underlying philosophy.  Bernie Madoff* is a prime example - everyone is going to try to load as much blame onto him as possible.  But the bonuses (paid, FWIW, on formulae predicated upon and calculated from the expectation of "profit" rather than actual profit realized) and salaries will never be recovered.  No one will seriously even consider trying.  Because to do so would not only offend The Powers That Be (and, more importantly, their wives and mistresses upon whom those bonuses have been lavished), but would expose the underlying bankruptcy of the philosophy which has ruled the markets lo these many years:  create the illusion of wealth, profit and prosperity without actually creating any, then grab the foam off the top for yourself and blame the failure on the people from whose pockets it came, when it all falls apart.

    We've been playing that game for at least 30 years - I would argue since 1973 and the first Oil Embargo - and that is so long that no one knows how to work any differently now.  Bullsh*t Nation, as it were.


    *  FWIW - how much does anyone want to bet that Bernie Madoff has a debilitating, ultimately-terminal disease and that is the reason he decided to close up his scheme now?  I don't have any particular knowledge, but it just smells that way to me.

    Thornburgh is unpredictable (none / 0) (#2)
    by BernieO on Tue Dec 30, 2008 at 07:50:42 AM EST
    I seem to recall that he was invovled in the Three Mile Island investigation and did not whitewash it. I often disagree with him, but at least he is not a puppet. Not that Obama needs to listen to him.....

    roberto? (none / 0) (#3)
    by txpublicdefender on Tue Dec 30, 2008 at 12:13:37 PM EST
    I think you mean Alberto Gonzales.

    Ugh. (none / 0) (#4)
    by TChris on Tue Dec 30, 2008 at 01:20:06 PM EST
    Of course.  Thanks for the catch.  In my defense, I was reading a book by Roberto Bolano before writing the post, and must've mixed up my bertos.