Last year, when new Attorney General Loretta Lynch was confirmed by the Senate, there was great anticipation that she would soon have Wall Street bankers quaking in their well-heeled boots. Her reputation of being tough and afraid of nobody, as well as her previous role as the U.S. Attorney for the Eastern District of New York, gives her a much firmer grasp on the inner workings of the financial sector than her predecessor Eric Holder.
Her New York office prosecuted a fair number of financial crimes, so she is considered to have an in-depth knowledge that is a threat to the big banks.
While in her New York District role, she was instrumental in the Justice Department’s record-setting $7 billion penalty of Citigroup, fined for its role in the sale of mortgage securities in the 2007-9 financial housing crisis.
Immediately after taking office, she announced an effort to crack down on corporate fraud, particularly focused on prosecuting individuals for crimes rather than just fining companies.
She sent memos urging federal prosecutors across the country to pursue individuals “regardless of their position or pocketbook”. The mantra was that crime is crime, whether it is committed on a street corner or in a corner office.
She is seen as a breath of fresh air after Holder, who had achieved billions in fines from banks but never landed any banking executives in jail. Banks actually factor fines in as “the cost of doing business”, so unless the fine is steep, it may not really impact the company. In comparison, more than 1,000 bankers were convicted during the savings and loan crisis of the 1980s and 1990s.
Lynch has certainly continued Holder’s trend of large fines. One of her first announcements after becoming AG was the $2.5 billion fine against Barclays, Citicorp, JPMorgan Chase, and Royal Bank of Scotland, as well as a $16.65 billion fine against Bank of America.
While there has been an increase in the size of financial settlements with banks, many are holding their breath to see if Lynch will actually follow through on her vow to hold individuals responsible. There is massive public frustration over the Obama administration’s failure during the last seven years to imprison Wall Street execs who created the worst recession since the Great Depression.
Some view Lynch as a Wall Street insider, and as such, think she won’t be strict enough and won’t follow through. She served as director of the New York Federal Reserve Board from 2003-2005, serving with influential businessmen like ex-Lehman Brothers CEO Richard Fuld and former Citigroup chairman Sandy Weill.
Before that, she worked at two mega-firms for nearly 20 years: Hogan Hartson, a D.C. firm that is one of the top 5 lobbying firms, as well as Cahill Gordan & Reindell, a law firm that specialized in defending clients like AIG, Bank of America, Credit Suisse, and HSBC. Critics say that the corporate work compromised her ability since she may not risk jeopardizing long-standing relationships.
Others say Lynch is just following Obama’s lead and contributing to the class warfare that has become a hallmark of the current administration. Attacking “fat cats” or “the top 1%” has been Obama’s mantra.
Critics argue that despite this administration spending millions interrogating bank execs in front of the FBI, SEC, and Congressional committees, no one went to jail because the evidence of criminal activity simply wasn’t there.
If Lynch is going to act, she needs to do so soon, because she is running out of time. The statute of limitations for bank-related criminal activity is ten years (around 2018). And if a Republican president is elected in 2016, she will certainly be replaced as AG, meaning that she won’t have been in office long enough to accomplish anything of real substance.
And who knows—she might have a new job soon, as she is rumored to be Obama’s pick as the Supreme Court nominee to replace the vacant position left by Justice Scalia.
Actions speak louder than words, and critics feel that words mean nothing to the DOJ. Lynch has inherited Holder’s DOJ legacy of dereliction of duty, and the American people want to see actual prosecution of execs at the too-big-to-fail banks.