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February 4, 2014

Ladders of Missed Opportunity: State of the Union Promises on Financial Reform

As President Obama prepares to deliver the State of the Union Address tonight, it’s worth revisiting a key income inequality-related promise that the President made in his 2012 State of the Union Address:
And tonight, I’m asking my Attorney General to create a special unit of federal prosecutors and leading state attorney general to expand our investigations into the abusive lending and packaging of risky mortgages that led to the housing crisis. This new unit will hold accountable those who broke the law, speed assistance to homeowners, and help turn the page on an era of recklessness that hurt so many Americans.”
Unfortunately, the President’s “special unit” turned out to be neither special nor a unit. With little formal structure, it appeared to be little more than window dressing for the ongoing work of the Justice Department and others. To date, the Justice Department and the “special unit” have yet to produce a single indictment or criminal prosecution of any of the “too big to fail” Wall Street banks or their top executives who caused the greatest financial crash since 1929 and the worst economy since the Great Depression.[1]
In fact, more than a year after the President’s announcement, the chair of the task force – New York Attorney General Eric Schneiderman – complained about the lack of activity and aggressiveness
While Attorney General Holder recently suggested that prosecutions against Wall Street banks may be coming soon, he’s has said that before and the federal statute of limitations for fraud generally lasts five years. That means the Justice Department may have already missed its window of opportunity to bring prosecutions related to the 2008 financial crisis – a crisis which greatly increased income inequality by vaporizing trillions of dollars in wealth, throwing tens of millions out of work, forcing millions of homeowners into foreclosure and financial ruin, and triggering a recession that pushed millions of Americans into poverty. Altogether, the crisis is costing our economy an estimated $12.8 trillion
While we welcome tonight’s focus on executive actions to combat income inequality, we regret that the actions promised in previous addresses haven’t yet materialized.  Unless we continue to hold our leaders’ accountable, State of the Union promises can be fleeting and quickly forgotten. We hope that tonight will be different and that the recent causes of income inequality are attacked as vigorously as the long term causes.  

[1]   To be clear, the Justice Department has taken action in a few civil matters and reached settlements with fines and other monetary penalties for some of these “too big to fail” financial institutions. But, criminal charges have only been filed against individual mortgage brokers and a number of other relatively small time players, as well as against one Wall Street bank for activities subsequent and unrelated to the 2008 financial crisis. To date, not a single criminal charge has been filed against the “too big to fail” Wall Street banks for their activities which directly caused the greatest financial collapse since the Depression.
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