Eric Holder, Wall Street Double Agent, Comes in From the Cold

Here are five pillars of the Holder revolution:

One is that he failed to win a single conviction in court for any crimes related to the financial crisis. The only trial of any consequence brought by his Justice Department for crimes related to the crisis involved a pair of Bear Stearns nimrods named Ralph Cioffi and Matthew Tannin, who confided in each other via email that the subprime markets were “toast” but told their clients something very different to keep them invested.

After a jury acquitted both in early 2009, the Holder Justice Department turtled. Sources inside the DOJ told me over the years that both Holder and his deputy, fellow Covington & Burling alum Lanny Breuer, were obsessed with winning and refused to chance any case where they felt a jury might go sideways on them. Thus the Cioffi-Tannin case was the last financial crisis case they dared to bring into to a criminal courtroom – virtually every other case ended in settlements.

Two: Holder famously invented a concept called “collateral consequences,” under which the state could pursue non-criminal alternatives for companies if they believed prosecuting them might result in too much “collateral” damage. Britain’s HSBC bank, which admitted to massive money laundering violations, and the Swiss bank UBS, which was caught manipulating the Libor interest rate benchmark, were examples of firms that escaped vigorous prosecution because Holder and his lackeys were, ostensibly anyway, concerned about market-altering consequences.

Significantly, both banks were later caught up in even more serious scandals, leading to criticism that stiffer punishments the first time around might have prevented future damage. Holder’s successor Loretta Lynch was even forced to rip up Holder’s UBS deal for being insufficiently punitive. It’s worth noting that Holder, before he became attorney general, represented UBS at Covington & Burling.

Holder’s lenient policies were deployed at a time when fellow officials like Tim Geithner and Ben Bernanke were using bailout monies to merge troubled firms together and create even larger mega-companies. Chase and Wells Fargo, which swallowed up Washington Mutual and Wachovia in state-aided takeovers, were prototypes of the modern mega-bank. So when Holder wedded “collateral consequences” to these new Too Big to Fail mega-firms, he created Too Big to Jail. This is a huge part of his legacy, the creation of an unjailable class.

Three: Holder also pioneered the extrajudicial settlement, striking huge deals with companies in which judges did not sign off on the agreements. The arrangement prevented pesky judges like the irksome Jed Rakoff (who voided a pair of settlements he felt were inadequate) from protesting lenient justice.

This essentially institutionalized the backroom deal. Everything was done in secret, and there was no longer any opportunity for judges or anyone else to check the power of the executive branch to hand out financial indulgences.

The watchdog group Better Markets described the $13 billion Chase settlement, one of the biggest extrajudicial deals, as “an unprecedented settlement amount [that] cannot…immunize the DOJ from having to obtain independent judicial review of its otherwise unilateral, secret actions.”