2008's Palmer Raids

"Authorities are investigating some 'relatively large corporations' as part of a sweeping mortgage-fraud probe, [FBI] Director Robert Mueller said. ... Mortgage fraud is 'an area that we are going to aggressively pursue,' said Deputy Attorney General Mark Filip. He declined to say if rating firms or others are targets of the investigation. ... The Justice [sic] Department and FBI officials sought to demonstrate progress in the mortgage-fraud fight Thursday, announcing that roughly 400 indviduals have been criminally charged for their roles in home-lending schemes, with 60 arrested Wednesday alone. ... 'Operation Malicious Mortgages' swept up criminal investigations from March 1 through mid-June, and produced 144 cases nationwide. FBI officials estimate the losses from, the alleged scams reached $1 billion. ... 'We will investigate, we will prosecute and we will bring those individuals to justice,' seeking prison terms where appropriate, Mr. Mueller said", my emphasis, WSJ, 20 June 2008.

"Referrals of potential criminal securities-fraud cases by the [SEC], which brings civil fraud cases, are at near-record lows, records show. ... John Nester, a spokesman for the SEC, said the commission has 'aggressively enforced the securities laws and ... has worked closely with criminal authorities to appropriately punish wrongdoing and deter wrongdoing.'," WSJ, 20 June 2008.

This is more DOJ guerrilla theater. Another source reported 406 arrests. With $1 billion in damage, that's $2,463,000 per arrestee. My guess: 90% of the "Mueller 406", would flunk my "Blankfein Test" and I would release so the (In)Justice Department can chase some real criminals, like those who wholesaled the mortgages as opposed to these "street level financial crack dealers". We saw a similar misuse of federal law enforcement resources between 1919 and 1921 when over 10,000 persons were arrested in the notorious "Palmer Raids". Most were ultimately released. What's really going on here? My take: these arrests are part of the Bush administration's continuing efforts to portray banks as victims of scam artists as opposed to their co-conspirators.

I'll let Nester speak for himself. What he means depends on what "appropriately" means. I conclude Nester should not look for an investment banking managing directorship when he leaves the SEC. He has a much more promising career ahead of him in stand-up comedy. With George Carlin's recent death, Nester has a fine opportunity.