By Christopher R. Hill
For many foreign audiences, the United States’ primary elections for the 2012 presidential vote – which will, alas, continue to rage into the summer – must be a frightening display of what Americans and their leaders do not know about foreign policy. Debate after debate reveals the fact that none of the candidates seeking to challenge President Barack Obama is particularly interested in the details of any of America’s relationships around the globe, not to mention the crises that dot the international landscape, especially those that do not involve US troops.
Indeed, ignorance seems to be a source of strength for the candidates still in the race. When Jon Huntsman, an early contender, displayed some real intellectual heft by making a few useful points about dealing with China, punctuated by a brief display of his own mastery of Mandarin, some other candidates responded with derision. To have even known the Chinese perspective seems to have been disqualifying for Huntsman, who soon ended his candidacy. Foreign policy, it seems, increasingly excites only the emotional parts of a presidential candidate’s brain.
The fact is that Americans often have a difficult time understanding why the details of foreign policy should matter to them. Unfortunately, the Republican candidates have done little to help them. In 2008, then-presidential candidate John McCain occasionally tried to do so, explaining at one point to a skeptical audience his views on the growing problems in Baluchistan. But, for the most part, the candidates have steered clear of speaking Chinese or discussing troubled Pakistani provinces.
The world might expect that the American people – the stewards of the world’s only superpower, – would be far more engaged on foreign-policy questions. Instead, they see Americans as increasingly reducing US involvement in the world to a morality play – Gary Cooper’s iconic role as the lone sheriff among the craven townspeople in High Noon comes to mind. (Those who see a role for “coalitions of the willing” might be broad-minded enough to consider Rio Bravo, in which John Wayne welcomes some allies.)
Foreign visitors to the US often comment that Americans are probably among the most patriotic people in the world, and are becoming much more so. People used to display American flags on their homes only on national holidays. Otherwise, they were found only outside government buildings. Today, they are displayed everywhere all year (with the largest, it seems, outside car dealerships, regardless of whether imported cars are being sold). Likewise, for decades, baseball games have begun with the national anthem; but now, two thirds of the way through the game, fans are asked to stand again and sing “America the Beautiful.”
To be sure, part of the current dynamic has to do with the aftermath of the September 11, 2001, terrorist attacks. But this wave of patriotic fervor seems sustained by even stronger forces – perhaps by a frustrated emotional sense that America’s motives are not properly understood in the rest of the world. A popular and enduring country song sums it up with the refrain: “I’m proud to be an American, where at least I know I’m free.”
At least? America has had a knowledge-based economy and one of the highest living standards in the world for decades. Freedom is surely the foundation of that success, but, not to go out on a limb, that achievement is also a reason to be proud. Even today, America’s economy remains one of its most admired features in the rest of the world – including in China.
Yet Americans seem discouraged. I remember the saddened look on the face of a US election observer in Iraq, a state legislator from Texas, when, after asking an Iraqi official whether Iraq planned to repay the US for “introducing democracy” to his country, the official (at first not quite understanding the question) shook his head ruefully. She walked away.
This year’s presidential debates have addressed foreign policy solely in terms of whether the candidate would be “tough” enough to deal with the challenges – that is, as a question of emotional fortitude, rather than of the intellectual foundation required to understand those challenges.
American political history is replete with presidents who in one way or another did not appear to measure up on the world stage. President John F. Kennedy’s first meeting with Soviet Premier Nikita Khrushchev stands out in American political lore: the young American President somehow comes across as underwhelming to his Soviet counterpart, who then tries to get away with deploying long-range nuclear missiles in Cuba, a move that brought the US and USSR as close to war as they ever came. Given such narratives, foreign policy devolves in US political campaigns into a kind of testosterone check, rather than what is needed: a test of knowledge and judgment.
The good news is that there is plenty of historical evidence to suggest that, once in office, the candidate develops an understanding of the issues and a feel for the nuances in managing them – a fact that should be calming to the international public. But, whether caused by an excess of cable television, or an excess of debates themselves, this “silly season” has seemed especially prolonged, even frightening. Whether the presidential candidates know it, or are in the least bit interested, the world listens to their words with greater care than they have sometimes shown in uttering them.
It’s now a near certainty that Wall Street executives committed felonies. The recently released audits of robo-mortgage activities by the Office of the Inspector General of the Department of Housing and Urban Development (HUD) details shocking behavior at the five banks constituting the Federal Housing Administration’s largest mortgage servicers. At Wells Fargo, management quashed a midlevel manager’s study of the foreclosure process as negative results began to emerge, and it gave an individual whose last job had been in a pizza restaurant the title of “vice-president of loan documentation” to facilitate robo-mortgage signing. Bank of America evaluated employees on the volume of foreclosure affidavits produced. JP Morgan Chase gave individuals titles such as “vice-president of Chase Home” where “the titles were given by Chase for the sole purpose of allowing individuals to sign documents and came with no other duties or authority.” Citigroup and Ally similarly engaged in seemingly illegal practices.
Under federal law, the knowing filing of a false affidavit with the court is a felony offense of perjury, punishable by a prison term of up to five years. An individual violates laws against perjury whether he or she personally appears in court and swears to a false statement or provides the court with a false affidavit. Individual states have their own perjury laws, which were undoubtedly violated as well. The HUD report also suggests that individual banks may be guilty of obstruction of justice and the criminal violation of the False Claims Act for filing insurance claims without following HUD requirements.
Since the start of the financial crisis, federal and state officials have been struggling to change Wall Street behavior. To date, every effort has failed miserably, and the weak enforcement provisions of the robo-mortgage settlement are unlikely to meaningfully change this dynamic. Government officials have also relied, with a very few exceptions, entirely on civil enforcement when criminal laws appear to have been egregiously violated.
The greatest moral hazard now confronting the nation is what appears to be increasingly brazen criminal activity by financial industry executives. With each decision not to prosecute, Wall Street executives justifiably conclude that they are immune to the rules. As a result, it appears that Wall Street criminal activity is increasing in frequency and severity, as opposed to the reverse. The activities surrounding the collapse of MF Global are one example.
So what can be done about it? We can change the behavior in the financial service industry for a full generation in just seven days. This plan may seem to be tongue and cheek, but it hearkens back to a similar action in the era of the Great Depression. In the final months of Herbert Hoover’s presidency, the Senate Banking Committee began an investigation into the causes of the Great Crash of 1929, and a young prosecutor named Ferdinand Pecora was appointed as Chief Counsel. Subsequently, the Roosevelt administration conveyed to Pecora that “the prosecution of an outstanding violator of the banking law would be the most salutary action that could be taken at this time. The feeling is that if the people become convinced that the big violators are to be punished, it will be helpful in restoring confidence.” Ultimately, this investigation, which came to be known as the Pecora Commission, led to the indictment of one of America’s most prominent financiers; demonstrated widespread self-dealing in the financial sector; and, as noted by historian Alan Brinkley, generated “broad popular support” for Roosevelt’s reform agenda, including the creation of the SEC and the Glass-Steagall Act.
My seven day plan is based on a simple premise: When criminal laws are egregiously violated, the guilty parties should face appropriate punishment. Here’s the plan:
Day One: Read the HUD Inspector General’s reports and the public records of past mortgage foreclosure cases from across the nation.
Day Two: Meet with the team at the Office of the Inspector General at HUD that prepared the audits. Obtain the names of all the bank officials, lawyers, and notaries whose behavior, as cited in the audit reports or otherwise known to the investigators, represent clear and unquestionable criminal violations. Add to this list other individuals who have similarly demonstrated or testified to behavior unquestionably constituting criminal acts, as indicated by the public records of the mortgage foreclosure cases reviewed in day one.
Day Three: Indict all of the individuals on the list compiled on day two.
Day Four: Indict banks and financial institutions on criminal charges where criminal behavior by employees (as demonstrated by day three indictments) appears to be endemic. The Justice Department guidelines for prosecuting firms include: (1) the pervasiveness of such activity, (2) the compliance procedures in place, (3) attempts by the corporation to end bad behavior, and (4) cooperation with federal investigators. In 2008, the Justice Department adopted a policy of accepting “deferred prosecutions,” involving agreements to change corporate behavior without damaging innocent third parties through prosecution.
Corporations receive the benefits of “legal persons,” as demonstrated by Citizens United. But they must also bear the responsibilities of these privileges. A reading of the HUD reports, and other public records, suggests several banks should clearly be prosecuted.
Day 5: Discuss plea bargains with indicted lower-level officials in return for cooperating in investigations of higher-level officials.
Day 6: Consider plea bargains with indicted banks, which require the removal of all remaining officers, and directors who were serving when egregious criminal activity occurred, as well as senior officials who were in a position to exercise appropriate supervisory responsibility but chose to look the other way.
Day 7: Indict any senior Wall Street officials implicated by new cooperative testimony resulting from activities on day five. Adopt and announce a policy that future criminal violations will be prosecuted in a similar fashion.
What is particularly disturbing is that a look at the evidence already in the public domain (much less what investigators already know) shows that none of the actions discussed above are entirely absurd. The purpose of prosecution not simply punishment. It acts to deter further illegal activity and to restore public confidence in our system of governance. The nation desperately needs both of these benefits today.
Moreover, these ongoing, almost certainly criminal activities are ultimately dangerous threats to our economy, the success of capitalism, and our democracy. In his column on MF Global, Joe Nocera noted that “customers need to be able to trust” the laws protecting their money. “Otherwise, the markets can’t function.”
Today, as in the era of FDR, we must send a message to the financial community that illegal behavior will not be tolerated. By prosecuting blatant felonies now, we will deter future misbehavior and begin the process of recreating a fair society where equal justice prevails