Economy

Federal Government Deepens Commitment To Separate Justice Systems For Wall Street, Main Street

CREDIT: AP

People who apply for jobs with federal contractors still have to check a box if they have been to prison, but a government agency is finally trying to “ban the box” — at least, for billionaire bankers.

The Department of Housing and Urban Development (HUD) is quietly seeking to negate the consequences of felony guilty pleas that some of Wall Street’s biggest names entered earlier this year, according to a letter from Rep. Maxine Waters (D-CA) and Sens. Elizabeth Warren (D-MA) and Sherrod Brown (D-OH). HUD’s proposal dates back to May, but had gone unnoticed more broadly until the members’ letter to agency head Julian Castro on Tuesday.

Whenever mortgage firms are getting ready to make a loan, they usually apply for federal insurance through HUD. The current application form requires lenders to certify that they have not been convicted of or pleaded guilty to a long list of crimes and civil offenses. But in mid-May, HUD sought to drop that provision out of the form. The official notice of that proposed change in the Federal Register did not spell out the modifications to the form, according to the lawmakers’ letter.

Five days after HUD proposed dropping the provision, news broke that six different gigantic Wall Street companies that had conspired to rig foreign currency exchange markets were pleading guilty to criminal fraud charges. If HUD’s proposed changes go through, all six firms would suddenly regain unfettered access to taxpayer-backed mortgage insurance. Two of them — JP Morgan and Citigroup — currently hold a combined $2 billion in mortgage loans insured by the Federal Housing Administration.

By contorting federal policy to protect big banks from the business consequences of their lawbreaking, HUD is falling in line with other executive branch agencies’ approach to Wall Street financial titans during the Obama years. The currency-rigging criminal fraud convictions have already been defanged in another important way by the Securities and Exchange Commission (SEC). The SEC quickly waived a rule that would have required the banks to tell clients whose money they manage that they’ve been convicted of fraud.

These administrative leniencies for crooked banks are in keeping with the Obama administration’s approach to well-heeled corporate lawbreaking. As with prior mortgage-related settlements, the financial penalties the banks paid over the currency rigging case were minuscule relative to the companies’ size — and were almost instantly paid for by the large bounce in each firm’s stock price after the deals were made public.

Former Attorney General Eric Holder, who just returned to Wall Street defense firm Covington & Burling this month, famously described the megabanks as “difficult to prosecute” because of their size in congressional testimony. The comments triggered a backlash, suggesting the nation’s top law enforcement officer had decided that Wall Street was simply too big to jail, and Holder’s subsequent high-profile campaign to punish the industry’s mortgage misdeeds was a bust.

While Holder overstated his office’s pursuit of banks for destroying the mortgage market, a group of wrongfully foreclosed homeowners were arrested for protesting at Covington & Burling headquarters during his tenure. Holder replacement Loretta Lynch has won accolades for rounding up corrupt international sports officials, but she’s also overseen light-touch fines and settlements with financial sector bigwigs. Like both Holder and current SEC chair Mary Jo White, Lynch’s resume includes significant time working on behalf of the banking industry that she is now charged with policing.

The combined effect of these prosecutorial and administrative decisions is that even misconduct severe enough to force large banks to admit to crimes is no impediment to doing business and making money. Meanwhile, individual Americans imprisoned for years for drug possession get essentially frozen out of job opportunities.

Efforts to prohibit employers from putting a criminal history checkbox on their application materials have gained momentum in recent years amid a broader re-evaluation of the country’s approach to criminal justice and how policies once touted as “tough on crime” in fact produce higher rates of recidivism and lower odds of rehabilitation for convicts. Virginia, Georgia, Nebraska, and the District of Columbia have all passed “ban the box” measures in the past two years. Advocates note that the unemployment rate among people who are one year out of prison is north of 60 percent, and blame that dangerous outcome on paperwork that makes it easy for hiring managers to instantly discard applications from people who have theoretically repaid their societal debt over their crimes.

On May 11 of this year — four days before HUD quietly filed for the paperwork change to shield Wall Street — a group of 27 senators wrote to President Obama asking him to use executive powers to prohibit all federal contractors and agencies from putting a criminal history check-box on job applications. Another 70 members called on the administration to ban the box from hiring processes it controls in May.

Earlier this week, Obama himself endorsed ban the box at the NAACP’s annual convention. If HUD’s changes go through, the government will make it easier for banks to get back to work after defrauded customers of huge sums of money than it is for a non-violent drug war offender to get a job mopping the cafeteria floor in Congress for a poverty wage.