No justice

It has been three years since the financial meltdown spawned the Great Recession, yet the Obama Justice Department has yet to file a single criminal charge against a mortgage lender, investment banker or ratings agency principal. The American people are left to conclude that when it comes to massive financial crimes, there is no justice to be had from the Justice Department.

"60 Minutes," the CBS television news program, reminded everyone of this ugly fact with an excellent segment Sunday. In it, correspondent Steve Kroft interviewed two mid-level executives who had warned their bosses at Countrywide Financial and Citigroup, respectively, about fraud within their mortgage operations. Obviously, neither company responded vigorously enough. But even more frustrating is that the whistleblowers have not even been interviewed by federal prosecutors.

As Kroft put it to the chief of the Justice Department's criminal division, it doesn't seem that Justice is trying very hard.

Certainly the potential targets of prosecution abound. Mortgage originators — Countrywide was one of the biggest — used fraudulent applications to make loans to subprime borrowers who could not possibly meet reasonable underwriting standards. In other words, the borrowers would quickly default, especially after teaser rates for the initial interest on the loans reset to much higher rates later.

Wall Street investment banks took pools of these loans and repackaged them into mortgage-backed securities. But what investors didn't know is that many of the loans underlying these securities were doomed to default. Some of the Wall Street firms even bet against their own securities. Despite all of this, the agencies that are supposed to evaluate securities gave them AAA, investment-grade ratings. That's apparently because they didn't bother to drill down into the quality of the loans themselves.

The whole system made fees for everyone along the chain. Ultimately, though, when the real estate market weakened and loans began to fail, people realized that many of the securities derived from them were worthless, or at least significantly devalued. Banks, not knowing what the exposure of other banks was, suddenly would not loan to each other. The financial system froze and the U.S. Treasury and Federal Reserve had to rescue the banks.

The financial system nearly collapsed, the taxpayers had to fund bailouts, the stock market tanked, the Great Recession began and millions of Americans lost their jobs. But the big shots who made the huge fees have not been called to account. They should be in the dock.