When "Populists" Are More Interested in Fighting the 1% Than in Protecting the 99%

On Wednesday, the Department of Justice announced that five banks pleaded guilty to currency manipulation and six of them will pay $5.8 billion as part of the agreement. Adam Lerner at Politico reported Sen. Elizabeth Warren's response.

“The big banks have been caught red-handed conspiring to manipulate financial markets, and several have even admitted in court that they’re felons — but not a single trader is being held individually accountable, and regulators are stumbling over themselves to exempt the banks from the legally required consequences of their criminal behavior,” Warren said. “That’s not accountability for Wall Street.”

On her first point about not a single trader being held individually accountable, she is simply wrong. From the link above:

As part of its settlement with New York banking superintendent Benjamin Lawsky, Barclays agreed to terminate eight employees engaged in currency trading between London and New York...

Cases against individual traders also may be forthcoming, people with knowledge of the probe have said.

But you might be wondering what she meant by regulators exempting banks from the consequences of their criminal behavior. I'd suggest that Matt Yglesias has the answer to that.

Market regulators have the authority to bar criminal banks from managing mutual funds, corporate pension plans, or other regulated financial entities. But in this case not only has the Securities and Exchange Commission issued waivers to avoid that from happening, the DOJ worked with the banks and regulators to ensure that the criminal case was not officially settled until the waivers were in place.

In other words, the very same Justice Department that proudly insisted a fine wasn't good enough to settle the case also acted to ensure that there would be no practical consequences beyond the fine.

Sounds pretty bad, doesn't it? Until you think about it from the perspective of the people whose mutual funds and pensions are managed by these banks. What do you think happens to them when the banks are barred from managing their accounts? I can guarantee you that a lot of those folks aren't members of the 1% and sure aren't responsible for the criminal actions undertaken by the traders involved. These are the folks the Justice Department was trying to protect.

This case fits a pattern I've seen pretty often over the last few years. As I mentioned before, one of the things that makes these financial institutions "too big to fail" is interconnectivity. This is a perfect example of how that comes into play. When someone like Tim Geithner said that he wanted to ensure a "soft landing" to the whole financial crisis that spurred the Great Recession, his goal was to limit the impact our interventions had on those who were not culpable. In doing so, he has accepted that it created a "moral hazard" for those who were. But given the fact of interconnectivity, the question comes down to whether or not your desire to punish the 1% takes precedence over the need to protect the 99%.