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Always and Forever, Bad Apples

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But the measures implemented to assist deeply underwater [savings and loans] (in the very high interest rate environment of 1980-1982) were exploited by outsiders to the industry, who acquired thrifts on extremely favorable terms. Many of them, like Charles Keating, had been previously charged with fraud or had criminal records. The resulting cohort of high-flying thrifts showed high profits and growth rates and were widely praised as proof that deregulation worked, until they crashed. It is easy to look like a winner if you cook the books. Over 1,000 executives at savings and loans were convicted of fraud, and the largest failures almost without exception involved control fraud, meaning the CEO was driving the criminal activity.

- ECONned by Yves Smith, page 165

"Higher commands have to inform themselves about what's happening in subordinate command," Eugene Fidell, the president of the National Institute of Military Justice, tells Danger Room. "That's what it means to have command responsibility. You have to be aware of what's going on, take reasonable steps to inform yourself, and you can't claim ignorance."

- "How To Spot A Whitewash In Army's Death-Squad Inquiry" by Spencer Ackerman

Two familiar tunes were reprised this week, each a variation the same theme: The buck stops somewhere below middle management. In the financial world it was reported that one Jeffrey Stephan destroyed the global real estate market. Well, it was not quite that dramatic, but the store of problems being readied to dump on him was still enormous. He was supposed to review foreclosure cases, determine if they were justified and if so sign documents to that effect in the presence of a notary. He did not, and now we are seeing reports that hundreds of companies may be left holding the bag.

If it does turn out that Stephan's apparent negligence will have such a steep cost, a few things may be lost in the rush to judgment. The first is that foreclosures have already been jeopardized by other factors. For example, Cynthia Kouril has gone on and on about the shoddy documentation performed by many mortgage brokers neck deep in the securitization business. Most notably, she has exhorted consumers to demand the original blue ink signature documents in court proceedings in order to challenge their validity.

This is not a legalistic trick or a maneuver to wiggle out of an obligation either - if the company foreclosing on you does not have those documents and you make payment arrangements with them, you are still on the hook if the "blue ink" document holders come after you later on. In other words, you could end up paying for the same house twice. As Kouril has documented pretty thoroughly at her blog, courts have taken notice and have upheld such challenges. Jeffrey Stephan cannot exactly be on the hook for that.

Much more importantly, what kind of knucklehead CEO allows such a sensitive single point of failure to be farmed out, and why was there not at least an in-house verification of the third party's work? In a better era this would be cause for an investigation into control fraud, not the frantic search for a flunky sufficiently far down the food chain to throw under the bus. Whatever the crimes of the Jeffrey Stephans, Fabrice Tourres and Joseph Cassanos of the world, their damage would have been quarantined if those in charge were held responsible for whatever happened under their watch. Instead executives find a scapegoat and retreat behind the kind of defiant vacuity pioneered by Ronald Reagan.

Ackerman's piece sounds a similar warning. Although command responsibility has not existed in practice for the military for quite a while (the aftermath of Abu Ghraib was perfectly consistent with how military higher-ups evaded blame for the Tiger Force and My Lai atrocities decades earlier), there is now enough of a history for an attentive observer like Ackerman to outline just how the probable cover up will proceed, which is a remarkable development. Maybe the public has become so weary (via) of America's endless, pointless conflicts that even war crimes can, when massaged with some rote denials, pass by with barely a ripple.

Those at the top are only too eager to reinforce this dynamic. Barack Obama has persistently targeted whistleblowers for scrutiny, the Occupational Safety and Health Administration is doing a terrible job shielding them from retaliation, and Congress is allowing a bill to protect them to languish in committee. (The bill would apply to Congress, raising the question of how to get them to enact a law that makes life easier for those who make their lives more difficult.)

So in addition to the inherent ability of those in power to privilege themselves first, we have the normalization of using patsies and fall guys along with an outright hostility towards those who try to bring the abuses to light. The result has been a culture of impunity and an increasingly brazen and insular elite. Democracies tend not to thrive in those conditions.

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