award-winning journalist with Rolling Stone magazine. His most recent book, The Divide: American Injustice in the Age of the Wealth Gap, is now out in paperback.
In the latest sign of the revolving door between Wall Street and Washington, recently retired U.S. Attorney General Eric Holder is returning home — to the corporate law firm Covington & Burling, where he worked for eight years before becoming head of the Justice Department. During his time at Covington, Holder’s clients included UBS and the fruit giant Chiquita. The law firm’s client list has included many of the big banks Holder failed to criminally prosecute as attorney general for their role in the financial crisis, including Bank of America, JPMorgan Chase, Wells Fargo and Citigroup. We speak with Matt Taibbi, award-winning journalist with Rolling Stone magazine. "I think this is probably the single biggest example of the revolving door that we’ve ever had," Taibbi says.
JUAN GONZÁLEZ: We turn now to the latest sign of the revolving door between Wall Street and Washington. Recently retired U.S. Attorney General Eric Holder is returning home—to the corporate law firm Covington & Burling, where he worked for eight years before becoming head of the Justice Department. During his time at Covington, Holder’s clients included UBS and the fruit giant Chiquita. The law firm’s client list has included many of the big banks that the Justice Department under Holder’s leadership failed to criminally prosecute for their role in the financial crisis, including Bank of America, JPMorgan Chase, Wells Fargo and Citigroup.
AMY GOODMAN: In a new interview with The National Law Journal, Eric Holder said his, quote, "appropriately aggressive," unquote, challenges to financial and corporate fraud could mean certain institutions "might not want to work with me," he said, "and ... that’s fine," unquote. However, in 2013, Holder testified before the Senate Judiciary Committee and suggested some banks are too big to jail.
ATTORNEY GENERAL ERIC HOLDER: I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy. And I think that is a function of the fact that some of these institutions have become too large. Again, I’m not talking about HSBC; this is just a more general comment. I think it has an inhibiting influence—impact on our ability to bring resolutions that I think would be more appropriate.
AMY GOODMAN: Well, for more, we’re joined by Matt Taibbi, award-winning journalist with Rolling Stone magazine, who writes about Eric Holder’s time at Covington & Burling and much more in his book, The Divide: American Injustice in the Age of the Wealth Gap, which is now out in paperback.
It’s great to have you back, Matt.
MATT TAIBBI: Good morning.
AMY GOODMAN: So you were tweeting up a storm yesterday as this news came of the former attorney general, Eric Holder, going back to Covington & Burling. Talk about the significance of this.
MATT TAIBBI: Yeah, I mean, I think this is probably the single biggest example of the revolving door that we’ve ever had. And we’ve had some whoppers in our past. I think previously the worst one was probably Louisiana Congressman Billy Tauzin leaving Congress and taking a $2-million-a-year job with PhRMA, right after he helped pass the prescription drug benefit bill. But what Holder just did just blows Tauzin away. I mean, he spent six years essentially guiding all of these Wall Street firms, which many of them are clients of this company that he’s now working for—he guided them all back to profitability. He allowed bankers to escape prosecution. And now he’s going right back to that firm, where he’s going to enjoy a very lucrative partnership, whether he ever works again, you know, for the rest of his life.
JUAN GONZÁLEZ: Well, Holder also sort of became a point person for these, quote, "extrajudicial settlements."
MATT TAIBBI: Right.
JUAN GONZÁLEZ: Could you explain what those are and how they worked?
MATT TAIBBI: Yeah, Holder, in general, pioneered a number of different ways that essentially a lot of these too-big-to-fail companies were allowed to buy their way out of trouble. And one of the most notorious, I think, was that he concluded a number of the biggest settlement deals with banks like JPMorgan Chase in ways that were not reviewed by a judge. Because we did have some instances during this time period where pesky judges—I think one of the most infamous, in the eyes of Wall Street, was Jed Rakoff, who threw out a settlement with Citigroup because he thought it wasn’t harsh enough—well, to fix that problem, Holder just started striking deals and not submitting them for judicial review. So he did a $13 billion settlement with JPMorgan Chase where no judge signed off on the deal. The whole thing was done in secret. He essentially institutionalized the back room. This was just a deal where a bunch of bankers got together with a bunch of Justice Department officials, money changed hands, and that was it. The whole—all of their criminal problems went away. This is a very different way of doing business than what we’ve ever seen before, and it’s very dangerous, I think.
JUAN GONZÁLEZ: And he also took the term "collateral damage" into the financial world out of the military world, didn’t he, as well?
MATT TAIBBI: Right, yeah. He actually predated the collateral damage idea back when he was a lawyer in the Clinton Justice Department. He wrote a memo that—you know, it’s now known as the Holder Memo, where he outlined a policy that is called "collateral consequences," and basically all this says is that if you’re a prosecutor and you’re worried about prosecuting a company that employs a lot of people and you’re concerned that innocent people might suffer as the result of a prosecution, you may pursue noncriminal remedies when you go after this company.
The problem was that when—by the time he became attorney general, the economic landscape was dotted all over with these enormous, too-big-to-fail companies, and there was a real threat that if you prosecuted these firms, that it might cause serious damage to the overall economy. Obviously we saw what happened with Lehman Brothers, for instance. So this became sort of the unofficial policy of the United States. We started taking companies that had done very bad things—you know, HSBC is probably the biggest example, laundering money for drug dealers—and instead of throwing people in jail and extracting huge individual penalties from the guilty parties, we just got the banks to pony up a big fine that shareholders paid, and they got to stay in business.
AMY GOODMAN: As you were tweeting your criticism yesterday, a lot of Obama supporters were also on social media pushing the line that Holder did not send anyone to jail because there were no laws broken.
MATT TAIBBI: Right, yeah, and this is—this comes, I think, directly from something that Barack Obama himself said on 60 Minutes once. He said some of the worst behavior on Wall Street was not illegal, some of the least ethical behavior was not illegal. But he crafted that phrase very carefully. He didn’t say all of it was not illegal. He said some of the worst behavior, and that’s true. But some of it was very illegal.
And again, just to go back to some of the worst cases, HSBC admitted to laundering $880 million for a pair of Central and South American drug cartels, including the Sinaloa drug cartel, which is infamous all over the world for these torture videos. So, we have HSBC, Europe’s largest bank, is washing hundreds of millions of dollars for people who chop people’s heads off with chainsaws. That’s a crime. I mean, there’s no—that’s the worst crime that a bank can possibly commit. And anybody who thinks that Holder didn’t send people to jail because they didn’t commit crimes is not really paying attention to what went on during this time.
AMY GOODMAN: Also at Covington & Burling, Eric Holder will be reunited with Lanny Breuer. Explain who he was and the significance of them together.
MATT TAIBBI: Well, Lanny Breuer worked at Covington & Burling along with Eric Holder. He went to Holder to become his deputy for the early part of his tenure as attorney general. He was the head of the Criminal Division. Lanny, from the sources that I spoke to while I was researching all this material, was terrified of going to court when he didn’t have an absolute, guaranteed, sure victory. And so, what happened very early in their tenure together was that they did take one case to trial. They went to trial against a pair of guys from Bear Stearns who were accused of defrauding their clients. And they lost. It ended in an acquittal, even though they had very solid documentary evidence. From that point forward, they didn’t take anybody to court. And all of these cases involving all of these banks, they went the settlement route instead, presumably because they were afraid of going into a courtroom. They were worried that juries didn’t understand this material. They were worried that it was too complicated. And so, rather than risk losing and getting a bad headline, they let off all of these people who had done very, very bad things, and so we have this legacy of cash instead of punishment.
JUAN GONZÁLEZ: Can you talk also about how the Justice Department and other regulatory groups have changed the composition of the staffing, the high-level staffing, of these agencies during this period when Holder has been there?
MATT TAIBBI: Yeah. This is something that I heard over and over again over the years, which is that a certain kind of person who used to work in the regulatory agencies, you know, who was a kind of a career civil servant, particularly the law enforcement types, the people who grew up through the ranks, you know, just trying to get the criminal at all costs—they’re primarily motivated by trying to extract justice from wrongdoers—that kind of person is gradually disappearing from the ranks of the regulatory bodies, and they are being replaced, increasingly, particularly at the higher levels, by people from the corporate defense community. And Holder was very profoundly a symbol of that kind of person.
And the difference was, when you have people who come from the corporate defense world, like Holder, like Lanny Breuer, they tend to approach these settlements not to get a pound of flesh out of the wrongdoers, but instead they want to emerge with a settlement that leaves everybody happy when they walk out of the room. But that’s really not a good approach to fighting crime. That’s not the kind of attitude you want in your top crime fighter in the country. And as a result, that’s how we got so many of these settlements, which, again, were concluded in secret, in the back room. And people like Jamie Dimon were walking out of these settlements, saying, "Well, this wasn’t so bad." And their share price would go up the day after these settlements were concluded. That’s really not what we want from the top cop in the country.
AMY GOODMAN: And this goes to the central theme of your book, Matt Taibbi, The Divide: American Injustice in the Age of the Wealth Gap. I mean, Attorney General Eric Holder was hailed as a great civil rights hero. After Ferguson, he actually went to Ferguson. I was in the Selma church on the 50th anniversary of the Selma march just a few months ago, when he gave a powerful speech about young black men—his own son, Eric Holder III, in the front row—being killed, and kept repeating that. It reminds me of Reverend Barber in North Carolina, head of the NAACP, who, after Dylann Roof was arrested, the alleged shooter in the Charleston church, said, "The perpetrator has been arrested, but the killer is still at large." And he was talking, overall, about the system, beyond the Confederate flag, what it represents—for example, mass incarceration—and how these things have to change.
MATT TAIBBI: Right.
AMY GOODMAN: So talk about what this means—on the one hand, a civil rights crusader, but when it comes to issues of who gets put in prison and who remains free, where Eric Holder has stood.
MATT TAIBBI: Yeah, I mean, to be fair, Eric Holder, you know, has talked a lot about reform of prison sentencing, and according to their statistics, incarceration has actually declined under the Obama administration for the first time in I don’t know how many years—forever. But still we have these enormous problems, like the story that you reported on in the beginning of this show. You have people who are in jail for not just for months, but years at a time, awaiting trial because they can’t afford bail. We have millions of people behind bars for crimes that are far less serious than what HSBC, for instance, was doing. And there’s this enormous dichotomy.
I think, you know, this is the—the chief problem with what Holder did is that there are all of these people who are in jail for crimes because it’s easy to put away people who don’t have enough money to defend themselves, who can’t pay enormous fines. Those are the people who end up going behind bars for crimes like money laundering or drug dealing or whatever it is. But we have this rationale for companies like HSBC or JPMorgan Chase or Credit Suisse or BNP Paribas, that are caught with doing tax evasion or money laundering or fraud or whatever it is, that somehow this class of defendants, we can allow them to pay their way out of trouble, while this other group of people has to go behind bars. And we just can’t have that. I mean, that system is totally inappropriate. And as much as Holder wants to hold himself out as a civil rights leader, and has done some good things, this dichotomy is really his legacy, and that’s an enormous problem.
JUAN GONZÁLEZ: And the issue of him returning to Covington & Burling, could you talk about that particular law firm, its role in the Washington scene? And also, what are the limitations on appointed officials, in terms of once they leave office what they can or can’t do, or did the Obama administration institute particular restrictions on their appointees?
MATT TAIBBI: They did. There is a two-year cooling-off period, they call it, where, you know, someone who leaves the Justice Department has to wait for two years before they can interact with the Justice Department again. This means that even though Eric Holder has gone back to work, he has to sit for 19 months during this cooling-off period and do I don’t know what. I’m sure he’s going to be compensated very handsomely during that time.
JUAN GONZÁLEZ: But he can advise the lawyers that do the direct interaction.
MATT TAIBBI: Exactly, yeah. They’ll figure out some way to do it so that it’s, you know, superficially legal. But there is this cooling-off period. Covington & Burling, what its significance is, it’s one of the biggest white-collar defense firms in America. It is notable because it has such a lengthy list of too-big-to-fail banks among its clientele. It also, very interestingly, played a very important role in helping to create the subprime mortgage crisis, because it represented a company called MERS, which was the electronic mortgage registry system, which helped create a lot of the confusion and chaos in the paperwork area of the mortgage system. All these people who were trying to find out who owns their home and can’t find the note, a lot of that is chalked up to the work that MERS did to eliminate paper mortgages. So they had an enormous role in helping create this subprime mortgage market. And then, of course, Eric Holder goes, and he’s the regulator for all that activity, you know, as the attorney general. It was a little weird, to say the least.
AMY GOODMAN: Can you talk about Keir Gumbs?
MATT TAIBBI: Keir Gumbs? I’m sorry.
AMY GOODMAN: Keir Gumbs—
MATT TAIBBI: Oh, who has just become the—
AMY GOODMAN: —the man that Senator Warren has been protesting, would be put—
MATT TAIBBI: Right, who’s going to be—who’s going to be on the SEC now, yeah. I mean, this is a—they’re putting him—he’s going to be an SEC commissioner, presumably. Covington & Burling is becoming essentially a kind of shadow Justice Department now. We have six alums from the Justice Department who have just returned to Covington & Burling, and now Covington & Burling is sending another person to occupy a very high-ranking seat in the SEC. You know, it’s problematic, clearly, when you have so many people from the same firm who are all going to be talking to each other. It’s kind of this secondary club. And what happens when all these people have this congenial relationship, they end up making deals that are much more favorable to their clients than they would be otherwise.
JUAN GONZÁLEZ: Well, they can all regulate all of the Goldman Sachs alums that are in other agencies in the federal government.
MATT TAIBBI: Right, yeah, exactly. Yeah, yeah, right.
AMY GOODMAN: I mean, the significance of Gumbs, yes, coming from Covington & Burling, but also representing American Petroleum, he and colleagues at the firm writing a guide advising corporations on how to avoid disclosing their political spending to shareholders, Senator Warren wanting the SEC to require companies to disclose that kind of spending. And the question is: Will President Obama respond to Senator Warren’s pressure?
MATT TAIBBI: Probably not, I’m guessing. You know, I mean, but this—it says a lot that this is the kind of person that they’re going to be bringing in to the SEC. And I think, you know, again, people want a different kind of person occupying these regulatory positions. They don’t want a corporate defense attorney who’s just spent however many years telling companies how to avoid punishment, how to avoid taxes, how to avoid all these problems. You know, I personally would much prefer to have a career investigator, career law enforcement official in that job.
AMY GOODMAN: Well, we want to thank you, Matt Taibbi, award-winning journalist with Rolling Stone magazine. His most recent book, The Divide: American Injustice in the Age of the Wealth Gap, now out in paperback.
This is Democracy Now! When we come back, we head across the pond to London, to security guru Bruce Schneier. Stay with us.