By William K. Black
(Cross posted at Benzinga.com)
FBI Director Robert Mueller is taking his victory lap as he steps down after 12 years of service. I have done three articles in a series that explains how the Mortgage Bankers Association (MBA) conned the FBI into adopting the Tea Party’s mythology about the causes of the crisis – virginal banks beset by ultra-sophisticated fraudulent hairdressers. The MBA created a faux definition of mortgage fraud under which the bank and its senior officers were always the victims instead of the perpetrators.
Mueller’s description of his tenure reveals that his obsession with one of the FBI’s tasks, anti-terrorism caused the FBI to fail catastrophically in many other tasks. The FBI is essential in a wide range of fields. We have, for example, roughly one million Americans employed in our criminal justice system. Only the 2,300 FBI white-collar specialists, however, investigate elite white-collar crimes and we have over 1,300 industries (not firms). We have over 500 fewer FBI agents working white-collar crime cases because Mueller transferred over 500 of them to national security tasks after 9/11. (Mueller sought to move the best 500-800 of those white-collar agents by permanently or temporarily reassigning them to national security, so the true loss of capacity against sophisticated financial frauds was far greater than the bare numbers suggest.) We can all understand that action, which was part of a transfer of over 2,000 FBI agents to national security that Mueller ordered in response to 9/11.
Senior FBI officials sought to replace the lost agents, but the Bush administration refused to allow the FBI the right to do so and Mueller never went to the mat to replace the loss of agents in fields other than national security because his focus was almost exclusively on national security.
“Robert Mueller, the FBI’s director since 2001, said mortgage fraud needed to be considered ‘in context of other priorities,’ such as terrorism. He told the Commission that he hired additional resources to fight fraud, but that ‘we didn’t get what we had requested’ during the budget process. He also said that the FBI allocated additional resources to reflect the growth in mortgage fraud, but acknowledged that those resources may have been insufficient. ‘I am not going to tell you that that is adequate for what is out there,” he said. In the wake of the crisis, the FBI is continuing to investigate fraud, and Mueller suggested that some prosecutions may be still to come’” (FCIC 2011: 163).
“Some prosecutions may be still to come” – what a forlorn hope. Since he uttered the forlorn hope there have been zero prosecutions of the senior officers of the control frauds that caused the crisis. “Terrorism” cannot be accepted as an excuse for failing in the FBI’s responsibilities, yet Mueller remains blind to the costs to the Nation of the FBI’s mono-focus on national security.
“‘I had been a prosecutor before, so I anticipated spending time on public corruption cases and narcotics cases and bank robberies and the like, and Sept. 11 changed all of that,’ he says.
It took him a while to realize how drastically the mission of the FBI had to change. Conversations with President George W. Bush and later with President Obama focused his mind on this thought: ‘What is the FBI doing to prevent the next terrorist attack?’”
Mueller’s comment reveals the critical error that caused the FBI to fail. The “mission” of the FBI did not need to “change” in response to 9/11. The FBI had always had the mission of preventing domestic terrorist attacks. The 9/11 attacks should not have led to Mueller not “spending time” on the FBI’s other functions. Mueller “drastically” redefined his mission as national security – period. That cannot work when one runs an agency that is the only means of detecting, investigating, prosecuting, and deterring a vast range of dangerous crimes. Mueller “locked-on” on a single “target” and lost broader “situational awareness.”
The obvious point, except to Mueller (and the media) was “what is the FBI doing to prevent the rapidly growing epidemics of mortgage origination and secondary market control frauds that are going to cause the worst financial and economic crisis in 75 years?” The NPR program accepted uncritically the claim that Mueller had transformed the agency in a positive manner.
“And in a huge shift in mindset, he also set up an intelligence operation within the bureau to analyze threats.”
The FBI must prevent threats of fraud epidemics that cause over $12 trillion in losses in wealth and cost over 10 million American jobs. Where was the “intelligence operation” that missed?
- The appraisers’ warnings – which began in 2000 – that the lenders were engaged in endemic appraisal fraud in order to inflate appraisals,
- Our driving liar’s loans out of the S&L industry in 1990-1991 because we recognized that only fraudulent lenders would regularly make liar’s loans,
- The FBI’s own twin warnings in September 2004 that there was an epidemic of mortgage fraud and that it would cause a financial crisis were it not successfully contained – warnings that Mueller failed to heed
- The lending industry’s own anti-fraud expert’s five warnings about the endemically fraudulent nature of “liar’s” loans in early 2006,
- The fact that the industry called the loans “liar’s” loans behind closed doors.
There has never been a crisis with earlier warnings, from our crackdown on fraudulent S&L lenders making liar’s loans in 1990-1991 and from the appraisers in 2000 (over a year before Enron failed) and a more obvious “tell” (calling the fraudulent loans “liar’s” loans lacks subtlety). The FBI never developed “an intelligence operation” “to analyze threats” of even epidemic fraud. Mueller’s failure to respond to these exceptionally early, strong, and unambiguous warnings of the mounting epidemics of accounting control fraud, the same form of fraud that had driven the Enron-era crisis and the savings and loan debacle, represents the ultimate failure of leadership under the test that his supporters urge us to use.
“Former Justice Department Inspector General Glenn Fine, who frequently held Mueller’s feet to the fire, says it has been a successful run for the director.
‘The measure of a tenure and the measure of a leader is whether when he learns of those problems, he fixes them,’ says Fine….”
Mueller shows no recognition that he has created institutions that have reinforced his worst tendency to focus solely on terrorism.
“For nearly a dozen years now, Mueller has started his morning — every morning — with a secret threat briefing. So, what keeps him up at night?
‘Well, the thing I worry about most … is the possibility of a bomb on an airplane, here in this day and age,’ he says.”
The reporters never ask him how many times that morning “secret threat briefing” warned him about the control fraud epidemics. Mueller’s saw banks only as the potential victims of terror.
“Lately, Mueller has been focusing his energy on a new area of work for the FBI: cyberattacks on banks, utilities and other ‘vulnerable’ areas. And in another pivot point for his agency, Mueller worries that the cyberthreat will soon overtake al-Qaida as the bureau’s biggest priority.
‘Before we have a substantial incident which would serve as a wake-up call, we need to do everything we can to prevent that happening,’ he says.
Mueller’s rare consideration of banks is doubly revealing. First, notice that he ignores the lead role that bank control frauds play in assisting terror – particularly potential state-sponsored terror. The HSBC and Standard Chartered cases – real cases of the world’s largest banks deliberately aiding the funding terror groups and Iran’s pursuit of nuclear weapons (controversial, I know, but Mueller certainly believes it). Second, Mueller ignores these real cases and worries solely about hypothetical cases where the banks might be the victims. That hypothetical leads Mueller to declare that “we need to do everything we can to prevent that happening.” But we apparently do not have to “do everything we can to prevent” the real actions by fraudulent banks (among the largest in the world) to aid terrorists in order to increase bank profits and their officers’ bonuses. DOJ refused to prosecute HSBC and Standard Chartered and the hundreds of employees who committed tens of thousands of frauds for over a decade.
The 9/11 attacks caused a terrible loss of life, but the FBI’s duty is to prevent crimes (including white-collar crimes) that kill and maim far more people than do terrorist attacks. An FBI leader must not focus on the politically sensitive cases and must counter the hysteria and grossly exaggerated fear that terrorism seeks to create. Mueller was terrorized by terror.
Mueller portrays his mono-focus on national security as a virtue and impugns those who focus on all crimes or cared about constitutional rights as deficient in their humanity.
“As a prosecutor, he worked for years on the investigation of the bombing of Pan Am 103 over Lockerbie, Scotland, in 1988.
To ‘people who [criticize] our intelligence programs…I would say: Spend a few moments with families of those who have lost their loved ones, whether it be Pan Am 103 or Sept. 11 … and it puts it in a wee bit different context.’”
Every family member who loses a loved one suffers. Only a tiny percentage of family members suffer that loss due to a crime are the collateral victims of terrorists. It is clear that the Pan Am experience is the defining trauma of Mueller’s life. Had he been the prosecutor in Bangladesh of the white-collar criminal who owned the clothing plant that collapsed and murdered thousands of workers Mueller might have become the scourge of control frauds. One hopes, however, that in that alternative incarnation he would not have become so cavalier about harming constitutional rights in the pursuit of the control frauds. The suffering of families who lose loved ones due to crimes does not put the constitution “in a wee bit different context.” “
Mueller has never met most of the victims of our insane drug wars. As with other attempts at prohibition it creates criminogenic environments that cause the deaths of tens of thousands of people. Most of the families of these victims live in other nations. The drug war also funds many terrorists so it is doubly stupid. Ending the drug wars would free up investigators and to make the FBI more effective in every field (including anti-terror). An FBI Director focused solely on terror cannot bring the strategic thinking essential to making these vital changes.
Mueller also explained that politics will exacerbate the FBI’s failure to hold elite bankers accountable for the frauds that drove crisis. Mueller stated as an obvious fact that no FBI leader will cut the agents assigned to terror, so the sequester cuts will fall entirely on other programs.
“Over the past few months, something else has been on the mind of the FBI director, a problem he’s leaving for his successor: the budget crisis.
Mueller says there’s only so much the bureau can cut back on cars and travel and information technology upgrades. Furloughs for 2014, he says, are on the way. So is a tough conversation about priorities.
‘I expect the special agent in charge to make certain that there is no Mohamed Atta, terrorist, swimming in the waters in that division,’ Mueller says. ‘So what’s going to be hit is white-collar crime. What’s going to be hit is violent crime — we’re not going to be able to do as much as we’d want there. Organized crime.’”
This is significantly insane. Why haven’t Mueller, Holder, and Obama been raging every day to the media about how irresponsible Republicans are to give a free pass to violent criminals, organized criminals, and elite white-collar criminals? If the Democrats gutted the FBI the Republicans would be denouncing them every hour as traitors endangering the Nation and serving the interests of murderers, mob bosses, and criminal bank CEOs. It is also insane that our counter-productive, unconstitutional, and immoral anti-terror programs are sacrosanct from budget cuts while the already understaffed FBI functions will be slashed again due to the (non-existent) “budget crisis.” First on the Mueller’s list for further cuts: “white-collar crime.”
White-collar crime investigations and prosecutions are massive money makers that reduce the deficit, but Mueller, Holder, and Obama refuse to make these points and refuse to prosecute the elite bank fraudsters. On substantive and political grounds their actions are either inexplicable or all too explicable and support my readers’ belief that the FBI leadership no longer wants to investigate and prosecute the elite bank frauds.
Bill Black is the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. He spent years working on regulatory policy and fraud prevention as Executive Director of the Institute for Fraud Prevention, Litigation Director of the Federal Home Loan Bank Board and Deputy Director of the National Commission on Financial Institution Reform, Recovery and Enforcement, among other positions.
Bill writes a column for Benzinga every Monday. His other academic articles, congressional testimony, and musings about the financial crisis can be found at his Social Science Research Network author page and at the blog New Economic Perspectives.
Follow him on Twitter: @williamkblack