Camden Fine is concerned about such a monolithic regulator, saying the big boys would be able to influence it more easily than they can the current mélange of the Fed, FDIC, Office of the Comptroller of the Currency and Office of Thrift Supervision. But the structure of such a new beast is far from set.

For instance, Dodd wants the Fed to lose its regulatory hold over banking and consumers (especially credit cards). Conversely, the Obama administration strives to make the Fed the über-regulator of banks and "shadow banks"—non-depository units like Countrywide and GE Capital. You may have heard some TV pundit say that this is a great idea, that the Fed has tremendous expertise, and that Bernanke has done a fabulous job.

But the idea of Super Fed as top financial cop as well as the nation's central bank is colossal and colossally bad, and not just because the Fed is notoriously secretive—the opposite of Obama's pledged "transparency." The Fed chair is, by law, independent and doesn't answer to the president or Congress. A lax chief—and there's every reason to expect him or her to be lax, considering the cheek-by-jowl closeness of the Fed to banking and other financial magnates, and the baleful history of Fed enforcement—could not be simply removed.

U.S. Treasury Secretary Tim Geithner had a front-row seat to the recent financial meltdown at his post as New York Fed chairman. Critics complain that he fiddled while Wall Street
imploded and question whether he has the will to hold the culprits in the financial collapse accountable now.
AFP PHOTO/Carl de Souza
U.S. Treasury Secretary Tim Geithner had a front-row seat to the recent financial meltdown at his post as New York Fed chairman. Critics complain that he fiddled while Wall Street imploded and question whether he has the will to hold the culprits in the financial collapse accountable now.
President Obama ran on promises to make the financial regulatory system more transparent, but his record so far has been much the same as his predecessors.
White House Official Photographer/WENN.com
President Obama ran on promises to make the financial regulatory system more transparent, but his record so far has been much the same as his predecessors.

As for Bernanke, he's an academic economist with no enforcement or justice chops who, in tandem with Henry Paulson, force-fed the nearly worthless Merrill Lynch to the foundering Bank of America.

And that story just keeps getting worse. When the House Committee on Oversight and Reform recently investigated the federal outlays of $20 billion to help BofA buy Merrill in one of last year's most questionable bailouts, it also heard evidence that BofA CEO Ken Lewis committed securities fraud for which the bank already had been charged civilly by the SEC (again without a DOJ criminal indictment). The facts speak for themselves: Lewis sold the BofA shareholders on the merger without telling them that the bank would not only swallow $12 billion of Merrill's $27.6 billion in losses, but also pay accelerated bonuses of $3.6 billion to Merrill executives.

It was such a clear case of securities fraud that BofA and the SEC reached a quick settlement of $33 million, a relatively skimpy amount. In September, federal judge Jed Rakoff rejected the settlement, which didn't specifically name Lewis or any other executive, as a shady deal between Wall Street and Washington. He said that it "cannot remotely be called fair." Rakoff added that the agreement "suggests a rather cynical relationship between the parties: The SEC gets to claim that it is exposing wrongdoing on the part of the Bank of America in a high-profile merger, and the bank's management gets to claim that they have been coerced into an onerous settlement by overzealous regulators. And all of this is done at the expense, not only of the shareholders, but also the truth."

The judge scheduled the case for trial in February and has ordered the SEC to tell him why it didn't charge Lewis personally. Long at odds with the SEC for its coziness with Wall Street, the New York Attorney General's Office announced it would also file civil charges against BofA and Lewis. On October 1, the embattled CEO resigned and received a platinum parachute wafted on TARP funds—BofA had already received a $45 billion bailout and would not have had the wherewithal for such a severance without it.

What the House Oversight Committee found and Ohio Representative Dennis Kucinich showed through internal Fed documents was that Paulson and Bernanke ignored "evidence that the Bank of America withheld information from its shareholders about mounting losses at Merrill Lynch before the crucial shareholder vote on December 5—a potentially illegal act." In short, the Fed and Treasury have been accused of condoning a titanic securities fraud. But government approval of an offense often makes it more difficult to prosecute the culprit criminally, which may be why Lewis hasn't been indicted. Interestingly, internal e-mails from Bernanke to his top counsel, Scott Alvarez, reflect that Lewis requested a letter from the Fed that, in Bernanke's words, would show that the Fed "supported the safety and soundness case for proceeding with the merger and that we communicated that to Lewis." Bernanke favored giving Lewis the note—what could be seen as a get-out-of-jail-free card. The Fed chair asked Alvarez, "what would be wrong" with such a letter, if requested by the defense in litigation.

The hard-nosed attorney rebuffed his boss: "I don't think it's necessary or appropriate to give Lewis a letter along the lines he asked."

It's unclear whether Lewis ever got the permission slip he sought from the Fed. But he probably has made enough of a record of government assent to enjoy his retirement package not behind bars and perhaps to beat his upcoming civil cases as well.

The problem of the financial elite not being indicted because of the sensitive involvement of the government may be cooling the securities fraud investigation of Lehman Brothers and its CEO, Richard Fuld, who puffed the stock to investors while on the brink of diving into bankruptcy a year ago. It's well known that the Fed and SEC had camped at Lehman with full access to books and financial records after Bear Stearns had burned down six months before. So Fuld may draw a pass too.

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