DOJ's Shift to Guilty Pleas Over Fines, Substance or PR?

Now that Presidents' Day is done the long march to Memorial Day begins. Five-day week after five-day week through the remainder of February, March, April and almost all of May before the arrival of another three-day-weekend holiday oasis. Stamina is required, and some sort of goal-orientation that lifts one's eyes from the dizzying repetition of the rat race.

The first day of the long march does not begin encouragingly. I'm thinking of the top-of-the-fold business page story by Ben Protess titled "Prosecutors, Shifting Strategy, Build New Wall Street Cases." The gist of the article is that Justice Department prosecutors are now going to seek guilty pleas from the big banks rather than the business-as-usual fines and nominal reforms. But as Protess points out this new strategy is likely another DOJ attempt to save face:

But critics question whether the new strategy amounts to a symbolic reprimand rather than a sweeping rebuke. So far, the Justice Department has extracted guilty pleas only from remote subsidiaries of big foreign banks, a move that has inflicted reputational damage but little else. 

The new strategy first materialized in recent settlements with UBS and the Royal Bank of Scotland, which were accused of manipulating interest rates to bolster profit. As part of a broader deal, the banks’ Japanese subsidiaries pleaded guilty to felony wire fraud.

A post this morning on naked capitalism, which includes the key portion of the Frontline transcript of Martin Smith's pummeling of a defensive Lanny Breuer, argues that the Department of Justice is engaged in a hollow public relations campaign:

The officialdom honestly seems to have persuaded themselves that indicting a foreign subsidiary and getting a guilty plea is a meaningful concession. Help me. That is what is so disheartening about dealing with an (at best) captured prosecutors. Their idea of what is reasonable is so distorted that is is painfully obvious that there is no reason to expect any change in behavior.

The problem for government prosecutors, as Protess points out, is "Too big to fail":

For one, banking regulators are likely to sound alarms about the economy. HSBC avoided charges in a money laundering case last year after concerns arose that an indictment could put the bank out of business. In the first interest rate-rigging case, prosecutors briefly considered criminal charges against an arm of Barclays, but they hesitated given the bank’s cooperation and its importance to the financial system, two people close to the case said.

Hovering in the background is what happened to Arthur Andersen after it was convicted in 2002; it went out of business. The job loss was numbered at 28,000. Thus, going after foreign subsidiaries is a compromise, a political expediency:

“Extracting a guilty plea from a wholly owned subsidiary finally enables the Justice Department to look tough on financial institutions while sparing them from the corporate death penalty,” said Evan T. Barr, a former federal prosecutor who now defends white-collar cases as a partner at Steptoe & Johnson.

After UBS and Royal Bank of Scotland what comes next? Deutsche Bank, apparently by the end of the year. Then, hopefully, it's on to Great Satan, Citigroup. But --

American regulators may warn that extending the campaign to Citigroup would threaten the company’s stock and prompt an exodus of clients. Japan’s regulators, some feeling upstaged by the recent actions, might raise similar concerns. Citigroup’s lawyers will also push back, people involved in the case said, citing the bank’s cooperation with investigators and emphasizing that wrongdoing never reached upper levels of management. The bank fired the trader recently charged by the Justice Department.

Yesterday, preparing for the approaching work week by ironing shirts, I listened to a Hayden song, "Did I Wake Up Beside You?" that I was unfamiliar with. There are some "Southern Man"-esque guitar parts toward the end of the song: