Bank of America: Too Crooked to Fail

The bank has defrauded everyone from investors and insurers to homeowners and the unemployed. So why does the government keep bailing it out?

by: Matt Taibbi

Illustration by Victor Juhasz

At least Bank of America got its name right. The ultimate Too Big to Fail bank really is America, a hypergluttonous ward of the state whose limitless fraud and criminal conspiracies we'll all be paying for until the end of time. Did you hear about the plot to rig global interest rates? The $137 million fine for bilking needy schools and cities? The ingenious plan to suck multiple fees out of the unemployment checks of jobless workers? Take your eyes off them for 10 seconds and guaranteed, they'll be into some shit again: This bank is like the world's worst-behaved teenager, taking your car and running over kittens and fire hydrants on the way to Vegas for the weekend, maxing out your credit cards in the three days you spend at your aunt's funeral. They're out of control, yet they'll never do time or go out of business, because the government remains creepily committed to their survival, like overindulgent parents who refuse to believe their 40-year-old live-at-home son could possibly be responsible for those dead hookers in the backyard.
It's been four years since the government, in the name of preventing a depression, saved this megabank from ruin by pumping $45 billion of taxpayer money into its arm. Since then, the Obama administration has looked the other way as the bank committed an astonishing variety of crimes – some elaborate and brilliant in their conception, some so crude that they'd be beneath your average street thug. Bank of America has systematically ripped off almost everyone with whom it has a significant business relationship, cheating investors, insurers, depositors, homeowners, shareholders, pensioners and taxpayers. It brought tens of thousands of Americans to foreclosure court using bogus, "robo-signed" evidence – a type of mass perjury that it helped pioneer. It hawked worthless mortgages to dozens of unions and state pension funds, draining them of hundreds of millions in value. And when it wasn't ripping off workers and pensioners, it was helping to push insurance giants like AMBAC into bankruptcy by fraudulently inducing them to spend hundreds of millions insuring those same worthless mortgages.
But despite being the very definition of an unaccountable corporate villain, Bank of America is now bigger and more dangerous than ever. It controls more than 12 percent of America's bank deposits (skirting a federal law designed to prohibit any firm from controlling more than 10 percent), as well as 17 percent of all American home mortgages. By looking the other way and rewarding the bank's bad behavior with a massive government bailout, we actually allowed a huge financial company to not just grow so big that its collapse would imperil the whole economy, but to get away with any and all crimes it might commit. Too Big to Fail is one thing; it's also far too corrupt to survive.
All the government bailouts succeeded in doing was to make the bank even more prone to catastrophic failure – and now that catastrophe might finally be at hand. Bank of America's share price has plunged into the single digits, and the bank faces battles in courtrooms all over America to avoid paying back the hundreds of billions it stole from everyone in sight. Its credit rating, already downgraded to a few rungs above junk status, could plummet with the next bad analyst report, causing a frenzied rush to the exits by creditors, investors and stockholders – an institutional run on the bank.
They're in deep trouble, but they won't die, because our current president, like the last one, apparently believes it's better to project a false image of financial soundness than to allow one of our oligarchic banks to collapse under the weight of its own corruption. Last year, the Federal Reserve allowed Bank of America to move a huge portfolio of dangerous bets into a side of the company that happens to be FDIC-insured, putting all of us on the hook for as much as $55 trillion in irresponsible gambles. Then, in February, the Justice Department's so-called foreclosure settlement, which will supposedly provide $26 billion in relief for ripped-off homeowners, actually rewarded the bank with a legal waiver that will allow it to escape untold billions in lawsuits. And this month the Fed will release the results of its annual stress test, in which the bank will once again be permitted to perpetuate its fiction of solvency by grossly overrating the mountains of toxic loans on its books. At this point, the rescue effort is so sweeping and elaborate that it goes far beyond simply gouging the tax dollars of millions of struggling families, many of whom have already been ripped off by the bank – it's making the government, and by extension all of us, full-blown accomplices to the fraud.
Anyone who wants to know what the Occupy Wall Street protests are all about need only look at the way Bank of America does business. It comes down to this: These guys are some of the very biggest assholes on Earth. They lie, cheat and steal as reflexively as addicts, they laugh at people who are suffering and don't have money, they pay themselves huge salaries with money stolen from old people and taxpayers – and on top of it all, they completely suck at banking. And yet the state won't let them go out of business, no matter how much they deserve it, and it won't slap them in jail, no matter what crimes they commit. That makes them not bankers or capitalists, but a class of person that was never supposed to exist in America: royalty.
Self-appointed royalty, it's true – but just as dumb and inbred as the real thing, and every bit as expensive to support. Like all royals, they reached their position in society by being relentlessly dedicated to the cause of Bigness, Unaccountability and the Worthlessness of Others. And just like royals, they spend most of their lives getting deeper in debt, and laughing every year when our taxes go to covering their whist markers. Two and a half centuries after we kicked out the British, it's really come to this?
Bank of America started out in San Francisco in 1904 as an emblem of American capitalism. Founded by a first-generation Italian-American named Amadeo Giannini – it was even originally called the Bank of Italy – the bank set out to serve immigrants denied credit by other banks, and it was instrumental in helping to rebuild the city after the devastating earthquake of 1906.
But like many of the truly bad ideas in history, the present-day version of Bank of America was the product of a testosterone overdose. The concept of an overmassive, acquiring-everything-in-sight, bicoastal megabank was hatched in the terminal inferiority complex of a greed-sick asshole – actually two greed-sick assholes, both of them CEOs of Southern regional banks, who launched a cartoonish arms race of bank acquisitions that would ultimately turn the American business world upside down.
The antagonists were Hugh McColl Jr. and Ed Crutchfield, the respective leaders of North Carolina National Bank (which would take over Bank of America) and First Union (which turned into Wachovia), both based in Charlotte, North Carolina. Obsessed with each other, these two men transformed their personal competition into one of the most ridiculous and elaborate penis-measuring contests in the history of American business – even engaging in the garish Freudian spectacle of vying to see who would have the tallest skyscraper in Charlotte. First Union kicked things off in 1971 by erecting the 32-story Jefferson First Union Tower, then the biggest building in town – until McColl's bank built the 40-story NCNB Plaza in 1974. Then, in the late Eighties, Crutchfield topped McColl with the city's first post­modern high-rise, One First Union Center, at 42 stories. That held the prize until 1992, when McColl went haywire and put up the hideous 60-story Bank of America Corporate Center, a giant slab of gray metal affectionately known around Charlotte as the "Taj McColl." When asked by reporters if he was pleased that his 60-story monster overwhelmed his rival's 42-story weenie, McColl didn't hesitate. "Do I prefer having the tall one?" he said. "Yes."
For a time, this ridiculous rivalry between two strutting Southern peacocks was restrained by the law – specifically, the McFadden-Pepper Act of 1927 and the Douglas Amendment to the Bank Holding Company Act of 1956. These two federal statutes, which made it illegal for a bank holding company to own and operate banks in more than one state, were effectively designed to prevent exactly the Too Big to Fail problem we now find ourselves faced with. The goal, as Sen. Paul Douglas explained at the time, was "to prevent an undue concentration of banking and financial power, and instead keep the private control of credit diffused as much as possible."
But these laws didn't sit well with Hugh McColl. To him, size was everything. "We realized that if we didn't leave North Carolina," he explained later in his career, "we would never amount to anything – that we would not be important." Note that he didn't say the ban on expansion prevented him from turning a profit or earning good returns for his shareholders – only that it put a limit on his sense of self-importance. So McColl and his banking minions set out to break down the interstate banking laws. First, in 1981, they used a legal loophole in Florida law to buy a bank branch there – evading the federal ban on out-of-state owners. Then, following a Supreme Court decision in 1985 that allowed banks to cross state lines within a designated region, he and Crutchfield went on a conquering spree worthy of a Mongol horde, buying up a host of banks in other Southern states. McColl, a silver-haired ex-Marine who would eventually be celebrated for bringing a "military approach" to his business, went to ridiculous lengths to play up the manly conquest aspect of his bank's merger frenzy, rewarding key employees with crystal hand grenades. By 1995, McColl had acquired more than 200 banks and thrifts across the South, while Crutchfield had snapped up 50.
A few years later, after Congress repealed most of the barriers to interstate banking, McColl took over Bank of America, realizing his dream of creating what one trade publication called "the first ocean-to-ocean bank in the nation's history." Later, after McColl retired, his successors kept up his acquisitive legacy, buying notorious mortgage lender Countrywide Financial in 2008, and using some of the $25 billion in federal bailout funds they received to acquire dying investment bank Merrill Lynch. Both firms were infamous for their exotic gambles and their systematic cutting of regulatory corners – meaning that the shopping spree had burdened Bank of America with a huge portfolio of doomed trades and criminal conspiracies.
But to McColl, it was all worth it – because he would never have been important if he hadn't also been big. "I have no regrets about building it large," he said in 2010, when asked if he considered all the monster consolidations a mistake in light of the crash of 2008. "I may have some regrets about not building it larger."
This deeply American terror of not always having the absolutely hugest dick in the room is what put us in the inescapable box called Too Big to Fail. When the bailouts were dreamed up to save Bank of America, the government was essentially committing public resources to preserve this lunatic spending spree – which means two successive presidential administrations have now spent nearly half a decade and hundreds of billions of tax dollars defending the premise that Hugh McColl should always be allowed to have the "taller one."
And why? The rationale for allowing that merger spree in the first place was based on a phony assumption: that big banks would somehow be more efficient and more profitable than small ones. "The whole premise of a Citibank or a Chase or a Bank of America is wrongheaded," says Susan Webber, an analyst who writes one of the most popular and respected financial blogs under the pseudo­nym Yves Smith. "Studies consistently show that after a certain size threshold, bank efficiency taps out. In fact, it turns out that all those cost savings the banks were supposed to enjoy from being bigger were actually based on cutting corners and fraud."
And man, what a lot of fraud!
In the end, it all comes back to mortgages. Though Bank of America would ultimately be charged with committing a dizzyingly diverse variety of corporate misdeeds, the bulk of the trouble the bank is in today arises from the Great Mortgage Scam of the mid-2000s, which caused the biggest financial bubble in history.
The shorthand version of the scam is by now familiar: Banks and mortgage lenders conspired to create a gigantic volume of very risky home loans, delivering outsize mortgages to dubious borrowers like immigrants without identification, the unemployed and people with poor credit histories. Then the banks took those dicey home loans and sprinkled them with bogus math, using inscrutable financial gizmos like collateralized mortgage obligations to rechristen the risky home loans as high-grade, AAA-rated securities that could be sold off to unions, pensioners, foreign banks, retirement funds and any other suckers the banks could find. In essence, America's financial institutions grew vast fields of cheap oregano, and then went around the world marketing their product as high-grade weed.
The holy trinity of Bank of America, Countrywide and Merrill Lynch represented the worst conceivable team of financial powers to get hold of this scam. It was a little like the Wall Street version of Michael Bay's nonclassic Con Air, in which the world's creepiest serial killer, most demented terrorist and most depraved redneck are all thrown together on the same plane. In this case, it was the most careless mortgage lender (the spray-tanned huckster Angelo Mozilo from Countrywide, who was named the second-worst CEO of all time by Portfolio magazine), the most dangerous mortgage gambler (Merrill, whose CEO was the self-worshipping jerkwad John Thain, the ex-Goldman banker who bought himself an $87,000 area rug as his company was cratering in 2008) and the most relentless packager of mortgage pools (Bank of America), all put together under one roof and let loose on the world. These guys were so corrupt, they even shocked one another: According to a federal lawsuit, top executives at Countrywide complained privately that Bank of America's "appetite for risky products was greater than that of Countrywide."
The three lenders also pioneered ways to sell their toxic pools of mortgages to suckers. Bank of America's typical marketing pitch to a union or a state pension fund involved a double or even triple guarantee. First, it promised, in writing, that all its loans had passed due diligence tests and met its high internal standards. Next, it promised that if any of the loans in the mortgage pool turned out to be defective or in default, it would buy them back. And finally, it assured customers that if all else failed, the pools of mortgages were all insured, or "wrapped," by bond insurers like AMBAC and MBIA.
It sounded like a can't-lose deal. Not only did the bank offer a written guarantee of the high quality of the loans it was selling, it also promised to buy back any bad loans, which were often insured to boot. What could go wrong?
As it turned out, everything. From tits to toes, the mortgage pools created, packaged and sold by Countrywide, Merrill Lynch and Bank of America were a complete sham: worthless and often falling apart virtually from the day they were delivered.
First of all, despite the fact that the banks had promised that all the loans in their pools met their internal lending standards, that turned out to be completely untrue. An SEC­ investigation later found out, for instance, that Countrywide essentially had no standards for whom to lend to. As a federal judge put it, "Countrywide routinely ignored its official underwriting guidelines to such an extent that Countrywide would underwrite any loan it could sell." Translation: Countrywide gave home loans to anything with a pulse, provided they had a sucker lined up to buy the loan.
How did they make these loans in the first place? By committing every kind of lending fraud imaginable – particularly by entering fake data on home loan applications, magically turning minimum-wage janitors into creditworthy wage earners. In 2006, according to a report by Credit Suisse, a whopping 49 percent of the nation's subprime loans were "liar's loans," meaning that lenders could state the incomes of borrowers without requiring any proof of employment. And no one lied more than Countrywide and Bank of America. In an internal e-mail distributed in June 2006, Countrywide's executives worried that 40 percent of the firm's "reduced documentation loans" potentially had "income overstated by more than 10 percent... and a significant percent of those loans would have income overstated by 50 percent or more."
"What large numbers of Countrywide employees did every day was commit fraud by knowingly making and approving loans they knew borrowers couldn't repay," says William Black, a former federal banking regulator. "To do so, it was essential that the loans be made to appear to be relatively less risky. This required pervasive documentation fraud."
So what happened when institutional investors realized that the loans they had bought from Countrywide were nothing but shams? Instead of buying back the bad loans as promised, and as required by its own contracts, the bank simply refused to answer its phone. A typical transaction involved U.S. Bancorp, which in 2005 served as a trustee for a group of investors that bought 4,484 Countrywide mortgages for $1.75 billion – only to discover their shiny new investment vehicle started throwing rods before they could even drive it off the lot. "Soon after being sold to the Trust," U.S. Bancorp later observed in a lawsuit, "Countrywide's loans began to become delinquent and default at a startling rate." The trustees hired a consultant to examine 786 loans in the pool, and found that an astonishing two-thirds of them were defective in some way. Yet, confronted with the fraud, Countrywide failed to repurchase a single loan, offering "no basis for its refusal."
And what about that ostensible insurance that Bank of America sold with its bundles of mortgages? Well, those policies turned out not to be worth very much, since so many of the loans defaulted that they blew the insurers out of business. If you went bust buying bad mortgages from Bank of America, chances are, so did your insurer. At best, you two could now share a blanket in the poorhouse.
Many of the nation's largest insurers, in fact, are now suing the pants off Bank of America, claiming they were fraudulently induced to insure the bank's "high lending standards." AMBAC, the second-largest bond insurer in America, went bankrupt in 2010 after paying out some $466 million in claims over 35,000 Countrywide home loans. After analyzing a dozen of the mortgage pools, AMBAC found that a staggering 97 percent of the loans didn't meet the stated underwriting standards. That same year, the Association of Financial Guaranty Insurers, a trade group representing firms like AMBAC, told Bank of America that it should be repurchasing as much as $20 billion in defective mortgages.
Some of these institutional investors were at least partial accomplices to their own downfall. In the boom era of easy money, financial professionals everywhere were chasing the lusciously high yields offered by these bundles of subprime mortgages, and everyone knew the deals weren't exactly risk-free. But ultimately, Bank of America was knowingly selling a defective product – and down the road, that product was bound to blow up on somebody innocent. "A teacher or a fireman goes to work and saves money for their retirement via their pensions," says Manal Mehta, a partner at the hedge fund Branch Hill Capital who spent two years researching Bank of America. "That pension fund buys toxic securities put together by Wall Street that were designed to fail. So when that security blows up, wealth flows directly from that pension fund into the hands of a select few."
This is the crossroads where Bank of America now lives – trying to convince the government to allow it to remain in business, perhaps even asking for another bailout or two, while it avoids paying back untold billions to all of the institutional customers it screwed, the list of which has grown so long as to almost be comical. Last year, the bank settled with a group of pension and retirement funds, including public employees from Mississippi to Los Angeles, that charged Bank of America and Merrill with misrepresenting the value of more than $16 billion in mortgage-backed securities. In the end, the bank paid only $315 million.
In the first half of last year, Bank of America paid $12.7 billion to settle claims brought by defrauded customers. But countless other investors are still howling for Bank of America to take back its counterfeit product. Allstate, the maker of those reassuring Dennis Haysbert-narrated commercials, claims it got stuck with $700 million in defective mortgages from Countrywide. The states of Iowa, Oregon and Maine, as well as the United Methodist Church, are suing Bank of America over fraudulent deals, claiming hundreds of billions in collective losses. And there are similar lawsuits for nonmortgage-related securities, like a revolting sale of doomed municipal securities to the state of Hawaii and Maui County. In that case, Merrill Lynch brokers allegedly dumped $944 million in auction-rate securities on the Hawaiians, even though the brokers knew that the auction-rate market was already going bust. "Market is collapsing," a Merrill executive named John Price admitted in an internal e-mail, before joking about having to give up pricey dinners at a fancy Manhattan restaurant. "No more $2K dinners at CRU!!"
In the end, says Mehta, Bank of America's fraud resulted in "one of the biggest reverse transfers of wealth in history – from pensioners to financiers. What the 99 percent should understand is that Wall Street knowingly inflated the bubble by engaging in rampant mortgage fraud – and then profited from the collapse of their own exuberance by devising a way to shift the losses to countless pension funds, endowments and other innocent investors." The assembled worldwide collection of swindled pensioners and unions and investors is a little like the crowd that storms the basketball court in the Will Ferrell movie Semi-Pro when the home team's owner welshes on his promise to hand out free corn dogs if the score tops 125 points. Corn dogs, Bank of America! Where are the freaking corn dogs!
Incredible as it sounds, owing practically everyone in the world billions of dollars apiece is only half of Bank of America's problem. The bank didn't just flee the scene of its various securities rip-offs. It also made a habit out of breaking the law and engaging in ethical lapses on a grand scale, all over the globe. Once your money ends up in their pockets, they just slither off into the night, no matter their legal or professional obligations.
Case in point: With all those hundreds of thousands of mortgages the bank bought, it simply stopped filing basic paperwork – even the stuff required by law, like keeping chains of title. A blizzard of subsequent lawsuits from pissed-off localities reveals that the bank used this systematic scam to avoid paying local fees. Last year, a single county – Dallas County in Texas – sued Bank of America for ducking fees since 1997. "Our research shows it could be more than $100 million," Craig Watkins, the county's district attorney, told reporters. Think of that next time your county leaves a road unpaved, or is forced to raise property taxes to keep the schools open.
But the lack of paperwork also presented a problem for the bank: When it needed to foreclose on someone, it had no evidence to take to court. So Bank of America unleashed a practice called robo-signing, which essentially involved drawing up fake documents for court procedures. Two years ago, a Bank of America robo-signer named Renee Hertzler gave a deposition in which she admitted not only to creating as many as 8,000 legal affidavits a month, but also to signing documents with a fake title.
Yet here's how seriously fucked the financial markets are: Even the most vocal critics of Bank of America consider the mass, factory-style production of tens of thousands of fake legal documents per month not that big a deal. "Robo-signing is like focusing on Bernie Madoff's accountant," quips April Charney, a well-known foreclosure lawyer who has spent large chunks of the past two decades in battle with Bank of America.
Robo-signing is not the disease – it's a symptom of Bank of America's entire attitude toward the law. A bank that's willing to commit whole departments to inventing legal affidavits might also, for instance, intentionally ding depositors with bogus overdraft fees. (A class action suit accused Bank of America of heisting some $4.5 billion from its customers this way; the bank settled the suit for a mere 10 cents on the dollar.)
Or it might give up trying to win government contracts honestly and get involved with rigging municipal bids – a mobster's crime, for which the accused used to do serious time, back when the bids were for construction and garbage instead of municipal bonds, and the defendants were Eye-talians in gold chains instead of Ivy Leaguers in ties and Chanel glasses. We now know that Bank of America routinely conspired with other banks to make sure it paid low prices for the privilege of managing the moneys of various cities and towns. If the city of Baltimore or the University of Mississippi or the Guam Power Authority issued bonds to raise money, the bank would huddle up with the likes of Bear Stearns and Morgan Stanley and decide whose "turn" it was to win the bid. Bank of America paid a $137 million fine for its sabotage of the government-contracting process – and in an attempt to avoid prosecution, it applied to the Justice Department's corporate leniency program, essentially confessing its criminal status: As plaintiff attorneys noted, the application "means that Bank of America is an admitted felon." Think about that when you hear about all the bailouts the bank has gotten in the past four years. A street felon who gets out of jail can't even vote in some states – and yet Bank of America is allowed to receive billions in federal aid and dominate the electoral process with campaign contributions?
Some of the bank's other collusive schemes are even more ambitious. Last year, the bank was sued, alongside some of its competitors, for conspiring to rig the London Interbank Offered Rate. Many adjustable-rate financial products are based on LIBOR – so if the big banks could get together and artificially lower the rate, they would pay out less to customers who bought those products. "About $350 trillion worth of financial products globally reference LIBOR," says one antitrust lawyer familiar with the case. "Which means," she adds in a striking understatement, "that the scale of this conspiracy is extremely large."
What's most striking in all of these scams is the corporate culture of Bank of America: These guys are just dicks. Time and again, they go out of their way to fleece their own customers, without a trace of remorse. In classic con-artist behavior, Bank of America even tried to rip off homeowners a second time by gaming President Obama's HAMP program, which was designed to aid families who had already been victimized by the banks. In a lawsuit filed last year, homeowners claim they were asked to submit a mountain of paperwork before receiving a modified loan – only to have the bank misplace the documents when it was time to pay up. "The vast majority tell us the same thing," says Steve Berman, an attorney for the plaintiffs. "Bank of America claims to have lost their paperwork, failed to return phone calls, made false claims about the status of their loans and even took actions toward foreclosure without informing homeowners of their options." The scheme allowed the bank to bleed struggling homeowners for a few last desperate months by holding out the carrot of federal aid they would never receive.
Even when caught red-handed and nailed by courts for behavior like this, Bank of America has remained smugly unrepentant. As part of an $8.4 billion settlement it entered into with multiple states over predatory lending practices, the bank agreed to provide homeowners with modified loans and promised not to raise rates on borrowers. But no sooner was the deal signed than the bank "materially and almost immediately violated" the terms, according to Nevada Attorney General Catherine Cortez Masto. It not only jacked up rates on homeowners, it even instituted a policy punishing any bank employee who spent more than 10 minutes helping a victim get a loan modification.
The bank's list of victims goes on and on. The disabled? Just a few weeks ago, the government charged Bank of America with violating the Fair Housing Act by illegally requiring proof of disability from people who rely on disability income to make their mortgage payments. Minorities? Last December, the bank settled with the Justice Department for $335 million over Countrywide's practice of dumping risky subprime loans on qualified black and Hispanic borrowers. The poor? In South Carolina, Bank of America won a contract to distribute unemployment benefits through prepaid debit cards – and then charged multiple fees to jobless folk who had the gall to withdraw their money from anywhere other than a Bank of America ATM. Seriously, who hasn't this bank conspired to defraud? Puppies? One-eyed Sri Lankans?
Bank of America likes to boast that it has changed its ways, replacing many of the top executives who helped create the mortgage bubble. But the man promoted from within to lead the new team, CEO Brian Moynihan, is just as loathsome and tone-deaf as his previous bosses. As befits a new royal, Moynihan defended a plan to gouge all debit-card users with $5 fees by citing his divine privilege: "We have a right to make a profit." And despite the bank's litany of crimes, Moynihan seems to think we're just overreacting. After all, he gives to charities! "I get a little incensed when you think about how much good all of you do, whether it's volunteer hours, charitable giving we do, serving clients and customers well," he told employees last October. Then, addressing would-be protesters: "You ought to think a little about that before you start yelling at us."
In sum, Bank of America torched dozens of institutional investors with billions in worthless loans, repeatedly refused to abide by contractual obligations to buy them back, evaded hundreds of millions in local fees and taxes, pushed tens of thousands of people into foreclosure using phony documents, ignored multiple court orders to stop its illegal robo-signing, and exploited President Obama's signature mortgage-relief program. The bank fixed the bids on bonds for schools and cities and utilities all over America, and even conspired to try to game the game itself – by fixing global interest rates!
So what does the government do about a rogue firm like this, one that inflates market-wrecking bubbles, commits mass fraud and generally treats the law like its own personal urinal cake? Well, it goes without saying that you rescue that "admitted felon" at all costs – even if you have to spend billions in taxpayer money to do it.

Bank of America should have gone out of business back in 2008. Just as the mortgage market was crashing, it made an inconceivably stupid investment in subprime mortgages, acquiring Countrywide and the billions in potential lawsuits that came with it. "They tried to catch a falling knife and lost their hand and foot in the process," says Joshua Rosner, a noted financial analyst. It then spent $50 billion buying a firm, Merrill Lynch, that was rife with billions in debts. With those two anchors on its balance sheet, Hugh McColl's bicoastal dream bank should have gone the way of the dinosaur.
But it didn't. Instead, in the midst of the crash, the government forked over $45 billion in aid to Bank of America – $20 billion as an incentive to bring its cross-eyed bride Merrill Lynch to the altar, and another $25 billion as part of the overall TARP bailout. In addition, the government agreed to guarantee $118 billion in Bank of America debt.
So what did the bank do with that money? First, it sat by while lame-duck executives at Merrill paid themselves $3.6 billion in bonuses – even though Merrill lost more than $27 billion that year. In all, 696 executives received more than $1 million each for helping to crash the storied firm. (The bank wound up hit with a $150 million fine for its failure to inform shareholders about the Merrill losses and bonuses.) Bank of America, meanwhile, paid out more than $3.3 billion in bonuses to itself, including more than $1 million each to 172 executives.
In fact, the real bailouts of Bank of America didn't even begin until well after TARP. In the years since the crash, the bank has issued more than $44 billion in FDIC-insured debt through a little-known Federal Reserve plan called the Temporary Liquidity Guarantee Program. The plan essentially allows companies whose credit ratings are fucked to borrow against the government's good name – and if the loans aren't paid back, the government is on the hook for all of it. Bank of America has also stayed afloat by constantly borrowing billions in low-­interest emergency loans from the Fed – part of $7.7 trillion in "secret" loans that were not disclosed by the central bank until last year. When the data was finally released, we found out that, on just one day in 2008, Bank of America owed the Fed a staggering $86 billion.
That means that when you take out a credit card or a mortgage or a refinancing from Bank of America, you're essentially borrowing from the state; the "private" bank is simply taking a cut as a middleman. "For banks, the cost of capital is the key to success," says former New York governor Eliot Spitzer. "So by lowering their cost of capital to almost zero, the Fed has almost guaranteed that the banks will make big profits."
Another public lifeline is Fannie Mae and Freddie Mac, the giant, nationalized mortgage lenders. Need to make some cash? Toss a bunch of home loan applications onto a city street, then sell the resulting mortgages to Fannie and Freddie, which are basically a gigantic pile of public money guarded by second-rate managers. Just like the state pensions in Iowa and Maine and Missis­sippi, Fannie and Freddie were targeted for sales of toxic mortgages, and just like those entities, they have sued Bank of America, claiming they were suckered into buying more than $30 billion in shitty securities. But unlike those other suckers, Fannie and Freddie continued to buy crap loans from Bank of America even after it was clear they'd been hoodwinked. Last year, the bank created more than $156 billion in mortgages – nearly $38 billion of which were bought by Fannie. Having the government as an ever-ready customer, standing by to buy mortgages at full retail prices, has always been an ongoing hidden bailout to the banks.
But even the government has its limits. In February, Fannie announced it would no longer keep blindly buying mortgages from Bank of America. Why? Because the bank, already slow to buy back its defective mortgages, had gotten even slower. By the end of last year, the government reported, more than half of all the crappy loans that Fannie wanted to return came from a single bad bank – Bank of America.
But if you think that Fannie cutting off the bank is good news, think again. If it can't get the money it's owed from Bank of America, it'll just go begging to the Treasury. Fannie has already asked for $4.5 billion to cover losses this year – and if Bank of America doesn't pony up, it'll have to reach even deeper into our pockets, making for yet another shadow bailout to the firm.
It gets worse. Last fall, some of the bank's biggest creditors and counterparties started to get nervous about the mountain of toxic bets still sitting on Merrill Lynch's books – a generation of ill-considered, complex, exotic derivative trades, bets on bets on bets on shaky subprime mortgages, sitting there on the company balance sheet, waiting to explode. Nobody felt good lending Bank of America money with that dangerous shitpile lying there. So they asked the bank to move a chunk of that mess from Merrill Lynch onto Bank of America's own balance sheet. Why? Because Bank of America is a federally insured depository institution. Which means that the FDIC, and by extension you and me, is now on the hook for as much as $55 trillion in potential losses. Black, the former regulator, calls the transfer an "obscenity. As a regulator, I would have never allowed it. Transferring risk to the insured institution crosses the reddest of red lines."
But by far the biggest bailout to Bank of America has come via the sweetheart deals it cut to settle the massive lawsuits filed against it. Some of the deals, which were brokered by the Justice Department and state attorneys general, allowed the bank to get away with paying pennies on the dollar on its mountains of debt. Worst of all was the recent $26 billion foreclosure settlement involving Bank of America and four other major firms. The deal, in which the banks agreed to pay cash to screwed-over homeowners in exchange for immunity from federal prosecution on robo-signing issues, was hailed as a big multibillion-dollar bite out of the banks. President Obama was all but strutting over his beatdown of Wall Street. "We are Americans, and we look out for one another; we get each other's backs," he declared. "We're going to make sure that banks live up to their end of the bargain."
In fact, the government has a lousy track record when it comes to enforcing settlements. The foreclosure deal arrives on the heels of an $8.4 billion investor settlement, whose provisions Bank of America had already been accused of violating, raising rates and abusing homeowners as soon as the deal was struck. The bank also violated a previous settlement with the Federal Trade Commission, illegally slapping $36 million in fees on struggling homeowners after specifically agreeing not to do so. So Bank of America's reward for blowing off its previous settlements for mistreating homeowners was to get another soft-touch deal from the government, which they will presumably be just as free to ignore. Why? Because while state officials have ultimate enforcement authority over the foreclosure settlement, the early enforcement reviews will be handled by "internal quality control groups." In other words, Bank of America itself will be grading its own compliance!
Even if Bank of America coughs up its share of the $26 billion settlement, the deal is woefully inadequate to address the wider fraud that went on in creating and pooling mortgages. "It's like handing a box of tissues to someone whose immune system has been destroyed by AIDS," says Rosner. "It doesn't come close to addressing the scale of the problem." Many Wall Street observers think that without the waiver from federal prosecution provided by the settlement, Bank of America would have faced billions in lawsuits for robo-signing offenses alone.
Oh, and one more thing, since we're talking about avoiding bills: Bank of America didn't pay a dime in federal taxes last year. Or the year before. In fact, they got a $1 billion refund last year. They claimed it was because they had pretax losses of $5.4 billion in 2010. They paid out $35 billion in bonuses and compensation that year. You do the math.
And here's the biggest scam of all: After all that help – all the billions in bailouts, the tens of billions in Fed loans, the hundreds of billions in legal damages made to disappear, the untold billions more of unpaid bills and buybacks – Bank of America is still failing. In December, the bank's share price dipped below $5, and after being cut off by Fannie in February, the bank announced a truly shameless plan to jack up fees for depositors by as much as $25 a month – what one market analyst called a "measure of last resort."
The company reported positive earnings last year, with net income of $84 million, but analysts aren't convinced. David Trainer, a MarketWatch commentator, switched his rating of Bank of America to "very dangerous" in part because its accounting is wildly optimistic. Among other things, the bank's projections assume a growth rate of 20 percent every year for the next 18 years. What's more, the bank has set aside only $8.5 billion for buybacks of those crap corn-dog loans from enraged customers – even though some analysts think the number should be much higher, perhaps as high as $27 billion. Because more lawsuits are so likely, says Mehta, it's "virtually impossible to decipher if Bank of America requires more equity, or even another tax­payer bailout."
But the only number that really matters is this one: $37 billion. That's the total bonus and compensation pool this broke-ass, state-dependent, owing-everybody-in-sight bank paid out to its employees last year. This, in essence, is the business model underlying Too Big to Fail: massive growth based on huge volumes of high-risk loans, coupled with lots of fraud and cutting corners, followed by huge payouts to executives. Then, with the company on the verge of collapse, the inevitable state rescue. In this whole picture, the only money that's ever "real" is the fat bonuses the executives cash out of the bank at the end of each year. "Fraud is a sure thing," says Black. "The firm fails, unless it is bailed out, but the controlling officers walk away wealthy."
The Dodd-Frank financial reform approved by Congress last year was supposed to fix the problem of Too Big to Fail, giving the government the power to take over and disband troubled megafirms instead of bailing them out. "The way to cut our Gordian financial knot is simple," MIT economist Simon Johnson wrote in The New York Times. "Force the big banks to become smaller." But few in the financial community believe that will ever happen. "If Bank of America crashes, the first thing that would happen is Dodd-Frank would be revealed as a fraud," says Rosner. "The Fed and the Treasury would ask Congress for a bailout to 'save the economy.' It's the worst-kept secret on Wall Street."
In a pure capitalist system, an institution as moronic and corrupt as Bank of America would be swiftly punished by the market – the executives would get to loot their own firms once, then they'd be looking for jobs again. But with the limitless government support of Too Big to Fail, these failing financial giants get to stay undead forever, continually looting the taxpayer, their depositors, their shareholders and anyone else they can get their hands on. The threat posed by Bank of America isn't just financial – it's a full-blown assault on the American dream. Where's the incentive to play fair and do well, when what we see rewarded at the highest levels of society is failure, stupidity, incompetence and meanness? If this is what winning in our system looks like, who doesn't want to be a loser? Throughout history, it's precisely this kind of corrupt perversion that has given birth to countercultural revolutions. If failure can't fail, the rest of us can never succeed.
Related

• J.P. Morgan Chase's Ugly Family Secrets Reveale
• On Goldman Executive Greg Smith's Brave Departure 
• Goldman Sachs: The Great American Bubble Machine 
• Why I Am Leaving Goldman Sachs  (Greg Smith is resigning today as a Goldman Sachs executive director and head of the firm’s United States equity derivatives business in Europe, the Middle East and Africa.)
• Bank of America In Trouble?

Al Gore: Climate of Denial

Can science and the truth withstand the merchants of poison?

by: Al Gore   June 22, 2011 7:45 AM ET

Illustration by Matt Mahurin

The first time I remember hearing the question "is it real?" was when I went as a young boy to see a traveling show put on by "professional wrestlers" one summer evening in the gym of the Forks River Elementary School in Elmwood, Tennessee.

The evidence that it was real was palpable: "They're really hurting each other! That's real blood! Look a'there! They can't fake that!" On the other hand, there was clearly a script (or in today's language, a "narrative"), with good guys to cheer and bad guys to boo.

But the most unusual and in some ways most interesting character in these dramas was the referee: Whenever the bad guy committed a gross and obvious violation of the "rules" — such as they were — like using a metal folding chair to smack the good guy in the head, the referee always seemed to be preoccupied with one of the cornermen, or looking the other way. Yet whenever the good guy — after absorbing more abuse and unfairness than any reasonable person could tolerate — committed the slightest infraction, the referee was all over him. The answer to the question "Is it real?" seemed connected to the question of whether the referee was somehow confused about his role: Was he too an entertainer?

Scorched Earth: How Climate Change Is Spreading Drought Throughout the Globe

That is pretty much the role now being played by most of the news media in refereeing the current wrestling match over whether global warming is "real," and whether it has any connection to the constant dumping of 90 million tons of heat-trapping emissions into the Earth's thin shell of atmosphere every 24 hours.

Admittedly, the contest over global warming is a challenge for the referee because it's a tag-team match, a real free-for-all. In one corner of the ring are Science and Reason. In the other corner: Poisonous Polluters and Right-wing Ideologues.

The referee — in this analogy, the news media — seems confused about whether he is in the news business or the entertainment business. Is he responsible for ensuring a fair match? Or is he part of the show, selling tickets and building the audience? The referee certainly seems distracted: by Donald Trump, Charlie Sheen, the latest reality show — the list of serial obsessions is too long to enumerate here.

But whatever the cause, the referee appears not to notice that the Polluters and Ideologues are trampling all over the "rules" of democratic discourse. They are financing pseudoscientists whose job is to manufacture doubt about what is true and what is false; buying elected officials wholesale with bribes that the politicians themselves have made "legal" and can now be made in secret; spending hundreds of millions of dollars each year on misleading advertisements in the mass media; hiring four anti-climate lobbyists for every member of the U.S. Senate and House of Representatives. (Question: Would Michael Jordan have been a star if he was covered by four defensive players every step he took on the basketball court?)

This script, of course, is not entirely new: A half-century ago, when Science and Reason established the linkage between cigarettes and lung diseases, the tobacco industry hired actors, dressed them up as doctors, and paid them to look into television cameras and tell people that the linkage revealed in the Surgeon General's Report was not real at all. The show went on for decades, with more Americans killed each year by cigarettes than all of the U.S. soldiers killed in all of World War II.

This time, the scientific consensus is even stronger. It has been endorsed by every National Academy of science of every major country on the planet, every major professional scientific society related to the study of global warming and 98 percent of climate scientists throughout the world. In the latest and most authoritative study by 3,000 of the very best scientific experts in the world, the evidence was judged "unequivocal."

But wait! The good guys transgressed the rules of decorum, as evidenced in their private e-mails that were stolen and put on the Internet. The referee is all over it: Penalty! Go to your corner! And in their 3,000-page report, the scientists made some mistakes! Another penalty!

And if more of the audience is left confused about whether the climate crisis is real? Well, the show must go on. After all, it's entertainment. There are tickets to be sold, eyeballs to glue to the screen.

Part of the script for this show was leaked to The New York Times as early as 1991. In an internal document, a consortium of the largest global-warming polluters spelled out their principal strategy: "Reposition global warming as theory, rather than fact." Ever since, they have been sowing doubt even more effectively than the tobacco companies before them.

To sell their false narrative, the Polluters and Ideologues have found it essential to undermine the public's respect for Science and Reason by attacking the integrity of the climate scientists. That is why the scientists are regularly accused of falsifying evidence and exaggerating its implications in a greedy effort to win more research grants, or secretly pursuing a hidden political agenda to expand the power of government. Such slanderous insults are deeply ironic: extremist ideologues — many financed or employed by carbon polluters — accusing scientists of being greedy extremist ideologues.

After World War II, a philosopher studying the impact of organized propaganda on the quality of democratic debate wrote, "The conversion of all questions of truth into questions of power has attacked the very heart of the distinction between true and false."

Is the climate crisis real? Yes, of course it is. Pause for a moment to consider these events of just the past 12 months:

• Heat. According to NASA, 2010 was tied with 2005 as the hottest year measured since instruments were first used systematically in the 1880s. Nineteen countries set all-time high temperature records. One city in Pakistan, Mohenjo-Daro, reached 128.3 degrees Fahrenheit, the hottest temperature ever measured in an Asian city. Nine of the 10 hottest years in history have occurred in the last 13 years. The past decade was the hottest ever measured, even though half of that decade represented a "solar minimum" — the low ebb in the natural cycle of solar energy emanating from the sun.

• Floods. Megafloods displaced 20 million people in Pakistan, further destabilizing a nuclear-armed country; inundated an area of Australia larger than Germany and France combined; flooded 28 of the 32 districts that make up Colombia, where it has rained almost continuously for the past year; caused a "thousand-year" flood in my home city of Nashville; and led to all-time record flood levels in the Mississippi River Valley. Many places around the world are now experiencing larger and more frequent extreme downpours and snowstorms; last year's "Snowmaggedon" in the northeastern United States is part of the same pattern, notwithstanding the guffaws of deniers.

• Drought. Historic drought and fires in Russia killed an estimated 56,000 people and caused wheat and other food crops in Russia, Ukraine and Kazakhstan to be removed from the global market, contributing to a record spike in food prices. "Practically everything is burning," Russian president Dmitry Medvedev declared. "What's happening with the planet's climate right now needs to be a wake-up call to all of us." The drought level in much of Texas has been raised from "extreme" to "exceptional," the highest category. This spring the majority of the counties in Texas were on fire, and Gov. Rick Perry requested a major disaster declaration for all but two of the state's 254 counties. Arizona is now fighting the largest fire in its history. Since 1970, the fire season throughout the American West has increased by 78 days. Extreme droughts in central China and northern France are currently drying up reservoirs and killing crops.

• Melting Ice. An enormous mass of ice, four times larger than the island of Manhattan, broke off from northern Greenland last year and slipped into the sea. The acceleration of ice loss in both Greenland and Antarctica has caused another upward revision of global sea-level rise and the numbers of refugees expected from low-lying coastal areas. The Arctic ice cap, which reached a record low volume last year, has lost as much as 40 percent of its area during summer in just 30 years.

These extreme events are happening in real time. It is not uncommon for the nightly newscast to resemble a nature hike through the Book of Revelation. Yet most of the news media completely ignore how such events are connected to the climate crisis, or dismiss the connection as controversial; after all, there are scientists on one side of the debate and deniers on the other. A Fox News executive, in an internal e-mail to the network's reporters and editors that later became public, questioned the "veracity of climate change data" and ordered the journalists to "refrain from asserting that the planet has warmed (or cooled) in any given period without IMMEDIATELY pointing out that such theories are based upon data that critics have called into question."

But in the "real" world, the record droughts, fires, floods and mudslides continue to increase in severity and frequency. Leading climate scientists like Jim Hansen and Kevin Trenberth now say that events like these would almost certainly not be occurring without the influence of man-made global warming. And that's a shift in the way they frame these impacts. Scientists used to caution that we were increasing the probability of such extreme events by "loading the dice" — pumping more carbon into the atmosphere. Now the scientists go much further, warning that we are "painting more dots on the dice."  We are not only more likely to roll 12s; we are now rolling 13s and 14s. In other words, the biggest storms are not only becoming more frequent, they are getting bigger, stronger and more destructive.

"The only plausible explanation for the rise in weather-related catastrophes is climate change," Munich Re, one of the two largest reinsurance companies in the world, recently stated. "The view that weather extremes are more frequent and intense due to global warming coincides with the current state of scientific knowledge."

Many of the extreme and destructive events are the result of the rapid increase in the amount of heat energy from the sun that is trapped in the atmosphere, which is radically disrupting the planet's water cycle. More heat energy evaporates more water into the air, and the warmer air holds a lot more moisture. This has huge consequences that we now see all around the world.

When a storm unleashes a downpour of rain or snow, the precipitation does not originate just in the part of the sky directly above where it falls. Storms reach out — sometimes as far as 2,000 miles — to suck in water vapor from large areas of the sky, including the skies above oceans, where water vapor has increased by four percent in just the last 30 years. (Scientists often compare this phenomenon to what happens in a bathtub when you open the drain; the water rushing out comes from the whole tub, not just from the part of the tub directly above the drain. And when the tub is filled with more water, more goes down the drain. In the same way, when the warmer sky is filled with a lot more water vapor, there are bigger downpours when a storm cell opens the "drain.")

In many areas, these bigger downpours also mean longer periods between storms — at the same time that the extra heat in the air is also drying out the soil. That is part of the reason so many areas have been experiencing both record floods and deeper, longer-lasting droughts.

Moreover, the scientists have been warning us for quite some time — in increasingly urgent tones — that things will get much, much worse if we continue the reckless dumping of more and more heat-trapping pollution into the atmosphere. Drought is projected to spread across significant, highly populated areas of the globe throughout this century. Look at what the scientists say is in store for the Mediterranean nations. Should we care about the loss of Spain, France, Italy, the Balkans, Turkey, Tunisia? Look at what they say is in store for Mexico. Should we notice? Should we care?

Maybe it's just easier, psychologically, to swallow the lie that these scientists who devote their lives to their work are actually greedy deceivers and left-wing extremists — and that we should instead put our faith in the pseudoscientists financed by large carbon polluters whose business plans depend on their continued use of the atmospheric commons as a place to dump their gaseous, heat-trapping waste without limit or constraint, free of charge.

The truth is this: What we are doing is functionally insane. If we do not change this pattern, we will condemn our children and all future generations to struggle with ecological curses for several millennia to come. Twenty percent of the global-warming pollution we spew into the sky each day will still be there 20,000 years from now!

We do have another choice. Renewable energy sources are coming into their own. Both solar and wind will soon produce power at costs that are competitive with fossil fuels; indications are that twice as many solar installations were erected worldwide last year as compared to 2009. The reductions in cost and the improvements in efficiency of photovoltaic cells over the past decade appear to be following an exponential curve that resembles a less dramatic but still startling version of what happened with computer chips over the past 50 years.

Enhanced geothermal energy is potentially a nearly limitless source of competitive electricity. Increased energy efficiency is already saving businesses money and reducing emissions significantly. New generations of biomass energy — ones that do not rely on food crops, unlike the mistaken strategy of making ethanol from corn — are extremely promising. Sustainable forestry and agriculture both make economic as well as environmental sense. And all of these options would spread even more rapidly if we stopped subsidizing Big Oil and Coal and put a price on carbon that reflected the true cost of fossil energy — either through the much-maligned cap-and-trade approach, or through a revenue-neutral tax swap.

All over the world, the grassroots movement in favor of changing public policies to confront the climate crisis and build a more prosperous, sustainable future is growing rapidly. But most governments remain paralyzed, unable to take action — even after years of volatile gasoline prices, repeated wars in the Persian Gulf, one energy-related disaster after another, and a seemingly endless stream of unprecedented and lethal weather disasters.

Continuing on our current course would be suicidal for global civilization. But the key question is: How do we drive home that fact in a democratic society when questions of truth have been converted into questions of power? When the distinction between what is true and what is false is being attacked relentlessly, and when the referee in the contest between truth and falsehood has become an entertainer selling tickets to a phony wrestling match?

The "wrestling ring" in this metaphor is the conversation of democracy. It used to be called the "public square." In ancient Athens, it was the Agora. In the Roman Republic, it was the Forum. In the Egypt of the recent Arab Spring, "Tahrir Square" was both real and metaphorical — encompassing Facebook, Twitter, Al-Jazeera and texting.

In the America of the late-18th century, the conversation that led to our own "Spring" took place in printed words: pamphlets, newsprint, books, the "Republic of Letters." It represented the fullest flower of the Enlightenment, during which the oligarchic power of the monarchies, the feudal lords and the Medieval Church was overthrown and replaced with a new sovereign: the Rule of Reason.

The public square that gave birth to the new consciousness of the Enlightenment emerged in the dozen generations following the invention of the printing press — "the Gutenberg Galaxy," the scholar Marshall McLuhan called it — a space in which the conversation of democracy was almost equally accessible to every literate person. Individuals could both find the knowledge that had previously been restricted to elites and contribute their own ideas.

Ideas that found resonance with others rose in prominence much the way Google searches do today, finding an ever larger audience and becoming a source of political power for individuals with neither wealth nor force of arms. Thomas Paine, to take one example, emigrated from England to Philadelphia with no wealth, no family connections and no power other than that which came from his ability to think and write clearly — yet his Common Sense became the Harry Potter of Revolutionary America. The "public interest" mattered, was actively discussed and pursued.

But the "public square" that gave birth to America has been transformed beyond all recognition. The conversation that matters most to the shaping of the "public mind" now takes place on television. Newspapers and magazines are in decline. The Internet, still in its early days, will one day support business models that make true journalism profitable — but up until now, the only successful news websites aggregate content from struggling print publications. Web versions of the newspapers themselves are, with few exceptions, not yet making money. They bring to mind the classic image of Wile E. Coyote running furiously in midair just beyond the edge of the cliff, before plummeting to the desert floor far beneath him.

The average American, meanwhile, is watching television an astonishing five hours a day. In the average household, at least one television set is turned on more than eight hours a day. Moreover, approximately 75 percent of those using the Internet frequently watch television at the same time that they are online.

Unlike access to the "public square" of early America, access to television requires large amounts of money. Thomas Paine could walk out of his front door in Philadelphia and find a dozen competing, low-cost print shops within blocks of his home. Today, if he traveled to the nearest TV station, or to the headquarters of nearby Comcast — the dominant television provider in America — and tried to deliver his new ideas to the American people, he would be laughed off the premises. The public square that used to be a commons has been refeudalized, and the gatekeepers charge large rents for the privilege of communicating to the American people over the only medium that really affects their thinking. "Citizens" are now referred to more commonly as "consumers" or "the audience."

That is why up to 80 percent of the campaign budgets for candidates in both major political parties is devoted to the purchase of 30-second TV ads. Since the rates charged for these commercials increase each year, the candidates are forced to raise more and more money in each two-year campaign cycle.

Of course, the only reliable sources from which such large sums can be raised continuously are business lobbies. Organized labor, a shadow of its former self, struggles to compete, and individuals are limited by law to making small contributions. During the 2008 campaign, there was a bubble of hope that Internet-based fundraising might even the scales, but in the end, Democrats as well as Republicans relied far more on traditional sources of large contributions. Moreover, the recent deregulation of unlimited — and secret — donations by wealthy corporations has made the imbalance even worse.

In the new ecology of political discourse, special-interest contributors of the large sums of money now required for the privilege of addressing voters on a wholesale basis are not squeamish about asking for the quo they expect in return for their quid. Politicians who don't acquiesce don't get the money they need to be elected and re-elected. And the impact is doubled when special interests make clear — usually bluntly — that the money they are withholding will go instead to opponents who are more than happy to pledge the desired quo. Politicians have been racing to the bottom for some time, and are presently tunneling to new depths. It is now commonplace for congressmen and senators first elected decades ago — as I was — to comment in private that the whole process has become unbelievably crass, degrading and horribly destructive to the core values of American democracy.

Largely as a result, the concerns of the wealthiest individuals and corporations routinely trump the concerns of average Americans and small businesses. There are a ridiculously large number of examples: eliminating the inheritance tax paid by the wealthiest one percent of families is considered a much higher priority than addressing the suffering of the millions of long-term unemployed; Wall Street's interest in legalizing gambling in trillions of dollars of "derivatives" was considered way more important than protecting the integrity of the financial system and the interests of middle-income home buyers. It's a long list.

Almost every group organized to promote and protect the "public interest" has been backpedaling and on the defensive. By sharp contrast, when a coalition of powerful special interests sets out to manipulate U.S. policy, their impact can be startling — and the damage to the true national interest can be devastating.

In 2002, for example, the feverish desire to invade Iraq required convincing the American people that Saddam Hussein was somehow responsible for attacking the United States on September 11th, 2001, and that he was preparing to attack us again, perhaps with nuclear weapons. When the evidence — the "facts" — stood in the way of that effort to shape the public mind, they were ridiculed, maligned and ignored. Behind the scenes, the intelligence was manipulated and the public was intentionally deceived. Allies were pressured to adopt the same approach with their publics. A recent inquiry in the U.K. confirmed this yet again. "We knew at the time that the purpose of the dossier was precisely to make a case for war, rather than setting out the available intelligence," Maj. Gen. Michael Laurie testified. "To make the best out of sparse and inconclusive intelligence, the wording was developed with care." Why? As British intelligence put it, the overthrow of Saddam was "a prize because it could give new security to oil supplies."

That goal — the real goal — could have been debated on its own terms. But as Bush administration officials have acknowledged, a truly candid presentation would not have resulted in sufficient public support for the launching of a new war. They knew that because they had studied it and polled it. So they manipulated the debate, downplayed the real motive for the invasion, and made a different case to the public — one based on falsehoods.

And the "referee" — the news media — looked the other way. Some, like Fox News, were hyperactive cheerleaders. Others were intimidated into going along by the vitriol heaped on any who asked inconvenient questions. (They know it; many now acknowledge it, sheepishly and apologetically.)

Senators themselves fell, with a few honorable exceptions, into the same two camps. A few weeks before the United States invaded Iraq, the late Robert Byrd — God rest his soul — thundered on the Senate floor about the pitiful quality of the debate over the choice between war and peace: "Yet, this Chamber is, for the most part, silent — ominously, dreadfully silent. There is no debate, no discussion, no attempt to lay out for the nation the pros and cons of this particular war. There is nothing."

The chamber was silent, in part, because many senators were somewhere else — attending cocktail parties and receptions, largely with special-interest donors, raising money to buy TV ads for their next campaigns. Nowadays, in fact, the scheduling of many special-interest fundraisers mirrors the schedule of votes pending in the House and Senate.

By the time we invaded Iraq, polls showed, nearly three-quarters of the American people were convinced that the person responsible for the planes flying into the World Trade Center Towers was indeed Saddam Hussein. The rest is history — though, as Faulkner wrote, "The past is never dead. It's not even past." Because of that distortion of the truth in the past, we are still in Iraq; and because the bulk of our troops and intelligence assets were abruptly diverted from Afghanistan to Iraq, we are also still in Afghanistan.

In the same way, because the banks had their way with Congress when it came to gambling on unregulated derivatives and recklessly endangering credit markets with subprime mortgages, we still have almost double-digit unemployment, historic deficits, Greece and possibly other European countries teetering on the edge of default, and the threat of a double-dip recession. Even the potential default of the United States of America is now being treated by many politicians and too many in the media as yet another phony wrestling match, a political game. 

Are the potential economic consequences of a U.S. default "real"? Of course they are! Have we gone completely nuts?

We haven't gone nuts — but the "conversation of democracy" has become so deeply dysfunctional that our ability to make intelligent collective decisions has been seriously impaired. Throughout American history, we relied on the vibrancy of our public square — and the quality of our democratic discourse — to make better decisions than most nations in the history of the world. But we are now routinely making really bad decisions that completely ignore the best available evidence of what is true and what is false. When the distinction between truth and falsehood is systematically attacked without shame or consequence — when a great nation makes crucially important decisions on the basis of completely false information that is no longer adequately filtered through the fact-checking function of a healthy and honest public discussion — the public interest is severely damaged.

That is exactly what is happening with U.S. decisions regarding the climate crisis. The best available evidence demonstrates beyond any reasonable doubt that the reckless spewing of global-warming pollution in obscene quantities into the atmospheric commons is having exactly the consequences long predicted by scientists who have analyzed the known facts according to the laws of physics.

The emergence of the climate crisis seems sudden only because of a relatively recent discontinuity in the relationship between human civilization and the planet's ecological system. In the past century, we have quadrupled global population while relying on the burning of carbon-based fuels — coal, oil and gas — for 85 percent of the world's energy. We are also cutting and burning forests that would otherwise help remove some of the added CO2 from the atmosphere, and have converted agriculture to an industrial model that also runs on carbon-based fuels and strip-mines carbon-rich soils.

The cumulative result is a radically new reality — and since human nature makes us vulnerable to confusing the unprecedented with the improbable, it naturally seems difficult to accept. Moreover, since this new reality is painful to contemplate, and requires big changes in policy and behavior that are at the outer limit of our ability, it is all too easy to fall into the psychological state of denial. As with financial issues like subprime mortgages and credit default swaps, the climate crisis can seem too complex to worry about, especially when the shills for the polluters constantly claim it's all a hoax anyway. And since the early impacts of climatic disruption are distributed globally, they masquerade as an abstraction that is safe to ignore.

These vulnerabilities, rooted in our human nature, are being manipulated by the tag-team of Polluters and Ideologues who are trying to deceive us. And the referee — the news media — is once again distracted. As with the invasion of Iraq, some are hyperactive cheerleaders for the deception, while others are intimidated into complicity, timidity and silence by the astonishing vitriol heaped upon those who dare to present the best evidence in a professional manner. Just as TV networks who beat the drums of war prior to the Iraq invasion were rewarded with higher ratings, networks now seem reluctant to present the truth about the link between carbon pollution and global warming out of fear that conservative viewers will change the channel — and fear that they will receive a torrent of flame e-mails from deniers.

Many politicians, unfortunately, also fall into the same two categories: those who cheerlead for the deniers and those who cower before them. The latter group now includes several candidates for the Republican presidential nomination who have felt it necessary to abandon their previous support for action on the climate crisis; at least one has been apologizing profusely to the deniers and begging for their forgiveness.

"Intimidation" and "timidity" are connected by more than a shared word root. The first is designed to produce the second. As Yeats wrote almost a century ago, "The best lack all conviction, while the worst are full of passionate intensity."

Barack Obama's approach to the climate crisis represents a special case that requires careful analysis. His election was accompanied by intense hope that many things in need of change would change. Some things have, but others have not. Climate policy, unfortunately, is in the second category. Why?

First of all, anyone who honestly examines the incredible challenges confronting President Obama when he took office has to feel enormous empathy for him: the Great Recession, with the high unemployment and the enormous public and private indebtedness it produced; two seemingly interminable wars; an intractable political opposition whose true leaders — entertainers masquerading as pundits — openly declared that their objective was to ensure that the new president failed; a badly broken Senate that is almost completely paralyzed by the threat of filibuster and is controlled lock, stock and barrel by the oil and coal industries; a contingent of nominal supporters in Congress who are indentured servants of the same special interests that control most of the Republican Party; and a ferocious, well-financed and dishonest campaign poised to vilify anyone who dares offer leadership for the reduction of global-warming pollution.

In spite of these obstacles, President Obama included significant climate-friendly initiatives in the economic stimulus package he presented to Congress during his first month in office. With the skillful leadership of House Speaker Nancy Pelosi and committee chairmen Henry Waxman and Ed Markey, he helped secure passage of a cap-and-trade measure in the House a few months later. He implemented historic improvements in fuel-efficiency standards for automobiles, and instructed the Environmental Protection Agency to move forward on the regulation of global-warming pollution under the Clean Air Act. He appointed many excellent men and women to key positions, and they, in turn, have made hundreds of changes in environmental and energy policy that have helped move the country forward slightly on the climate issue. During his first six months, he clearly articulated the link between environmental security, economic security and national security — making the case that a national commitment to renewable energy could simultaneously reduce unemployment, dependence on foreign oil and vulnerability to the disruption of oil markets dominated by the Persian Gulf reserves. And more recently, as the issue of long-term debt has forced discussion of new revenue, he proposed the elimination of unnecessary and expensive subsidies for oil and gas.

But in spite of these and other achievements, President Obama has thus far failed to use the bully pulpit to make the case for bold action on climate change. After successfully passing his green stimulus package, he did nothing to defend it when Congress decimated its funding. After the House passed cap and trade, he did little to make passage in the Senate a priority. Senate advocates — including one Republican — felt abandoned when the president made concessions to oil and coal companies without asking for anything in return. He has also called for a massive expansion of oil drilling in the United States, apparently in an effort to defuse criticism from those who argue speciously that "drill, baby, drill" is the answer to our growing dependence on foreign oil.

The failure to pass legislation to limit global-warming pollution ensured that the much-anticipated Copenhagen summit on a global treaty in 2009 would also end in failure. The president showed courage in attending the summit and securing a rhetorical agreement to prevent a complete collapse of the international process, but that's all it was — a rhetorical agreement. During the final years of the Bush-Cheney administration, the rest of the world was waiting for a new president who would aggressively tackle the climate crisis — and when it became clear that there would be no real change from the Bush era, the agenda at Copenhagen changed from "How do we complete this historic breakthrough?" to "How can we paper over this embarrassing disappointment?"

Some concluded from the failure in Copenhagen that it was time to give up on the entire U.N.-sponsored process for seeking an international agreement to reduce both global-warming pollution and deforestation. Ultimately, however, the only way to address the climate crisis will be with a global agreement that in one way or another puts a price on carbon. And whatever approach is eventually chosen, the U.S. simply must provide leadership by changing our own policy.

Yet without presidential leadership that focuses intensely on making the public aware of the reality we face, nothing will change. The real power of any president, as Richard Neustadt wrote, is "the power to persuade." Yet President Obama has never presented to the American people the magnitude of the climate crisis. He has simply not made the case for action. He has not defended the science against the ongoing, withering and dishonest attacks. Nor has he provided a presidential venue for the scientific community — including our own National Academy — to bring the reality of the science before the public.

Here is the core of it: we are destroying the climate balance that is essential to the survival of our civilization. This is not a distant or abstract threat; it is happening now. The United States is the only nation that can rally a global effort to save our future. And the president is the only person who can rally the United States.

Many political advisers assume that a president has to deal with the world of politics as he finds it, and that it is unwise to risk political capital on an effort to actually lead the country toward a new understanding of the real threats and real opportunities we face. Concentrate on the politics of re-election, they say. Don't take chances.

All that might be completely understandable and make perfect sense in a world where the climate crisis wasn't "real." Those of us who support and admire President Obama understand how difficult the politics of this issue are in the context of the massive opposition to doing anything at all — or even to recognizing that there is a crisis. And assuming that the Republicans come to their senses and avoid nominating a clown, his re-election is likely to involve a hard-fought battle with high stakes for the country. All of his supporters understand that it would be self-defeating to weaken Obama and heighten the risk of another step backward. 

Even writing an article like this one carries risks; opponents of the president will excerpt the criticism and strip it of context.

But in this case, the President has reality on his side. The scientific consensus is far stronger today than at any time in the past. Here is the truth: The Earth is round; Saddam Hussein did not attack us on 9/11; Elvis is dead; Obama was born in the United States; and the climate crisis is real. It is time to act.

Those who profit from the unconstrained pollution that is the primary cause of climate change are determined to block our perception of this reality. They have help from many sides: from the private sector, which is now free to make unlimited and secret campaign contributions; from politicians who have conflated their tenures in office with the pursuit of the people's best interests; and — tragically — from the press itself, which treats deception and falsehood on the same plane as scientific fact, and calls it objective reporting of alternative opinions.

All things are not equally true. It is time to face reality. We ignored reality in the marketplace and nearly destroyed the world economic system. We are likewise ignoring reality in the environment, and the consequences could be several orders of magnitude worse. Determining what is real can be a challenge in our culture, but in order to make wise choices in the presence of such grave risks, we must use common sense and the rule of reason in coming to an agreement on what is true.

So how can we make it happen? How can we as individuals make a difference? In five basic ways:

First, become a committed advocate for solving the crisis. You can start with something simple: Speak up whenever the subject of climate arises. When a friend or acquaintance expresses doubt that the crisis is real, or that it's some sort of hoax, don't let the opportunity pass to put down your personal marker. The civil rights revolution may have been driven by activists who put their lives on the line, but it was partly won by average Americans who began to challenge racist comments in everyday conversations.

Second, deepen your commitment by making consumer choices that reduce energy use and reduce your impact on the environment. The demand by individuals for change in the marketplace has already led many businesses to take truly significant steps to reduce their global-warming pollution. Some of the corporate changes are more symbolic than real — "green-washing," as it's called — but a surprising amount of real progress is taking place. Walmart, to pick one example, is moving aggressively to cut its carbon footprint by 20 million metric tons, in part by pressuring its suppliers to cut down on wasteful packaging and use lower-carbon transportation alternatives. Reward those companies that are providing leadership.

Third, join an organization committed to action on this issue. The Alliance for Climate Protection (climateprotect.org), which I chair, has grassroots action plans for the summer and fall that spell out lots of ways to fight effectively for the policy changes we need. We can also enable you to host a slide show in your community on solutions to the climate crisis — presented by one of the 4,000 volunteers we have trained. Invite your friends and neighbors to come and then enlist them to join the cause.

Fourth, contact your local newspapers and television stations when they put out claptrap on climate — and let them know you're fed up with their stubborn and cowardly resistance to reporting the facts of this issue. One of the main reasons they are so wimpy and irresponsible about global warming is that they're frightened of the reaction they get from the deniers when they report the science objectively. So let them know that deniers are not the only ones in town with game. Stay on them! Don't let up! It's true that some media outlets are getting instructions from their owners on this issue, and that others are influenced by big advertisers, but many of them are surprisingly responsive to a genuine outpouring of opinion from their viewers and readers. It is way past time for the ref to do his job.

Finally, and above all, don't give up on the political system. Even though it is rigged by special interests, it is not so far gone that candidates and elected officials don't have to pay attention to persistent, engaged and committed individuals. President Franklin Roosevelt once told civil rights leaders who were pressing him for change that he agreed with them about the need for greater equality for black Americans. Then, as the story goes, he added with a wry smile, "Now go out and make me do it."

To make our elected leaders take action to solve the climate crisis, we must forcefully communicate the following message: "I care a lot about global warming; I am paying very careful attention to the way you vote and what you say about it; if you are on the wrong side, I am not only going to vote against you, I will work hard to defeat you — regardless of party. If you are on the right side, I will work hard to elect you."

Why do you think President Obama and Congress changed their game on "don't ask, don't tell?" It happened because enough Americans delivered exactly that tough message to candidates who wanted their votes. When enough people care passionately enough to drive that message home on the climate crisis, politicians will look at their hole cards, and enough of them will change their game to make all the difference we need.

This is not naive; trust me on this. It may take more individual voters to beat the Polluters and Ideologues now than it once did — when special-interest money was less dominant. But when enough people speak this way to candidates, and convince them that they are dead serious about it, change will happen — both in Congress and in the White House. As the great abolitionist leader Frederick Douglass once observed, "Power concedes nothing without a demand. It never did, and it never will."

What is now at risk in the climate debate is nothing less than our ability to communicate with one another according to a protocol that binds all participants to seek reason and evaluate facts honestly. The ability to perceive reality is a prerequisite for self-governance. Wishful thinking and denial lead to dead ends. When it works, the democratic process helps clear the way toward reality, by exposing false argumentation to the best available evidence. That is why the Constitution affords such unique protection to freedom of the press and of speech.

The climate crisis, in reality, is a struggle for the soul of America. It is about whether or not we are still capable — given the ill health of our democracy and the current dominance of wealth over reason — of perceiving important and complex realities clearly enough to promote and protect the sustainable well-being of the many. What hangs in the balance is the future of civilization as we know it.

The Street Fighter

Preet Bharara, the US Attorney for the Southern District of New York, photographed on Sunday, January 29, 2012.

Martin Schoeller for TIME

 Monday, Feb. 13, 2012

By Bill Saporito; Massimo Calabresi

On wall street and in financial firms across America, the conference call is a standard workday tool. Traders, analysts and executives hop on to discuss trades, news and rumors that might move the market. Such was the case at the hedge fund Level Global Investors on Nov. 4, 2009, when one of its analysts joined a call organized by a second firm, Primary Global Research. PGR connects hedge funds, brokerages and other market players with executives of corporations--a Wall Street matchmaker of sorts--and on that day, PGR had some hot information for the hedgies at Level Global.

Too hot.

Unknown to the participants, Preet Bharara, U.S. Attorney for the Southern District of New York, was recording the conversation, and he wasn't looking for stock tips. A confidential informant had told his office that the party line was being used illegally to trade inside information. Bharara, who has launched a war on Wall Street crime, wanted proof. So he obtained a secret court order to join the conference call--something of a first for a U.S. Attorney. "Significant officials at publicly traded companies are casually and cavalierly engaged in insider trading," Bharara said on Jan. 24, sitting in his corner office behind Manhattan's city hall. "Because insider trading has as one of its elements communication, it doesn't take rocket science to realize it's nice to have the communication on tape."

Now Bharara is targeting an even more infamous Wall Street excess. On Feb. 1 he charged three former high-ranking Credit Suisse executives with fraud for inflating the value of mortgage bonds they held in 2008 in order to protect their bonuses as the housing market collapsed around them. Kareem Serageldin, head of the bank's structured-credit group, managing director David Higgs and Salmaan Siddiqui, a vice president in the investment-banking division, allegedly "papered over" more than $500 million in losses, according to the indictment, contributing to an eventual $2.65 billion write-down for Credit Suisse. Higgs and Siddiqui have pleaded guilty and are cooperating with the government. These are some of the first prosecutions of crimes involving residential-mortgage-backed securities, instruments that helped underwrite the housing bubble that led to the financial collapse.

In postmeltdown America, Main Street has been baying for some high-paid Wall Street heads to roll, and the 43-year-old Bharara is supplying them. His tactics are not always conventional. Prosecutors normally unravel criminal conspiracies one crook at a time, working their way slowly up the chain of command, and Bharara is doing some of that. But in an unusual and still controversial feat of prosecutorial moxie during his investigations of insider trading, Bharara and his team got a warrant to tap multiple people on the PGR conference call, beginning in early October 2009. The tap, which would cover 104 PGR employees and clients, gave Bharara a big net. The evidence that he and his staff would accumulate through that and other classic Mob-busting techniques like flipping lower-lever defendants into informants has led to the arrests of 63 people on insider-trading and other stock-fraud-related charges. Through pleas and at trial he's won 56 convictions--seven cases are pending--and he's had no losses.

Those traders may not have caused the meltdown, but since he arrived on the job in August 2009, Bharara has been targeting what he calls Wall Street's culture of greed. "There was a creeping culture of corruption in our politics and also in Wall Street and in business generally," he says. Bharara is aiming high, making arrests so far up Wall Street's food chain that hedge-fund bosses may be wondering about picking up the phone.

One of those arrested was Anthony Chiasson, high-flying co-founder of Level Global, whose trades, say the feds, made $72.6 million in profits for the firm over more than two years. Another is Raj Rajaratnam, the former boss of the $7 billion hedge fund Galleon Group, who is in jail for securities fraud and conspiracy while he appeals his 11-year sentence, which was delivered last October after a lengthy trial. Bharara has also charged former McKinsey & Co. CEO Rajat Gupta--like him a first-generation immigrant from India who made it in the U.S.--with securities fraud. And having arrested John Horvath, who worked at Sigma Capital, a unit of SAC Capital Advisors, Bharara has now alleged illegal activity inside the $14 billion hedge fund of Wall Street biggie Steven Cohen. Neither Cohen nor his firm has been accused of any wrongdoing. "He's bringing a lot of very high-profile cases," says his predecessor in the job, former New York City mayor Rudolph Giuliani, who says Bharara's done a "great job."

To his critics, Bharara's prosecutorial reach is perilous to innocent bystanders. The definition of insider trading has never been clear. And the mere appearance of Bharara has been enough to send investors fleeing (with their cash) from hedge funds once they become his target. Level Global is finished; FrontPoint Partners, once a $7 billion firm, was reduced to a shell after one of its analysts was busted. At the same time, political pressure for more arrests is mounting. An election-year posse is being formed in Washington to try to round up the perpetrators of the Great Recession. President Barack Obama unveiled during his State of the Union address in January a new task force to investigate mortgage fraud by big banks.

To hear him tell it, Bharara is after something bigger than just arrests. In his insider-trading cases, Bharara says he is not targeting hedge funds but rather leveling the playing field for all investors at a time when fairness is vitally important. "Insider trading tells everybody at precisely the wrong time that everything is rigged," he says, "and only people who have a billion dollars and have access to and are best friends with people who are on boards of directors of major companies--they're the only ones who can make a true buck." Ultimately, though, justice comes in court, after the perp walks and the press conferences are long forgotten, and it is there that Bharara's choice of cases--and his tactics--will be judged.

The Third Wave

Bharara is the top cop on the beat at a time when Wall Street is experiencing its third major prosecution wave since the late 1980s. Giuliani made enough successful big-time busts during the first wave to launch a political career that culminated in a presidential run. His was the junk-bond era--marked by the crash of '87--when corporate takeovers fueled by "high yield" debt were frequent and inside information was a valued currency. He nailed Drexel Burnham Lambert's superstar banker Mike Milken and arbitrageur Ivan Boesky on charges related to insider trading. And he made drama a tool of his trade: the sight of Robert Freeman, the highly respected head of arbitrage at Goldman Sachs, being led away in handcuffs from the firm's trading floor was one of the most stunning scenes of the era.

New York Attorney General Eliot Spitzer was the star of the second wave, during the dotcom-bust days in the 2000s. Leveraging New York State's nominal jurisdiction over what usually are considered federal cases, he zeroed in on Wall Street's all-too-cozy relationships among investment bankers, analysts and firms' best customers in dispensing hot tech-stock IPOs. Spitzer also targeted the Street's research analysts' penchant for placing "buy" recommendations on every other piece of dotcom garbage their firms were taking public. During the same period, U.S. Attorneys in Houston took advantage of a relatively new law that made it a crime for corporate executives to deprive shareholders of "honest services." Down went Enron CEO Jeff Skilling and Hollinger's Conrad Black on honest-services fraud and other charges. Other big fish like WorldCom's Bernie Ebbers and Tyco's Dennis Kozlowski were also jailed.

There's a link between the Spitzer era and Bharara's current cases. Spitzer's spotlight helped prompt new regulations that forced the large financial firms to divest themselves of some in-house research capabilities to prevent collusion between research-chasing analysts and their stock-peddling colleagues. The idea was to strip the big brokerage firms of their access to inside info and give equal access to all investors. Instead, the activity was essentially outsourced to people who left the firms to set up their own research organizations--what would become known as expert networks--which then sold the information back to the Wall Street firms. Expert networks like PGR got good at penetrating corporations and connecting traders on the outside with corporate operatives on the inside who had useful information to sell.

What Bharara was listening for on the conference call in November 2009 was very specific: nonpublic information that could move stock prices. It is a violation of federal securities law to conspire to make money on "material nonpublic information," and in an FBI affidavit filed to U.S. District Judge Kevin Duffy, the feds claimed probable cause against at least eight of the potential 104 people who used the PGR line. Duffy granted the wiretap in early October 2009.

Over the months that followed, Bharara's team would mine the resulting wiretap warrant for all it was worth. On the Nov. 4, 2009, call, for example, Dan DeVore, a global supply manager for computer maker Dell who was paid in total more than $145,000 by PGR, told Spyridon "Sam" Adondakis of Level Global that computer sales had jumped from 60,000 units a day to as high as 200,000 units a day, thanks in part to the introduction of the new Windows 7 operating system. DeVore also gave Adondakis details on future pricing of Dell's computers. And he slipped Adondakis forecasts for the company's growth in coming months. All of this gave Adondakis a leg up on the market. DeVore briefed at least nine other analysts about Dell's prospects on the conference line over the next six months. When Bharara finally arrested him in December 2010, DeVore pleaded guilty to wire fraud and conspiracy and began cooperating with the government. It is a sign of how useful he is--and how much further Bharara plans to take this strand of his investigation--that DeVore's sentencing is not even scheduled until December 2013.

Giuliani says Bharara has chosen his cases wisely and well. "He's bringing responsible cases," Giuliani tells TIME. "When you make these high-profile prosecutions, you're deterring a lot of crimes."

Born to Prosecute

Bharara got to the Southern District from the ground up. He was born in the Punjab city of Ferozepur, where his father, a doctor, was struggling to raise a family. When Bharara was 2, his father brought the family to New Jersey via England, and Bharara remembers him drawing a contrast between how things worked in India and how they did in their new country. "I remember him talking about seeing bribes being passed, even among doctors [in India], which he thought was not the way it should work," Bharara says.

Bharara developed a first-generation immigrant's passion for the American way of government. In his first week at Harvard, he engaged in a now famous all-night argument with another newcomer, Viet Dinh, who later became a powerful lawyer in the George W. Bush Administration and an author of the Patriot Act. Dinh argued that the framers of the Constitution believed men's souls were evil, while Bharara insisted they thought they were good. By the time they went to breakfast the following morning, they were best friends. Back then, it was already clear to Dinh where Bharara was headed. "His unwavering focus has always been to become a prosecutor," Dinh says.

Seven years after Columbia Law School, Bharara got his chance, joining the Southern District, one of the largest, most powerful and most respected federal attorney's offices in the U.S. Assigned to the organized-crime unit, he teamed up with the agents busting figures from the Colombo and Gambino families. It was there, says his friend Bill Burck, a former deputy White House counsel for Bush who served with him as a prosecutor, that Bharara developed his signature mix of Ivy League training and wisecracking, blue collar casemaking.

It was also in that job that Bharara learned the value of a wiretap. "When you're trying to make a racketeering case that involves charges of extortion, which by definition include threats of violence, and you have a guy saying, like you might see on The Sopranos, 'I'm going to staple your eyeball,' that's pretty good evidence. And you get that all the time," Bharara says.

In 2005 he showed he had political smarts, getting himself a job as a judiciary-committee aide to New York's senior Senator, Chuck Schumer. Bharara arrived in Washington a known quantity, thanks to his friendships with Republicans like Burck and Dinh, both of whom were already in the Bush Administration. That made him a trusted interlocutor between the Administration and the Democrats in Congress when accusations of political influence over prosecutors arose under then Attorney General Alberto Gonzales in 2006. Bharara became the lead investigator, uncovering political motivations behind the firing of nine U.S. Attorneys by top Gonzales aides. The investigation started the ball rolling that would eventually topple Gonzales and result in subpoenas against top White House officials, including Karl Rove and White House counsel Harriet Miers, and make Bharara's boss, Schumer, look good. In early 2009, Schumer encouraged newly elected President Obama to make Bharara the new U.S. Attorney in Manhattan.

Will His Perps Walk?

The Jury is still out on whether Bharara's war on this third wave of Wall Street crime will produce longer-lasting results than his predecessors' efforts did. Much depends on whether his convictions are upheld on appeal--and the defendants in these cases have the means to make the challenges that sometimes lead to reversals. The 1968 federal law on wiretaps explicitly limits the government's right to listen in on calls where there is no probable cause that a crime will be committed. And the definition of exactly what constitutes insider trading remains a hurdle. "Neither the SEC nor Congress has ever defined inside information, nor has either succeeded in specifying the level of significance the information must have to be the subject of a criminal violation," says Henry G. Manne, a dean emeritus of the George Mason University School of Law.

No prosecutor wins every case. While most of those overheard on the conference call who were charged with insider trading have pleaded guilty to securities fraud and conspiracy, at least one, PGR's James Fleishman, has not. "It should be tremendously scary for anyone who works in a large organization" that government prosecutors can tap conference-call lines that are used by multiple innocent people, says Ethan Balogh, the lawyer for Fleishman. Courts have been generous in judging whether a wiretap is reasonable, and Judge Jed Rakoff of New York's Southern District denied Balogh's motion to suppress the conference-call wiretap evidence and sentenced Fleishman to 30 months in prison. Fleishman is appealing to the U.S. Second Circuit Court of Appeals; the case could go all the way to the Supreme Court, thanks to the government's admission in its request for the tap that it didn't have probable cause against 93 of the 104 people it planned to eavesdrop on.

History shows a mixed record for forward-leaning prosecutors. Giuliani's highest-profile Wall Street target, Robert Freeman, served just four months in prison and paid a $1 million fine--for mail fraud. Appeals courts rolled back some of the honest-services-fraud convictions related to Enron and Conrad Black, and in 2005, the Supreme Court unanimously nullified the government's victory against Enron's accounting firm Arthur Andersen, a bitter end for the more than 25,000 employees who lost their jobs when the company folded in the wake of the lower court's 2002 conviction. Spitzer's civil suit to force New York Stock Exchange CEO Dick Grasso to return part of his multimillion-dollar pay package was drop-kicked by the appeals courts, as were other high-profile cases he brought on his way to the governor's mansion. Brendan Sullivan, the defense lawyer who successfully defended Alaska Senator Ted Stevens after his indictment on charges based on prosecutorial witness rigging, says we are at a historical extreme of prosecutorial power. "The pendulum has swung fully toward prosecutors," he says. "So it's all the more important that you have prosecutors with a keen sense of justice."

Sullivan is right, of course, and that's why warrants have to be okayed by judges. But it is also true that politics can sometimes drive prosecutions at every level of government, and there is a danger in wanting to criminalize the recession. The Obama Justice Department has launched a new wave of investigations of people behind the mortgage-lending free-for-all that nearly destroyed the economy when the housing bubble burst in 2007. Three years of prior investigations haven't yielded much criminal prosecution. Greed by itself isn't a crime. In trying to make Wall Street fairer to all investors, Bharara is in some respects acting as a regulator. Given the dithering in Congress over consumer financial protection, state and federal prosecutors get the job by default.

Bharara, who is not part of the new task force but says it is a "welcome addition," echoes Sullivan's call for prosecutorial standards. "In this office, we talk every day about doing what is right by the law and by our conscience and try to use the most aggressive technique that is appropriate to the task at hand, within limits of the law," he says.

That kind of talk explains why some friends say Bharara has the potential to become the first Indian American in a top spot at the Justice Department or in the courts. For now, though, Bharara says more insider-trading arrests are on the way, a statement he knows has its own power to deter potential criminals. "Securities fraud generally and insider trading in particular should be eminently deterrable crimes," he says. With Bharara on the beat, they are. But eventually Wall Street's appetite for making money will once again test the skills, and tactics, of America's prosecutors.