Tuesday, September 15, 2009

The 'Showboat Judge'? A Lost Icon?

1907: Standard Oil is under criminal investigation for corruption charges levied by federal prosecutors in Illinois. The charge is that Standard Oil executives accepted significant kickbacks from railroad companies (thus vastly lowering their real freight costs) in exchange for a preferred business relationship that allowed both the oil trust and the railroads in question to limit their rivals' ability to compete. Federal circuit judge Kenesaw Mountain Landis, unimpressed with the explanations given by Standard Oil executives, subpoenas oil duke John D. Rockefeller and puts him on the stand to explain or refute the charges. He ends the trial by levying a 27 million dollar fine against Standard Oil, a figure that in today's money becomes astronomical.

Landis's decision was overturned on appeal, and the final fine levied was far lower. All the same, Landis's haling of Rockefeller into court and forcing him to answer for the crimes committed by his employees was a bold move. It was an important step in the antitrust battles of the Gilded Age.

Landis was what we used to call a 'showboat judge.' He used his judicial discretion to its fullest extent and acted as he believed right. While he was hardly a hero overall (he was a virulent racist who ended the US career of heavyweight champion Jack Johnson on Mann Act charges, dearth on organized labor, and as commissioner of baseball he kept the sport segregated his entire term), his actions in that courtroom on 1907 were certainly heroic.

Of course, the most famous 'showboat judge' might be Associate Justice William J. Brennan of the Supreme Court. The late Justice Brennan is able to boast of a career of heroic judicial actions. The high court certainly needs another Brennan.

2009: Judge Jed Rakoff disallows a 33 million dollar settlement between the SEC and Bank of America. Rakoff had held up the settlement last month. Judge Rakoff demanded to know why the SEC had not pursued a criminal investigation of the charges against specific Bank of America executives instead of merely opening and quickly attempting to settle a civil case against the megabank. In his final ruling, Rakoff touched on a key note we should all take to heart:

'Rakoff, in his ruling, found that the settlement "suggests a rather cynical relationship between the parties: the SEC gets to claim that it is exposing wrongdoing on the part of the Bank of America in a high-profile merger, the bank's management gets to claim that they have been coerced into an onerous settlement by overzealous regulators. And all this is done at the expense, not only of the shareholders, but also of the truth."'

A cynical relationship between the SEC and one of the entities it regulates? Impossible! Not the SEC! Didn't they heroically enforce banking regulations to protect smaller American lenders, American citizens, and the US economy!?

Well, no... they didn't. There has been a cynical relationship between the SEC and most of Wall Street since Ronald Reagan's presidency, and under the Bush Administration the SEC was a 'yes man' for the megabanks.

Good for Judge Rakoff for calling at least one part of the problem to light.

The SEC's case against BofA must now go to trial, which means more of the details of the matters for which the bank was being investigated will come to light. Actual facts might be uncovered by the American people and the American government and those facts might lead to real action, or real demand for real action, in the effort to reform our financial markets.

Best of all? New York Attorney General Andrew Cuomo's office is preparing to hale the executives in question into state court to answer criminal charges. So Judge Rakoff's firm moral stand has succeeded in producing legal results, even if not from the branch of the federal government that should have produced those results on its own in the first place.

Corporate pirates need to learn that our economy is not the blue Caribbean and they cannot simply rape and pillage as they please. To that end, we need more 'showboat judges.'

Judge Rakoff, thank you.


Mark said...

I guess this worship of profit had its first heyday around the Gilded Age, but one would have hoped the leavening influences of mid-century, when the "richest man in town" usually just had a 2nd home and a cadillac, might have endured. Now millions of Americans seem to think they are all going to be millionaires anyday now, and continually vote for the interests of the class they aspire to be in, screwing up their own lives in the process. Their corporate overloads are laughing all the way to the bank.

The Eclectic Geek said...

I have to agree, yes. In many ways, the tax and labor policies of the 1950s and the notion of sustainability over unrestrained growth then en vogue among corporate executives needs to make a comeback.

George Romney, as CEO of American Motors, made roughly what his son made as governor of Massachussetts... low six figures. Something to think about, compared to our modern managerial culture of maximum compensation for executives.