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

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

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

The Fed's obsession with secrecy is another major problem. Take Congressman Ron Paul's popular bill to subject the central bank to audits like every other federal financial agency. The Fed pushed back vindictively through Alvarez. He warned that, if passed, the bill could cause the Fed to raise interest rates — it remains a mystery how an audit could affect macro-economic conditions on which rates are based. Even when Geithner — himself a former New York Fed chief — asked for a public review of the Fed's murky governance and structure, the secretive agency declined.

In August a federal judge granted a Freedom of Information Act request by Bloomberg News to reveal the identities of banks that borrowed from ten Federal Reserve programs during the peak of the financial crisis last fall, the dollar amounts and the collateral pledged. The Fed claimed the material was confidential and would hurt the banks' "competitive position." Nonsense. Americans have the right to know how their money is spent, and the information also has historical value in understanding the meltdown. "One way or another," says Florida Representative Alan Grayson, "the Fed is going to have to come clean." Maybe. Maybe not. The Fed won't willingly give it up — unseemly behavior, you would think, for a regulator.

But at least the public would get some measure of satisfaction if executive compensation were reined in, right? That's not coming along well, either. All of the reform packages contemplate limiting executive compensation or, at least, bonuses. The administration plans to support "say on pay," which means that shareholders in public companies would get the right to vote on executive pay. But such votes would be non-binding on companies' management and boards, so that equals nothing.

Shareholders, by the way, can be pretty avaricious themselves, especially during bubbles, when speculation pumps stock values to hookah highs, as in recent years. It's hard to see "say on pay" as other than vacuous.


All hope is not lost. The administration and congressional Democrats do support a promising reform called the Consumer Financial Regulatory Agency (CFRA). Obama's 80-plus-page proposal contains yawning gaps that Congress may fill and the financial industry will fight: Insurance isn't covered, nor are 401(k) retirement plans, and the majority of financial consultants and planners (including all the mini-Madoffs out there) evade scrutiny and standards. But the CFRA would actually wrest consumer-protection powers away from the Fed, which has them now and has failed consumers utterly.

Critically, a CFRA could allow scammed consumers to go to court against the securities industry. This is major. Any claimant who has been through the securities industry's kangaroo court might prefer the courts of Iran. At present individual rights against financial predation are about where anti-discrimination protections were 60 or 70 years ago. Then the Civil Rights Acts came along, with their provisions allowing Thurgood Marshall and thousands of lawyers who followed in his footsteps to sue in courts everywhere. Financial reformers want nothing more than what the Founding Fathers contemplated when they crafted the Seventh Amendment as a public-jury-trial antidote to rigged, remote, windowless, non-jury British enforcement proceedings on the Stamp Act and other forms of financial bullying.

Of course, this is a bridge too far for the financial industry. Its lobby, the most powerful in recent American history, has won every major legislative battle in the past twenty years. Wall Street's lobbyists and their congressional allies can be expected to fight hard. They'll call in all their markers to ensure that securities-fraud and other financial-crimes cases won't be heard in front of hometown juries.

There's something more encouraging: The CFRA, at least as now envisioned, would be a model of financial federalism, allowing states to pass even more stringent protections. In other words, there would be plenty of room for populists like New York's Andrew Cuomo, Connecticut's Richard Blumenthal and California's Jerry Brown to enforce more protection for consumers.

The money lobby will have more trouble beating down this reform because of the Supreme Court's Cuomo v. Clearing House Association decision. Though it carries the name of the current New York attorney general, the five-to-four opinion this past summer amounts to a last big regulatory gift to the consumers from former New York AG Eliot Spitzer, who tried to probe the big national banks about whether their credit interest rates for racial minorities were ratcheted up. The Bush administration sued to block New York from enforcing its laws on national banks, a posture strangely continued by Obama's lawyers. But the high court's four liberals, plus usually arch-conservative business ally Antonin Scalia, collaborated to vindicate Spitzer. The decision appears to give the go-ahead to states to pursue big-time financial criminals even if the federal government won't do it. The Wall Street Journal's editorial page sensed real danger to the behemoth banks from pro-consumer local prosecutors, raking the court and treating Scalia as if he had been smoking green shoots.

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