All of this hyperbolic language cannot disguise the fact that the settlement is just the latest in a series of efforts by the Obama Administration to give the appearance of being tough on corporate misconduct while actually letting the malefactors off easily. It is disappointing that so many state attorneys general gave into pressure to go along with the deal.

The $17 billion of the total that the servicers will be required to spend on direct relief (mortgage balance reductions and cash payments) will aid only a fraction of the homeowners victimized by abusive mortgage and foreclosure practices. Like earlier efforts by the Administration to deal with the housing debacle, it will do nothing for most of those who have been dispossessed in one of the most egregious cases of corporate lawlessness this country has ever seen.

The size of the settlement pool is meager in connection with the $200 billion multi-state tobacco settlement of 1998, for instance, and it will not present much of a financial burden for the five big servicers. Those companies—Bank of America, Citigroup, J.P. Morgan Chase, Wells Fargo and Ally Financial (formerly GMAC)—have combined assets of about $8 trillion. In other words, they are being asked to give up only about one-third of one percent of their total resources to resolve a crisis that has left so many with no resources at all.

Actually, the impact on the banks is even smaller than the absolute numbers would suggest. Many of the home loans that will be adjusted have already been written down in value by the financial institutions, so they are not really conceding anything. Meanwhile, those who have lost their homes to foreclosure will receive pitiful payments of about $2,000 each. There may be other pitfalls in the fine print of the settlement, which as of this writing has not yet been posted on the website created to publicize the deal.

The one good thing that can be said about the settlement is that, thanks to the insistence of New York Attorney General Eric Schneiderman, it does not release the banks from culpability for all mortgage-related offenses, and it allows the state AGs to continue pursuing any criminal charges. This leaves the door open for cases such as the one taking place in Missouri, in which a foreclosure servicing company called DocX is being charged with forgery. Yet it remains to be seen how aggressive federal and state agencies will be in pursuing such cases if the settlement gives the impression that the book has been closed on foreclosure abuses.

That impression was reinforced by the announcements of bank regulators such as the Federal Reserve and the Office of the Comptroller of the Currency that they have reached their own settlements with mortgage servicers.

Foreclosure abuses did not simply force people out of their homes in an unjust way. They exposed the imbalance of power between individuals and giant corporations when it comes to the application of the law. Capitalism is supposed to be based on the sanctity of contracts and the clear identification of ownership rights. Revelations that financial institutions were able to carry out foreclosures based on shoddy documentation, robo-signing and the like showed that, when it comes to the rule of law, not everyone is playing by the same rules.

Housing and Urban Development Secretary Shaun Donovan would have us believe that the settlement “forces the banks to clean up their acts and fix the problems uncovered during our investigations.” It can just as easily be said that the deal signals to large financial institutions that they can go on mistreating their customers and that the worst consequence would be modest financial penalties that can be written off as a cost of doing dirty business.

The latest indication of the administration’s weak enforcement record came in a report issued just a day before the State of the Union by the Office of the Special Inspector General for the Troubled Asset Relief Program, known inside the Beltway as SIGTARP. Not only have the feds failed to put the financial fraudsters behind bars—they can’t even control the industry’s bloated executive pay packages.

Soon after he took office in 2009, Obama made headlines by denouncing banking industry bonuses as “shameful.” He went on to impose $500,000 limits on the cash compensation of senior executives at firms that had received “exceptional assistance” from the Treasury, meaning that they had gotten the fattest bailouts during the 2008 financial crisis. The firms in that category were AIG, Bank of America and Citigroup as well as General Motors and Chrysler, along with the finance affiliates of those automakers.

The impact of the move was diminished somewhat after it soon came to light that AIG was giving out scores of seven-figure bonuses to the employees of the unit that caused the collapse of the company and necessitated a massive federal intervention. The Obama Administration and Congress responded to the uproar by creating a “compensation czar” under the auspices of the Treasury Department to oversee executive pay practices at the designated firms.

Kenneth Feinberg, the Washington lawyer named as czar, challenged the pay deals these firms had already made with their top officers and had successes such as getting outgoing Bank of America CEO Kenneth Lewis to forgo all of his pay for 2009. In October of that year, the Obama administration said that it would impose a plan devised by Feinberg to cut pay of top earners at the designated firms by about 50 percent. For more than a year there was a steady stream of news articles about the tough measures being meted out by Feinberg until his resignation in September 2010.

According to the new SIGTARP report, much of this was no more than Kabuki theatre. It found that the efforts of Feinberg in what is formally known as the Office of the Special Master (OSM) were less than draconian: “The Special Master could not effectively rein in excessive compensation at the seven companies because he was under the constraint that his most important goal was to get the companies to repay TARP [funds].” The report admits that OSM did bring about some pay reductions, but the idea of a $500,000 pay ceiling was rendered meaningless by its decision to approve “total compensation packages in the millions.”

The largest of those packages was received by AIG CEO Robert Benmosche: $10.5 million in total pay, including $3 million in cash, or six times the purported ceiling. This outsized compensation was going to the company that probably did the most to cause the crisis and that will end up costing the government more than any other bailed out firm.

Many others at the designated firms also broke through the flimsy ceiling. Overall, SIGTARP found, OSM approved 68 pay packages in excess of $1 million in 2009, 71 in 2010 and the same number in 2011. In the latter years there were fewer pay packages for OSM to review, since Citigroup and Bank of America had repaid the special assistance that triggered the oversight of their compensation practices. There have been reports that they took the step precisely to escape that oversight. Given how lenient Feinberg had been in allowing exceptions, it is not clear why they bothered.

Along with the depiction of OSM as a pushover, what is perhaps most telling about the SIGTARP report is the appended response from the Treasury Department. Despite all evidence to the contrary, Treasury claims that “OSM has succeeded in achieving its mission.” It also tries to rewrite history by claiming that the $500,000 limit was not a ceiling at all, but simply “a discretionary guideline.” And it insists that OSM allowed the firms to exceed the maximum only for good reasons, even though SIGTARP pointed out that those reasons were not documented.

Like Feinberg, President Obama has tried to project an image of being tough on corporate abuses while repeatedly caving in behind the scenes. It remains to be seen whether Obama, facing pressures from the Occupy movement and the threat of losing his re-election bid, finally gets serious about prosecuting financial crime or continues the charade.

The federal government is filled with regulatory agencies whose main mission seems to be to protect the interests of the largest companies they are charged with regulating. There’s always the possibility that the CFPB will be the exception to the rule of regulatory capture, but the fledgling entity would have to clear some high hurdles.

Cordray and his colleagues would do well to study the track record of the federal agency that has supposedly served as a financial watchdog for the past seven decades: the U.S. Securities and Exchange Commission. The CFPB is getting off the ground just as the SEC is embroiled in a dispute that reveals its cozy relationship with the big banks and its feckless approach to enforcement.

Back in October, as part of its belated and half-hearted response to the chicanery that led to the financial meltdown of 2008, the SEC announced that giant Citigroup had agreed to pay $285 million to settle charges that it had misled investors about a $1 billion issuance of housing-related collateralized debt obligations that Citi knew to be of dubious value and had bet against with its own money. As is typical in such SEC cases, Citi neither admitted nor denied doing any wrong.

That would have been the end of a typical case if the judge overseeing the matter, Jed Rakoff the Southern District of New York, had not done something remarkable. He declined to rubberstamp the settlement and raised a host of questions about the size of the settlement—which was well below the estimated $700 million lost by investors—and the failure of the SEC to get Citi to admit guilt.

Rakoff (illustration), who had questioned settlements in several other SEC cases, rejected the deal the agency made with Citi and ordered a trial on the matter. In his November  28 order (which I retrieved, along with other case documents, from the PACER subscription database), Judge Rakoff called the amount of the settlement “pocket change to any entity as large as Citigroup” and said it would have little deterrent effect. He also pointed out that the SEC’s decision to charge Citi with mere negligence and allow it to avoid admitting guilt “deals a double blow to any assistance the defrauded investors might seek to derive from the S.E.C. litigation in attempting to recoup their losses through private litigation, since private investors not only cannot bring securities claims based on negligence.” In other words, Rakoff was accusing the agency of protecting the interests of the big bank.

Calling the deal “neither reasonable, nor fair, nor adequate, nor in the public interest,” Rakoff thundered:

An application of judicial power that does not rest on facts is worse than mindless, it is inherently dangerous. The injunctive power of the judiciary is not a free roving remedy to be invoked at the whim of a regulatory agency, even with the consent of the regulated. If its deployment does not rest on facts – cold, hard solid facts, established by admissions or by trials -it serves no lawful or moral purpose and is simply an engine of oppression.

Finally, in any case like this that touches on the transparency of financial markets whose gyrations have so depressed our economy and debilitated our lives, there is an overriding public interest in knowing the truth. In much of the world, propaganda reigns, and truth is confined to secretive, fearful whispers. Even in our nation, apologists for suppressing or obscuring the truth may always be found. But the S.E.C., of all agencies, has a duty, inherent in its statutory mission, to see that the truth emerges; and if fails to do so, this Court must not, in the name of deference or convenience, grant judicial enforcement to the agency’s contrivances.

Instead of using Rakoff’s powerful order as leverage to extract a larger settlement from Citi, the SEC went on the attack against the judge. It appealed Rakoff’s order to the federal court of appeals, arguing that its enforcement process would be crippled if it had to hold out for admissions of guilt. Rakoff fired back with a charge that the agency had misled the appeals court and had withheld key information from him.

As the pissing match continues, one could only imagine the satisfaction felt by Citi at being able to sit on the sidelines and watch its regulator do battle with the judiciary to preserve its ability to handle financial misconduct with kid gloves. The SEC has suddenly become aggressive—not in fighting fraud but in defending its right to be a weak regulator. Richard Cordray, take heed.

Occupying universities is not just a matter of finding new encampment sites. It is also a means of asserting the connection between the current protests and the student activism of the 1960s, which in many ways paved the way for the current upheaval.

Those historical links have been in full view in Berkeley, where Occupy forces have been struggling to maintain an encampment at the University of California on the very spot where the Free Speech Movement was born nearly a half century ago. The call by that movement’s leader, Mario Savio, for students to throw their “bodies upon the gears” of the capitalist/military machine is echoed in the speeches in today’s Occupy general assemblies.

Berkeley also serves as a reminder that the universities are not that far removed from Wall Street. A 1998 agreement by UC-Berkeley to put its biotechnology research under the control of drug company Novartis (later Syngenta) was a key event in the corporatization of academia and was prominently featured in Jennifer Washburn’s 2005 book University Inc.: The Corporate Corruption of Higher Education.

But perhaps the most compelling reason for Occupy efforts on college campuses is that they are the scene of the crime for the abuse that perhaps more than any other animates the current movement: the burden of student debt.

For many young Occupiers, who have never had a chance to take out a home mortgage on which to be foreclosed, their main relationship to Wall Street is through what they owe banks on the loans they amassed for their education. It is thus no surprise that some of the more common Occupy protest signs are those that say something like: “I have $80,000 in student loan debt. How can I ever pay that back?”

Occupiers are starting to move from simply bemoaning their student loans to rejecting the idea that those obligations have to be met. We’re seeing the emergence of a movement for student loan debt abolition.

To put this movement in context, it’s helpful to recall the modern history of higher education in the United States. Once the province of the upper class, colleges were transformed in the post-World War II era into a system for preparing a workforce that was becoming increasingly white-collar. The GI Bill and later the candidly named National Defense Student Loans were not social programs as much as they were indirect training subsidies for the private sector. The Basic Educational Opportunity Grants (later renamed Pell Grants) created in the 1970s brought young people from the country’s poorest families into the training system.

It was precisely this sense that they were being processed for an industrial machine that motivated many of the student protesters of the 1960s. As with many of today’s Occupiers, they ended up questioning the entire way of life that had been programmed for them.

Those challenges eventually ebbed, and the powers that be then pulled a cruel trick on young people. Once a college education had become all but essential for survival in society, students were forced to start shouldering much more of its cost. During the 1980s, the Reagan Administration slashed federal grant programs, compelling students to make up the difference through borrowing. As early as 1986, a Congressional report was warning that student loans were “overburdening a generation.”

Over the past 25 years, that burden has become increasingly onerous. Both Republican and Democratic Administrations exacerbated the problem by cracking down on borrowers who could not keep up with their payments, while at the same time giving the profit-maximizing private sector greater control over the system. That control was intensified by the privatization of the Student Loan Marketing Association (Sallie Mae) in the late 1990s and by the refusal of Congress for years to heed calls to get private banks out of the student loan business.

It was not until March 2010 that Congress, at the urging of the Obama Administration, eliminated the private parasites and converted billions in bank subsidies into funds for the expansion of the Pell Grant program. This was a remarkable step that will reduce future debt burdens, but by the time it occurred a great deal of damage had already been done.

During the past two decades, student loan debt has skyrocketed. Last year new loans surpassed $100 billion for the first time, and total loans outstanding are soon expected to exceed $1 trillion. According to the College Board, the typical recipient of a bachelor’s degree now owes $22,000 upon graduation. These numbers are all the more daunting in light of the dismal job prospects for graduates, millions of whom are unemployed or underemployed.

Given this history, young people are justified in viewing their student debts as akin to the unsustainable mortgages foisted on low-income home buyers by predatory lenders. President Obama recently announced some administrative adjustments to student loan obligations, but that will make only a small dent in the problem.

Even before the Occupy movement began, there was talk of a student loan debt abolition movement. Much of this talk was inspired by the writings of George Caffentzis, including a widely circulated article in the journal Reclamations. Caffentzis acknowledges the challenges to such a movement stemming from the fact that student loans are not repayable while borrowers are still in school: “Student loans are time bombs, constructed to detonate when the debtor is away from campus and the collectivity college provides is left behind.”

The advent of the Occupy movement is creating a new collectivity and a new way of thinking that addresses the call by Caffentzis for a “political house cleaning to dispel the smell of sanctity and rationality surrounding debt repayment regardless of the conditions in which it has been contracted and the ability of the debtor to do so.” Occupiers are also apt to be more receptive to Caffentzis’s argument that student debt should be seen not as consumer debt but in the context of education as an adjunct to the labor market.

A decade ago, many U.S. activists were building a Jubilee campaign for third world debt cancellation. We now need a similar effort here at home to liberate young people from the consequences of an educational financing system that has gone terribly wrong.

Protesting near the haunted One Liberty Plaza building

Occupy Wall Street’s decision to use Liberty Plaza in lower Manhattan as its base camp is meant to evoke comparisons to Cairo’s Tahrir (Liberation) Square, the focal point of the popular uprising in Egypt earlier this year.

Yet the concrete plaza (also known as Zuccotti Park) turns out to be a fitting symbol of the big business debacles that the new Occupy movement is condemning.

Looming over the space is a hulking 54-story office building known as One Liberty Plaza, which is part of the real estate portfolio of Brookfield Office Properties, also owner of the plaza itself. The skyscraper, completed in 1972, was originally the New York City headquarters of U.S. Steel.

By the time U.S. Steel moved into the building, the company had begun to lose market share and was embarking on an ill-fated diversification process. Within it few years it liquidated more than a dozen mills and spent more than $6 billion on the acquisition of Marathon Oil. It continued to shed mills, and in 1986 it purchased another oil company and changed its name to USX to reflect its retreat from the steel business.

After fighting off a takeover bid by corporate raider Carl Icahn, USX underwent more restructuring and finally decided to spin off its oil operations and reclaim the U.S. Steel name. After 9/11 it unsuccessfully tried to engineer a merger of all the U.S. integrated steel companies into something that would have resembled the steel trust assembled by J.P. Morgan at the beginning of the 20^th Century. Today U.S. Steel is far overshadowed by foreign competitors, especially ArcelorMittal.

In 1980 U.S. Steel had sold One Liberty Plaza to Merrill Lynch, which was then riding high atop the stock brokerage business. A year after the sale, Merrill’s chief, Donald Regan, went to Washington to serve as Secretary of the Treasury in the Reagan Administration. Regan had initiated a process of diversification into international banking, real estate, insurance and other financial services.

Merrill, which had always prided itself on serving the individual investor, became increasingly involved in wheeling and dealing. In the early 2000s Merrill’s reputation was seriously tarnished by its close ties to the corrupt Enron Corporation and by allegations that its analysts were strongly touting dubious internet stocks for which Merrill was providing investment banking services.

In 2007 Merrill’s CEO Stan O’Neal was ousted after the firm was forced to take an $8.4 billion write-down linked to sinking securities backed by subprime mortgages. Amid the meltdown of Wall Street in September 2008, Merrill Lynch avoided following Lehman Brothers into oblivion only by agreeing to be taken over by Bank of America. There was later a furor when it came to light that Merrill rushed through some $3 billion in bonuses before the merger took effect.

In 1984 Merrill Lynch had agreed to sell One Liberty Plaza to the real estate firm Olympia & York (O&Y) and move its headquarters to the World Financial Center development that O&Y was building a few blocks away in Battery Park City.

O&Y, under the control of the Reichmann Family, first amassed holdings in Canada and then made a splash in the New York City real estate world with an aggressive series of purchases. By the mid-1980s it had become the largest real estate company in the world while also investing heavily in natural resources companies such as Gulf Canada. Its dizzying growth came to an end in 1992, when it could no longer handle its $18 billion in debt and was forced to file for bankruptcy.

The man who ran O&Y’s U.S. real estate operations was former New York deputy mayor John Zuccotti—the guy the park is named after. He stayed on after the bankruptcy filing, oversaw the sale of O&Y’s portfolio to Brookfield Properties and was kept in place by Brookfield. He is currently on the board of directors of what is now known as Brookfield Office Properties.  So far, Brookfield has avoided any fiascoes of its own.

Yet the previous owners of One Liberty Plaza—U.S. Steel, Merrill Lynch and Olympia & York—haunt the office building and Zuccotti Park. Their track record of foolhardy restructurings, reckless borrowing and unscrupulous investment practices are emblematic of the misdeeds of large corporations over the past few decades. Those practices have enfeebled the U.S. economy and diminished the living standards of all but a narrow slice of the population.

The Occupy Wall Street movement is, in effect, trying to exorcise these demons.  And the ranks of the ghostbusters in Liberty Plaza and elsewhere seem to be growing every day.

In the place of such nebulous prose, the 600-page-plus document is filled with pointed analyses of who did what wrong when. In other words, it names names. The FCIC acknowledges that it needed to delve into arcane subjects such as securitization and derivatives, but the report’s preface states:

To bring these subjects out of the realm of the abstract, we conducted case study investigations of specific financial firms—and in many cases specific facets of these institutions—that played pivotal roles. Those institutions included American International Group (AIG), Bear Stearns, Citigroup, Countrywide Financial, Fannie Mae, Goldman Sachs, Lehman Brothers, Merrill Lynch, Moody’s, and Wachovia. We looked more generally at the roles and actions of scores of other companies.

To get a sense of the scope of the rogues’ gallery of financial players, take a look at the report’s index, which, interestingly, is not in the official PDF but can be found on the website of the publisher that is issuing the commercial version.  There are dozens of entries for specific firms and even more for specific individuals. Goldman Sachs and Lehman Brothers, for instance, each have listings for about 40 different pages.

The FCIC does not just mention names; it assigns responsibility and soundly rejects the notion—expressed at commission hearings by major financial industry executives—that the crisis came as a complete surprise:

The crisis was the result of human action and inaction, not of Mother Nature or computer models gone haywire. The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand, and manage evolving risks within a system essential to the well-being of the American public.

It is satisfying that the report acknowledges the culpability of figures in both the private and the public spheres. Along with Wall Street villains, it fingers government institutions and officials, especially those with regulatory responsibilities:

The sentries were not at their posts, in no small part due to the widely accepted faith in the self-correcting nature of the markets and the ability of financial institutions to effectively police themselves. More than 30 years of deregulation and reliance on self-regulation by financial institutions, championed by former Federal Reserve chairman Alan Greenspan and others, supported by successive administrations and Congresses, and actively pushed by the powerful financial industry at every turn, had stripped away key safeguards, which could have helped avoid catastrophe.

Figures such as current Fed Chairman Ben Bernanke, former Treasury Secretary Henry Paulson and former SEC chair Christopher Cox are singled out for making misleading statements in 2008 about the gravity of the situation just before the crisis erupted. The report goes on to state:

Our examination revealed stunning instances of governance breakdowns and irresponsibility. You will read, among other things, about AIG senior management’s ignorance of the terms and risks of the company’s $79 billion derivatives exposure to mortgage-related securities; Fannie Mae’s quest for bigger market share, profits, and bonuses, which led it to ramp up its exposure to risky loans and securities as the housing market was peaking; and the costly surprise when Merrill Lynch’s top management realized that the company held $55 billion in “super-senior” and supposedly “super-safe” mortgage-related securities that resulted in billions of dollars in losses.

Finding that “a combination of excessive borrowing, risky investments, and lack of transparency put the financial system on a collision course with crisis,” the FCIC cites the high leverage ratios at the leading investment banks and the fact that “the leverage was often hidden—in derivatives positions, in off-balance-sheet entities, and through ‘window dressing’ of financial reports available to the investing public.”

The report continues: “When the housing and mortgage markets cratered, the lack of transparency, the extraordinary debt loads, the short-term loans, and the risky assets all came home to roost. What resulted was panic. We had reaped what we had sown.” One chapter, covering the explosion of risky financial instruments such as collateralized debt obligations is entitled “The Madness.”

Perhaps most damning is the FCIC’s finding of a “systemic breakdown in accountability and ethics” that “stretched from the ground level to the corporate suites.” For example, the report cites the case of the subprime lender Countrywide (later taken over by Bank of America):

As early as September 2004, Countrywide executives recognized that many of the loans they were originating could result in “catastrophic consequences.”  Less than a year later, they noted that certain high-risk loans they were making could result not only in foreclosures but also in “financial and reputational catastrophe” for the firm. But they did not stop.

All in all, the FCIC report paints an incriminating picture of the U.S. financial industry as well as the government regulators and private entities such as credit rating agencies that are supposed to put some checks on the unbridled pursuit of profit. In fact, the document in many ways reads like a criminal indictment. We would all be better off if some actual prosecutors pursued these leads.

Note: The report, dominated by a section of more than 400 pages endorsed by a majority of commissioners, also contains a 125-page dissent from the minority as well as 80 pages of endnotes. But that’s not all. The document indicates that it is not the sole repository of what the FCIC found:

A website—www.fcic.gov—will host a wealth of information beyond what could be presented here. It will contain a stockpile of materials—including documents and emails, video of the Commission’s public hearings, testimony, and supporting research—that can be studied for years to come. Much of what is footnoted in this report can be found on the website.

A critical researcher’s dream.

Section 953 of the Dodd-Frank bill deals with disclosures relating to executive compensation, not only at banks but at all publicly traded companies. One of the ways it seeks to rein in out-of-control CEO pay is by requiring firms to reveal how the amount paid to the head of the company compares to that received by the typical employee. The theory is that having this information made public would give pause to grasping CEOs and soft-touch board compensation committees.

The total compensation of chief executives (along with that of the four other highest paid executives) is already disclosed through the annual proxy statements companies have to file with the Securities and Exchange Commission (which makes them public through the EDGAR online system, where the documents are designated as DEF 14A). Yet there have been no requirements relating to the disclosure of how much is paid to the CEO’s underlings.

Section 953 fills this gap by instructing companies to include in their future proxies the median of the annual total compensation paid to all employees apart from the CEO. They also have to calculate the ratio of that median to the CEO’s total bounty.

Those ratios will be fascinating to see, but just as interesting will be the figures on non-CEO pay themselves. For the first time, we will be able to make direct comparisons of the broad compensation practices of different companies within given industries or across sectors. Getting official data from the companies themselves will be an improvement on the selective information that now gets posted on websites such as Glass Door.

There will be limitations, of course. Congress should have required the disclosure of data specifically on hourly workers rather than lumping them in with higher-paid professionals and executives. It would also be preferable to have separate numbers on domestic and foreign employees. And it is likely that companies will exclude low-paid temps and (often misclassified) independent contractors in making their calculations.

Yet this information could still be put to good use. Having clear, company-specific data could help stimulate a much-needed movement to address the problem of wage stagnation in the United States. The reality of that stagnation is quite evident from overall labor market data collected by the U.S. Bureau of Labor Statistics, but it would be much more effective to point the finger at individual companies with low medians and seek to shame them for failing to provide adequate compensation to their workers.

The ability of employers to keep wages low stems from two classic sources: low unionization and high unemployment. We know all too well the story of how anti-union animus on the part of employers has pushed the percentage of private sector workers with collective bargaining protections to historic postwar lows. To the extent they are able, unions target individual companies such as Wal-Mart, T-Mobile and (until it was finally organized) Smithfield Foods for denying their workers the right to representation.

Unions and other advocacy groups also criticize specific companies that engage in mass layoffs, especially when they seem to be undertaken mainly to impress Wall Street.

Yet we rarely hear criticisms of particular companies for failing to hire new workers when conditions seem to warrant it. The “economy” is assumed to be to blame for the high levels of joblessness afflicting us, not deliberate decisions by corporations to keep their payrolls artificially lean. Recently, the U.S. Chamber of Commerce made the absurd argument that overregulation is responsible for the anemic hiring situation. The Obama Administration responded by saying that weak consumer demand is the cause. Absent is the idea that corporations are failing in their responsibilities.

The unwillingness to chastise corporations is all the more bewildering in the face of growing evidence that business is hoarding cash instead of investing in job-creating ways. A front-page story in the Washington Post headlined COMPANIES PILE UP CASH BUT REMAIN HESITANT TO ADD JOBS notes that U.S. nonfinancial companies, buoyed by rising profits, are now sitting on $1.8 trillion in liquid reserves.

Why is there not more of an outcry about this behavior? Here’s an idea: pick companies with the most egregious combinations of rising profits and falling payrolls and press them to justify their boycott of U.S. workers. Once the new disclosure requirement kicks in, they could also be pushed to explain their low compensation levels. Business needs a strong reminder that it also exists to provide opportunities for people to earn a living.

Seeing KKR featured on the business pages sparks flashbacks to the 1980s, when the firm was at the center of the largest transformation of corporate America since the days of the robber barons. Yet KKR is of interest not only for historical reasons. Its financial maneuvers harmed the American economy in ways that are still being felt today.

Fortune once called KKR founder Jerome Kohlberg Jr. “the spiritual father of the entire LBO industry,” LBO being short for leveraged buyouts – the process of buying control of a company using its own borrowing capacity. Frequently working with top executives who wanted to share in the windfall, KKR took over companies with the intention of restructuring them and later taking them public again at a fat profit. Workers were usually the ones who paid the price, through layoffs or intensified work.

Led by Henry Kravis and George Roberts (Kohlberg was pushed out), KKR used a series of such buyouts to became the country’s second largest conglomerate (after General Electric), with control of corporate trophies such as Beatrice, Safeway Stores and Owens-Illinois. A Business Week cover story dubbed Kravis “King Henry,” while Fortune dubbed him and his partner “Masters of the Buyout Game.”

The greed and reckless speculation of LBOs reached its apotheosis in 1988 in the battle for RJR Nabisco. KKR emerged victorious from the free-for-all and carried out what was then a record $25 billion takeover of the tobacco and food giant. The excesses of all involved inspired Time magazine to write that the process had “crossed an invisible line that separates reasonable conduct from anarchy.” Bryan Burrough and John Helyar titled their 1990 book about the takeover Barbarians at the Gate.

After the RJR Nabisco deal, the appetite for major LBOs waned, in large part because of the collapse of the market for the junk bonds that made most of those deals possible — a collapse hastened by the demise of Drexel Burnham Lambert amid an insider trading scandal. KKR survived, though its stature was considerably diminished. Its reputation took a big hit in 1991, when Sarah Bartlett’s book on the firm, The Money Machine, accused KKR of gouging its own investors, including public pension funds.

KKR held on during the deal drought of the 1990s and finally got its reward in the mid-2000s, when buyouts started to enjoy a resurgence. This time around, KKR and the other LBO firms, now operating under the sanitized rubric of private equity, avoided much of the risk of the dealmaking of the 1980s and shamelessly milked bought-out firms with bloated management fees. As a 2006 Wall Street Journal headline put it, “In Today’s Buyouts, Payday for Firms is Never Far Away.”

The Great Recession has put a crimp in the private equity game, but KKR could not resist one more big deal: itself. For the past three years it has struggled to go public in a convoluted process involving an offshore affiliate based in Guernsey. Now it finally seems to be succeeding, but this is hardly a cause for celebration.

KKR’s initial offering serves mainly as a reminder of how much the firm has done to bring about our current economic ills. KKR helped popularize the idea that wealth could be created out of thin air rather than real productive activity. Its buyouts were part of the inspiration for securitization and other machinations that precipitated the near meltdown of the financial system in 2008. Given that the interest paid on LBO debt was deductible on company tax returns, KKR’s buyouts also pioneered the dubious practice of having the federal government effectively subsidize wheeling and dealing, paving the way to the Big Bailout of Wall Street.

All those deals made Henry Kravis and George Roberts very rich, but they have left the country much poorer.

When Senate Republicans unveiled their alternative approach to reform on April 26, buried in the document was a provision that called for less rather than more regulation. The GOP proposal would make smaller publicly traded companies exempt from a key provision of the Sarbanes-Oxley Act (Sarbox, for short), the corporate accountability law enacted in 2002 in response to the accounting scandals at companies such as Enron and WorldCom.

The provision in question, Section 404, requires firms to maintain a system of internal controls to ensure the integrity of their financial statements, which must include an audited assessment of the adequacy of those measures. A breakdown in such controls is an invitation to financial fraud.

Senate Republicans would like to provide an immediate exemption to companies with a market capitalization of $150 million or less and would instruct the Securities and Exchange Commission to explore the possibility of setting the cutoff even higher. The SEC has already delayed implementation of the Section 404 requirement for smaller firms, and it convened a business-dominated advisory committee that recommended consideration of Sarbox relaxation for firms with market capitalization up to $787 million. The Commission, however, has refused to create a permanent exemption.

Truth be told, it is not just Republicans who are pushing the exemption idea. The financial reform bill that passed the House in December contains a Section 404 small-business exemption that was proposed – against the wishes of Financial Services Committee Chair Barney Frank – by Democrat John Adler along with Republican Scott Garrett, both of New Jersey. The amendment passed with the blessing of the Obama Administration, with White House Chief of Staff Rahm Emanuel personally lobbying members of the Committee on its behalf.  Senator Dodd, however, did not include a small-business exemption in his financial reform bill.

The Sarbox small-firm carve-out may win some friends in business circles, but it entails serious risks. Chief among them is that the exemption could serve as a stepping stone to further weakening or abolition of the entire law.

This is more than a remote possibility. Republicans make no secret of their distaste for Sarbox in general and have used this as a theme in criticizing the Dodd bill. South Carolina Senator Jim DeMint called that bill “Sarbanes-Oxley on steroids,” adding: “Like Sarbanes-Oxley, it is reactionary legislation that’s more likely to hurt U.S. businesses than reform the financial system.” A recent Wall Street Journal editorial denounced Dodd’s bill as “a souped-up version of the Sarbanes-Oxley bill of 2002 – that is, a collection of ill-understood reforms whose main achievement will be to make Wall Street even more the vassal of Washington.”

Congress is not the only arena where Sarbanes-Oxley is under assault. The U.S. Supreme Court is expected to rule soon on a challenge by the rabidly anti-regulation Competitive Enterprise Institute to the legitimacy of the Public Company Accounting Oversight Board, which was created by Sarbox by regulate public accounting firms. Some legal observers believe that a high court ruling against the Board could lead to the demise of Sarbox in its entirety.

Even if this dark scenario does not come to pass, does it make sense to loosen the controls on smaller firms? Fraudulent behavior is hardly unknown among public companies of modest size. In fact, such companies have long been used as vehicles for criminal enterprises. A 1996 Business Week investigation found that “substantial elements of the small-cap market have been turned into a veritable Mob franchise, under the very noses of regulators and law enforcement.”

Lately, the focus has been on the sins of the financial giants, but that’s no reason to dilute oversight of smaller players. Now’s a time for tightening regulation across the board.

In fact, Goldman would have us believe that it took a bath in the overall mortgage security arena. This story line is a far cry from the one put forth a couple of years ago, when the firm was being celebrated for anticipating the collapse in the mortgage market and shielding itself – though not its clients. In a November 2007 front-page article headlined “Goldman Sachs Rakes in Profit in Credit Crisis,” the New York Times reported that the firm “continued to package risky mortgages to sell to investors” while it reduced its own holdings in such securities and bought “expensive insurance as protection against further losses.” In 2007 Goldman posted a profit of $11.6 billion (up from $9.5 billion the year before), and CEO Lloyd Blankfein took home $70 million in compensation (not counting another $45 million in value he realized upon the vesting of previously granted stock awards). Some bath.

Goldman is not the only one rewriting financial history. Many of the firm’s mainstream critics are talking as if it is unheard of for an investment bank to act contrary to the interests of its clients, as Goldman is accused of doing by failing to disclose that it allowed hedge fund operator John Paulson to choose a set of particularly toxic mortgage securities for Goldman to peddle while Paulson was betting heavily that those securities would tank.

In fact, the history of Wall Street is filled with examples in which investment houses sought to hoodwink investors. Rampant stock manipulation, conflicts of interest and other fraudulent practices exposed by the Pecora Commission prompted the regulatory reforms of the 1930s. Those reforms reduced but did not eliminate shady practices. The 1950s and early 1960s saw a series of scandals involving firms on the American Stock Exchange that in 1964 inspired Congress to impose stricter disclosure requirements for over-the-counter securities.

The corporate takeover frenzy of the 1980s brought with it a wave of insider trading scandals. The culprits in these cases involved not only independent speculators such as Ivan Boesky, but also executives at prominent investment houses, above all Michael Milken of Drexel Burnham. Also caught in the net was Robert Freeman, head of risk arbitrage at Goldman, who in 1989 pleaded guilty to criminal charges. When players such as Freeman and Milken traded on inside information, they were profiting at the expense of other investors, including their own clients, who were not privy to that information.

During the past decade, various major banks were accused of helping crooked companies deceive investors. For example, in 2004 Citigroup agreed to pay $2.7 billion to settle such charges brought in connection with WorldCom and later paid $1.7 billion to former Enron investors. In 2005 Goldman and three other banks paid $100 million to settle charges in connection with WorldCom.

In other words, the allegation that Goldman was acting contrary to the interest of its clients in the sale of synthetic collateralized debt obligations was hardly unprecedented.

What’s not getting much attention during the current scandal is that in late 2007 Goldman had found another way to profit by exploiting its clients, though in this case the clients were not investors but homeowners.

Goldman quietly purchased a company called Litton Loan Servicing, a leading player in the business of servicing subprime (and frequently predatory) home mortgages. “Servicing” in this case means collecting payments from homeowners who frequently fall behind in payments and are at risk of foreclosure. As I wrote in 2008, Litton is “a type of collection agency dealing with those in the most vulnerable and desperate financial circumstances.” At the end of 2009, Litton was the 4^th largest subprime servicer, with a portfolio of some $52 billion (National Mortgage News 4/5/2010).

Litton has frequently been charged with engaging in abusive practices, including the imposition of onerous late fees that allegedly violate the Real Estate Settlement Procedures Act. It has also been accused of being overly aggressive in pushing homeowners into foreclosure when they can’t make their payments.

Many of these complaints have ended up in court. According to the Justia database, Litton has been sued more than 300 times in federal court since the beginning of 2007. That year a federal judge in California granted class-action status to a group of plaintiffs, but the court later limited the scope of the potential damages, resulting in a settlement in which Litton agreed to pay out $500,000.

Meanwhile, individual lawsuits continue to be filed. Many of the more recent ones involve disputes over loan modifications. Complaints in this area persist even though Litton is participating in the Obama Administration’s Home Affordable Modification Program and is thus eligible for incentive payments through an extension of the Toxic Assets Relief Program.

There seems to be no end to the ways that Goldman manages to make money from toxic assets.  On Wall Street, as in Las Vegas, the house always wins.

BONUS FEATURE: Federal regulation of business leaves a lot to be desired, but it is worth knowing where to find information on those enforcement activities that are occurring. The Dirt Diggers Digest can help with our new Enforcement page, which has links to online enforcement data from a wide range of federal agencies. The page also includes links to inspection data, product recall announcements and lists of companies debarred from doing business with the federal government.