For years, the Obama administration has been pummeled for failing to bring criminal charges against a single major Wall Street bank or a single leading Wall Street banker for what the FBI termed an "epidemic of fraud" that blew up the entire economy. Investigations revealed the banks committed routine fraud in peddling mortgage securities they knew were garbage, trampled basic property laws, laundered money from Iran, Libya and Mexican drug lords, conspired to game the basic measure of interest rates and more. Yet, time after time, the Justice Department and regulatory agencies settled for sweetheart deals, with no admission of guilt, no banker held accountable, and institutional fines that were the equivalent in earnings of a speeding ticket to the average family.

Yesterday Attorney General Eric Holder stated openly what was already apparent: The Justice Department believes that Too Big to Fail Banks are Too Big to Jail. Criminal indictments against banks or leading bankers might endanger the economy and thus were too big a risk.

Here's what Holder said:

"I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy. I think that is a function of the fact that some of these institutions have become too large."(emphasis added)

Holder was responding to questions by Republican Senator Charles Grassley about why the Justice Department brought no criminal charges against the large British bank HSBC after it admitted laundering money for parties in Iran, Libya and Mexican on behalf of drug lords. The Attorney General acknowledged that the sheer size of the big banks "has an inhibiting impact on our ability to bring resolutions that I think would be more appropriate. That is something you (members of Congress) all need to consider."

Foam the Runway

Allowing the big banks to operate above the law is at one with the philosophy that has guided both the Bush and the Obama administrations during the financial collapse. Tim Geithner, former head of the New York Federal Reserve bank under Bush and Treasury Secretary under Obama, would preach that it was necessary to "foam the runway" to protect the banks from total crackup. That "foam" included literally trillions in the backdoor bailout of banks organized by the Federal Reserve, abandoning the underwater homeowners who were victimized by Wall Street's wilding, while neutering any regulatory or criminal accountability.

Above the Law

Holder's outrageous admission means that bankers operate -- and know they operate -- above the law. That renders all the argument about regulations and legal limits laughable. Bankers spend tens of millions lobbying to weaken regulations and starve regulators of authority and resources. But when the action gets hot, the bubble starts to inflate, the music keeps playing, they can trample the laws, mislead the regulators and defraud their customers, swathed in the confidence that the laws will not apply to them.

The Justice Department position, however, is indefensible. There is no reason a bank with billions of assets could not survive the indictment of its CEO or CFO and their traders. If the Fed and Treasury can "foam the runway" to protect otherwise insolvent banks from collapse, they surely could insure that a multi-billion dollar bank survives while the executives are held personally responsible for their crimes. Putting a few bankers in jail and holding them personally accountable for their frauds would do much to bring sobriety back to Wall Street.

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Too Big to Be

But the Attorney General is merely acknowledging the fact: big banks now operate above the law. And as the conservative head of the Dallas Federal Reserve Bank Richard Fischer and many others have argued, the big banks are not disciplined by the market. They know their losses are covered, while they pocket their winnings. They have multi-million dollar personal incentives to leverage up, use other people's money to make big bets on high risk gambles that offer big rewards. Their excesses blew up the economy, but they got bailed out and emerged bigger and more concentrated than ever.

And, of course, since investors know the big banks can't fail, the big banks can attract money at much lower rates than smaller banks, a subsidy worth about $89 billion a year, according to recent calculations by Bloomberg News.

Clearly, institutions that are above the law and beyond the discipline of the market cannot exist in their current form. Congress has only two choices. The big banks can be nationalized and treated as public utilities. The public would pocket their profits and cover their losses. Or the big banks can be broken up, and be accountable to both the law and the market.

Senators Sherrod Brown and Jeff Merkley have spearheaded the drive to break up the big banks. This takes remarkable courage. Brown had to overcome torrents of big money poured into the effort to defeat him when he ran for reelection last year.

Now they are gaining unlikely allies. George Will has called on conservatives to follow Brown to the barricades. Republican Senator Vitter has joined in calling for study of the subsidy big banks enjoy. Retired bankers like John Reed, former president of Citibank have joined with Dallas Fed President Fischer and others to call for breaking up the banks.

Can the big banks be held accountable? Wall Street is a leading source of funds for both parties. The revolving door between Wall Street and Washington spins fluidly no matter which party is in power. The Obama administration has opposed every effort to break up the big banks. Republicans in Congress have shamelessly offered themselves as Wall Street's protectors in exchange for campaign money.

But Holder's admission makes action, however improbable, imperative. A nation of laws and markets cannot abide huge private financial institutions that are accountable to neither.