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Big fish, little fish: Why the executives behind the financial crisis aren’t facing jail time

This week, we begin with an observation that prompted a question. The observation was this: “Biggest fish face little risk of being caught.” It was the title of a column by New York Times business writer Joe Nocera, after it was reported that the Justice Department decided not to prosecute the former CEO of Countrywide Financial, at one time the nation’s biggest mortgage lender. Nocera noted that few of the people most responsible for the subprime mortgage disaster and the financial crisis it triggered have been held accountable. The question is, Why not?

Need to Know’s Shoshana Guy sat down with Nocera to hear his take on the story of big fish and little fish.

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    Main Street: Findlay, Ohio
    Need to Know travels to Ohio to assess how workers are faring after the loss of millions of manufacturing jobs over the past 35 years.
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    Following the money: Tax breaks
    New CBO report echoes the findings of Need to Know's "A tale or four tax returns."
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      Certifiably employable
    Rick Karr recently visited Seattle to look at a program designed to give the unemployed the skills they need to find jobs in one of the country’s fastest-growing industries.


  • Sue Barnhart

    I’m not feeling one bit sorry for this guy. Sounds to me like both the guy who lied on the loan and the broker need to be in jail. Its obvious that he knew he was stealing. And his broker did too. Yes, I’m sure its true that the “culture” was pushed from the top. But to be honest many many people benefited from the mortgage bubble before it hurt us all. The customers like this guy who lived a couple years off the money he made on the deal. Mortgage brokers made big bucks, real estate people were raking it in. Developers and those flipping properties. And average folks were cashing in on their home values as well in refi’s where they took out cash and spent it and home-equity loans that paid for all kinds of things people couldn’t afford. It made me sick listen to that reporter whining about how this poor man shouldn’t be in jail. He is right where he should be!! And a bunch like him need to be as well.

    And regarding the “big fish”, just how just how – do put someone in jail for “setting a culture”?? Not saying they do not deserve it morally but legally not sure its that easy to prosecute.

  • Sue Barnhart

    I’m not feeling one bit sorry for this guy. Sounds to me like both the guy who lied on the loan and the broker need to be in jail. Its obvious that he knew he was stealing. And his broker did too. Yes, I’m sure its true that the “culture” was pushed from the top. But to be honest many many people benefited from the mortgage bubble before it hurt us all. The customers like this guy who lived a couple years off the money he made on the deal. Mortgage brokers made big bucks, real estate people were raking it in. Developers and those flipping properties. And average folks were cashing in on their home values as well in refi’s where they took out cash and spent it and home-equity loans that paid for all kinds of things people couldn’t afford. It made me sick listen to that reporter whining about how this poor man shouldn’t be in jail. He is right where he should be!! And a bunch like him need to be as well.

    And regarding the “big fish”, just how just how – do put someone in jail for “setting a culture”?? Not saying they do not deserve it morally but legally not sure its that easy to prosecute.

  • Jerry Buchs

    Of course there’s no mention in this PBS piece or blame given to Rep. Barney Frank or Sen. Christopher Dodd, who were charmen of the respective Banking Committees in each House of Congress at the time, for their involvement – where they spearheaded laws that forced mortgage lenders to lend money to people who could never pay it back, and who totally ignored at least 16 warnings from the Bush Administration that Fannie Mae and Freddie Mac were headed down a path toward disaster.

    Nor is there any mention of all the union pension funds – including public employees unions in many states – that benefited tremendously from having some of these very stocks in their pension funds. The only mention is of all the Wall Street “fat cats” who got rich when these stock prices went up. I guess I attended different Journalism classes.

    And you wonder why a majority of the general public supports the de-funding of public broadcasting!

    Jerry Buchs
    Amherst, OH

  • Frank Wallis

    The lair loan issue brings to mind the Whitewater investigation that found and convicted former Arkansas Gov. Jim Guy Tucker for problems with a financial statement used in securing a loan. His subsequent resignation was then-Lt. Gov. Mike Huckabee’s springboard onto a national political stage.
    So, liar loans may certainly be prosecuted. The GOP and its special prosecutor Ken Starr wanted to kill Bill Clinton. It killed Tucker instead, and a lender, and his wife, and a lawyer. It just depends on who wants prosecution, the GOP or Dems.
    Huckabee should have a keen interest in prosecuting liar lenders and borrowers.
    Frank Wallis

  • Anonymous

    Mortgage lenders weren’t “forced” to give loans to people who couldn’t afford them.

    The lenders were tripping over themselves to make these loans so they could sell them to Wall Street banks who were securitizing them.

    Employee pension funds generally took a bath when the bubble burst, unlike the mortgage/banking industry crooks who escaped with their ill-gotten gains.

    If you want the truth on the mortgage bubble and the meltdown, instead of conservative talking points, watch the Oscar-winning documentary on the subject, “Inside Job.”

  • Jerry Buchs

    Naturally, as always, Barney Frank and Chris Dodd get a pass from the left – even with Dodd getting his own sweetheart deal. Maybe the mortgage lenders weren’t forced, but they certainly weren’t discouraged from what they were doing because these two guys knew that Fannie and Freddie would be there as well. Somehow, these guys never receive any blame for anything because THEIR failure doesn’t seem to matter.

    I know, I know, the union pension funds took a bath because the poor ole union “bosses” were taken advantage of by the Wall Street guys. Please.

    No talking points were used here. I just had to research the actual facts because I’m not going to get them from the biased media – particularly since the free markets are driving outlets like The New York Times and its minions further and further into the abyss.

  • Anonymous

    Wake up. Barney Frank and Chris Dodd have their faults, but they didn’t cause the meltdown.

    And yes, Fannie and Freddie played an enabling part in the crisis, but the real driver was Wall Street greed.

    I strongly recommend watching “Inside Job.” Charles Ferguson, the director/producer/writer, interviews many players (and observers) in the bubble/meltdown, and NONE of them blames the Community Reinvestment Act or Fannie & Freddie.

    The real culprits in the crisis are the geniuses that developed the “securitization food chain” that separated mortgage lending from responsibility for the loans; the big banks that made so much money bundling and selling junk mortgages and later claimed they didn’t know the mortgages were bad, even though, in the end game, they actively bet against these mortgages; the ratings agencies that were all too willing to slap triple-A ratings on trash mortgage securities because it was profitable, then had the gall to claim that their ratings are just “opinions” and shouldn’t be used to guide investment decisions (then why do these companies even exist?); the regulators like Alan Greenspan who were given plenty of warnings about fraud and a growing bubble, but were too corrupt or ideologically crippled to do anything until the whole thing blew up; the bought-and-paid for politicians in BOTH parties who stripped away protective legislation, benefited from the “revolving door” and fat campaign contributions, and then grandstanded at hearings after the meltdown (and passed a bailout package for the banks while doing virtually nothing for the Main St. victims); and the pathetic jokes that call themselves economists who provided the rationale for the deregulation, low transparency and absurd leveraging that contributed so heavily to the crisis.

    I don’t know why it’s hard for you to believe that unions or any other sponsors of pension funds could be fooled by Wall Street tricksters. Once the mortgage backed securities got labeled “top investment grade” (AAA) by the ratings agencies, investors all over the world were fooled.

    Wall Street and its big banks caused this mess, and they control our government. As longtime consumer advocate Robert Gnaizda says in the movie (“Inside Job”), “It’s a Wall Street Government.”

  • Pleazzer

    It is called, or the act of, Conspiracy or conspirator. The RECO Act may very well be the best way some can be put into prison where they belong.

    What does the RICO Act do?

    The RICO Act was passed by the United States Congress to enable persons financially injured by a pattern of criminal activity to seek redress through the state or federal courts.

  • Pleazzer

    It is called, or the act of, Conspiracy or conspirator. The RICO Act may very well be just what is needed here as our so called DOJ is not going to do squat and Obama is not interested in JUSTICE for the public masses if it is going to put any of his buddies on Wall Street or Banks in JAIL.

    What does the RICO Act do?

    The RICO Act was passed by the United States Congress to enable persons financially injured by a pattern of criminal activity to seek redress through the state or federal courts.

  • Pleazzer

    JIM8808 You should know by now that these guys do not want to talk facts when it is going to put the light on the power and upper class that have gotten away with this kind of scam for years. Here is yet another example:

  • Anonymous

    The man wasn’t “stealing.” Did you watch the piece or read any of Mr. Nocera’s articles on the subject?

    Mr. Engle got, like zillions of other Americans, a loan he shouldn’t have qualified for because the mortgage lender wanted him to get it. The onus is on the lender to do due diligence but they didn’t.

    Engle did not “live for two years off the money he made on the deal.” Mr. Engle is a TV producer and a motivational speaker in addition to being a champion endurance athlete. His income fluctuates, but in the year 2005, when he got the first loan, he made $180K. This figure was used to calculate his “monthly” income of $15K, which was a bit misleading (given the sporadic nature of his income) but not totally unreasonable. I don’t see a crime here.

    The case against Engle on the second loan is also suspect. It was a REFI of a property he already owned – he was pulling out his own equity. Supposedly he stated his monthly income as $32,500 on that one, which is bizarre since the loan was for only $300K. Mr. Engle initially denied that he filled out the document, and a government handwriting analysis showed there was a good chance it was forged. Then, a “confession” was obtained under suspicious circumstances while Engle was handcuffed in the back seat of his car.

    A good synopsis on the consequences for Mr. Engle is offered in this snippet from Mr. Nocera’s piece “In Prison for Taking a Liar Loan” (NYT, March 25, 2011):

    “Even the jurors seemed confused about how to think about Mr. Engle’s supposed crime. When it came time to pronounce a verdict, the jury found him not guilty of providing false information to the bank, which would seem to be the only fraud he could possibly have committed. Yet it still found him guilty of mortgage fraud. ‘I think the prosecution convinced the jury that I was guilty of something but they weren’t sure what,’ Mr. Engle wrote in an e-mail.

    Like many people, Mr. Engle’s biggest mistake was believing that housing prices could only go up. When the market collapsed, Mr. Engle defaulted on the two properties, which of course is not a crime. Although his accountant tried to persuade the banks to do a complicated refinancing, they refused and foreclosed on the properties. Like many Americans, Mr. Engle wound up being punished by the market for his mistake, losing all his remaining equity along with the properties themselves. Thanks to the government, though, his punishment was far more severe than most. ”

    So, Mr. Engle paid a horrific price for an arguable mistake on his part, while the big fish like Mozilo walked away with tens or hundreds of millions.

  • Anonymous

    You’re right Pleazzer, I should know by now. Sigh…….

  • Anonymous

    One travesty that is not generally well-known is that the commercial banks get a gigantic stealth subsidy from the rest of us in that they get to create almost our entire money supply, via accounting entries (i.e., out of thin air), and then charge interest on it.

    Popular fiction holds that the banks loan existing deposits and make their money off “the spread” between the interest they pay depositors and what they accrue from loans. In reality, they use loans to create brand new money, and then enjoy a gravy train of compounding interest. The principal is retired when the loan is paid off, but provided that the original capital “reserves” (created by the Fed, also via accounting entries) still exist, a bank can create a brand new loan to replace the old.

    A nice deal if one can get it.

    These facts are taught in economics classes, but educators and textbooks gloss over the implications and ignore alternatives, like public banking or debt-free public money.

  • Chris Herz

    My mother worked for the Securities and Exchange Commission back in Roosevelt’s times, when it put a lot of these “malefactors of great wealth” where they belonged. Sadly, Mr Obama and his buddy Eric Holder seem much more focused on busting people for their medical marijuana. It’s possible that some of these banksters will eventually be prosecuted in Europe, but jail in the USA is reserved for the little people who make themselves inconvenient to the powers-that-be, like Bradley Manning.

  • james daniloff

    Chris Dodd, Barney Frank and about 10 banking top executives who contributed to this disaster should be tried for treason and hung. Go read Rolling Stone magazine from 2 issues ago about Wall Street types, Tim Geithner, Bernanke and the latest filth, theft, slime that is going on in Wall Street. Those 2 should have a public trial for treason and hung. It’s time for the flaming torches, pitchforks, axes, shovels and a march on DC to clean house.

  • makesenseofit

    and there is a continuum of thievery with the political atmosphere created by and from those
    who are selected to do justice for the super rich and demean those who are trying to make

  • Pleazzer

    It sucks Jim, the sad fact that our politicians have been bought and have sold their souls so long ago. They do not always see the result of their traitorous ways but they also are not looking for the end result. I think part of this is the result of CAREER POLITICIANS which has allowed them to pass on the power and keep the skeletons deep in the darkness of the closets to which they have the keys. Hell, when I was a kid there is no way ANYONE would have thought the USA would have owed even one thin penny to a communist country let alone over a TRILLION. Not to mention that what use to be seen as too much debt was a few million, I missed where BILLIONS were too much and then became TRILLIONS. Just as Obama said he was going to deal with China, have a transparent administration, not have any lobbyists in his administration, public option (which would create compotation) and spread the wealth around, Oh ya, he did do that, he spread it all to other countries.
    What I still have a problem with is these clowns do not see the fact that if they keep sinking our Country there is no way our Country can help other Countries. Not to mention Reagan saying in the 70’s he wanted to grant amnesty to about 1 million illegal aliens BUT it was never going to happen again and in reality it was closer to 3 million. I just do not see where ILLEGAL becomes OK and while having NAFTA sold to us as a GOOD thing now GLOBAL ECONOMY is suppose to be the REAL DEAL. (We allow China to charge us 25% while we charge them 2.5%)Obama trying to finish up the NORTHERN ALIANCE/ North American Monetary Union in the dark being shoved up our a$$e$ while trying to find ways to allow all illegal aliens to become USA Citizens is in my way of thinking UNAMERICAN.

    When did it become OK for NASA to become an agency to MAKE MUSLIMS feel all warm and fuzzy?
    Or, the ATF allowing hundreds of guns and 50 cal.s to be sold to Mexican Drug Cartel members and if you have not seen what a 50 cal. can do, you know that any weapon that can hit a target a mile away is not a good weapon to be in the hands of the enemy. Of the 2.8 billion given to Columbia for gas refinery when one being built in the USA would be money better spent. Or the billions to Brazil for oil exploration when we need to get the regulators at MMS to do their damn job and stop snorting Cocaine and humping hookers paid for by the oil companies so they, like many others, can get away with whatever they want to.
    When I went to school we learned about JUSTICE in the USA and it was not “JUST US” those that could buy it.

  • Rocko

    It’s a “Wall Street government” yet government isn’t responsible. Interesting compartmentalization there.

  • Anonymous

    I think it’s obvious that Wall St. took over the gov’t rather than the other way around.

    However, I do find fault with politicians of both parties and with regulators, which you would have noticed had actually read what I wrote.

    What is it about conservatives that they so fear government power and are so sensitive to any perceived wrongdoing by government, yet they give such a pass to Big Business?

  • Anonymous

    Thanks Pleazzer for your perspective. I agree with a number of things you wrote.

    However, I see things a bit differently. I don’t think illegal immigration and generosity to other countries are such a big problem. Actually, so-called “illegals” pay almost any tax any citizen pays, yet they are unable to take advantage of most government programs. For example, using fake SSNs, illegals provide about $7 billion in support for the Social Security program and $1.5 billion for Medicare each year, programs they will not be eligible for unless they eventually achieve citizenship. U.S. foreign aid is actually a pretty meager portion of our budget, and when we look at the big picture, we see that developing countries are generally ripped off by corporations, banks and investors based in developed countries. Typically, neoliberal economic regimes are used to saddle 3rd world countries with unpayable debt and then force “structural adjustment” policies on those countries that drain their wealth. If they complain, any number of unsavory tactics are used to bring them into line and make them accept debt slavery. John Perkins has written eloquently about this (see his book “Confessions of an Economic Hit Man”). If we’re having trouble meeting our expenses, we might look at trimming the defense/war/security budget, which by most account totals over $1 trillion, spread over a number of different departments. This is about as much as the entire rest of the world spends on these priorities.

    I think the world economic system is designed to benefit multinational corporations, banksters, fossil fuel interests and militarists, with the rest of us paying a steep price. They succeed by playing us off against each other, by country, class, race, religion, occupation, union versus non-union – whatever works. Their big fear is that the working people of the world will get together, because there are so many more of us than there are of them.

    One thing that really amazes me is how the banks, in particular, have managed to take so much from us, over so long a period, without being seriously challenged. It makes no sense that our government, possessing its own sovereign currency, has abrogated its duty and obligation to create the money supply. Why on earth does our gov’t allow private banks to create our money and then borrow to finance government expenditures, when the Treasury could simply issue dollars to pay for government programs (at least a huge portion of them)? As Thomas Edison said, “If the nation can issue a dollar bond, it can issue a dollar bill.” Really, there is no good reason we have a national debt.

    For now, one way we can fight back (on the banking front, anyway) is by establishing public banks at the state level. So far, only S. Dakota has its own bank, and interestingly, it has weathered the recession better than any other. It is the lone state to have run a surplus every year since the recession started, and it boasts by far the lowest unemployment rate (3.7%). Per the Public Banking Institute, “Public banks are able to reduce taxes within their jurisdictions, because their profits are returned to the general fund of the public entity. The costs of public projects… are also greatly reduced, because public banks do not need to charge interest to themselves.” Public banks are also able to make loans in the public interest, rather than just narrow financial interest, and reclaim some public money creation. There’s a big battle to establish a state bank in Oregon right now. If we can get a public bank established there and get some momentum, it should make it much easier to do so in other states.

    It’s a complicated situation. There are many issues, many players, and it’s often hard to know whom to believe and what to think. Hopefully, if we all do our best we can turn this ship around and create a world that works for all of us, not just a fortunate few.

  • Jerry Merchant

    Original Supreme Court Decisions of The 14th Amendment/Citizenship Clause
    Posted by Jerry aka AW on February 21, 2011 at 1:49pm
    View My Blog
    As years go by Legislature pervert the original citizenship clause of the 14th amendment for the benefit of private interest, but based on statements made during the congressional debate over the amendment. Senator Jacob M. Howard of Michigan- The author of the citizenship clause- Describe the clause as exclusing american indians who maintain their tribal ties and “Persons born in the united states who are forigners, aliens,who belong to the families of ambassador’s or forign minister”. Howard further stated the term jurisdiction meant.”the same jurisdiction in extent and quality as applies to every citizen of the united states now (1866)” and that the united states possessed a “Full and complete jurisdiction” over the person describe in the amendment…

    According to the Preamble of the United States Constitution of America, The United States Constituion of America Article-1, section-8, and the 14th Amendment.
    To make laws and corporations in america is to tax american citizens, Therefore, the requriements to make laws and corporations in america is to provide for the common defense and promote the general welfare of america citizens evenly.

    This Note revisits the legislative reading of the Fourteenth Amendment by articulating the theory of legislative discretion implicit within the text of the amendment. The Framers of the amendment, as well as judges and commentators of the era, expected courts to review acts of Congress under the deferential standard laid out by Chief Justice Marshall in McCulloch v. Maryland.(14) The amendment grants Congress the power to enforce its provisions by “appropriate” legislation, a word that called to their minds the Chief Justice’s canonical opinion. In upholding Congress’s power to charter a national bank, Marshall laid out the text through which nineteenth-century courts would review the constitutionality of an act of Congress: “Let the end be legitimate, let it be within the scope of the constitution, and all means which are appropriate, which are plainly adapted to that end, which are not prohibited, but consist with the letter and spirit of the constitution, are constitutional.”(15) Congressmen, judges, and legal commentators regularly drew on these words–often verbatim–as setting the standard by which courts would review an act of Congress.(16) In drafting Section 5 of the Fourteenth Amendment, the Republicans borrowed explicitly from McCulloch in granting Congress the power to enforce the provisions of the amendment by appropriate legislation.(17)

    Under the McCulloch standard, Congress enjoyed interpretive discretion that extended not only to the means but also to the constitutional ends themselves. Modern commentators have read John Marshall’s reminder that “it is a constitution we are expounding”(18) as a warrant for judicial license.(19) However, in McCulloch, those words licensed not judicial freedom, but judicial deference to the plausible interpretive acts of Congress. To take McCulloch seriously is to understand why the Supreme Court, after Marbury v. Madison,(20) struck down only one other act of Congress prior to the Civil War.(21) In contrast to Boerne’s neat but implausible distinction between the power to remedy and the power to define constitutional violations, McCulloch recognized that congressional legislation would inevitably shape constitutional meaning.

    The McCulloch theory rests upon three propositions. First, a constitution designates only the broad outlines of its important objects.(22) Second, the public welfare requires Congress to have wide latitude in choosing the means by which it is to pursue such objects.(23) And third, a court will only strike down an act of Congress if there is a clear opposition between the constitutional text and the law.(24) If these principles are accepted, then Boerne’s claim that Congress has no independent discretion in reading the text cannot be correct. Where the Constitution’s text speaks in terms of broad principles, Congress may legislate under those broad terms. And a court may deny that action only when the law cannot be reconciled with the constitutional text. Under McCulloch, Congress’s discretion goes well beyond the mere ability to select the means to judicially defined ends. At least that is what the Framers of the Fourteenth Amendment understood McCulloch to mean.

    The Reconstruction Congress demonstrated its understanding in enacting the Civil Rights Act of 1866, just weeks before it considered Section 5. The Enforcement Clause of the Thirteenth Amendment–the textual predecessor of Section 5–granted Congress the power to enforce the amendment’s substantive guarantees against slavery by “appropriate legislation.”(25) The substance of the amendment prohibited slavery, yet under the Enforcement Clause the Republicans claimed the authority to enact the Civil Rights Act, which protected against state infringement a range of civil liberties, such as the rights of contract and property and the right to sue in court. To justify such power, congressional Republicans invoked “the celebrated case of McCulloch vs. The State of Maryland” as allowing Congress to read the amendment not simply to prohibit slavery, but to guarantee the “maintenance of freedom to the citizen.”(26) The legislators who passed the Civil Rights Act introduced this same view into the Fourteenth Amendment.(27) They recognized that the privileges and immunities “are not and cannot be fully defined in their entire extent and precise nature,” yet the Republicans would rely upon Congress’s power “to pass laws which are appropriate to the attainment of the great object of the amendment.”(28) So long as Congress pursued an end plausibly within the Constitution, and did so by means not prohibited, the Court would sustain legislative interpretations of the act.

    The Reconstruction Court invoked this tradition in interpreting Congress’s power under Section 5 of the Fourteenth Amendment. In its first construction of that clause, in Ex parte Virginia,(29) the Court described Congress’s power in words that tracked McCulloch: “Whatever legislation is appropriate, that is, adapted to carry out the objects the amendments have in view, whatever tends to enforce submission to the prohibitions they contain … if not prohibited, is brought within the domain of congressional power.”(30) Although that language lay dormant for nearly a century, the Court of the civil rights era revived it during the voting rights cases of the 1960s, according Congress substantial discretion to go beyond the Court’s reading of the Civil War amendments in order to protect civil liberties.(31) The Boerne Court itself honored the McCulloch reading, quoting Ex parte Virginia(32) at the beginning of its inquiry and devoting a section of the opinion to affirming its consonance with the voting rights precedents.(33) But the Court honored McCulloch more in the breach than in the observance. While McCulloch may remain in name the standard by which the Court reviews congressional acts under the Fourteenth Amendment, Boerne’s holding casts the law away from those constitutional moorings.

    Although numerous modern commentators have recognized McCulloch as the appropriate standard for the interpretation of Section 5 legislation, none has looked closely at what that theory meant to the Framers of the amendment.(34) This Note seeks to remedy that defect by articulating the McCulloch theory of judicial review implicit in the text of the Fourteenth Amendment. Part II argues that Boerne’s historical analysis provides an unsatisfactory account of the original understanding of Section 5. The Boerne Court limited its inquiry to the legislative debates and found that the rejection of an earlier version of the amendment signaled a strong desire to limit Congress’s discretion in shaping constitutional meaning.(35) This Part argues that the alterations in the text invited judicial enforcement and introduced the “state action” requirement but did not change Congress’s ability to provide plausible substance to those guarantees. The Fourteenth Amendment remained a grant of power to Congress, the scope of which must be determined in light of McCulloch v. Maryland.

    Part III explores how the Framers of the Fourteenth Amendment understood the McCulloch theory of judicial review. From its issuance, commentators and judges looked to the case for guidance in reviewing acts of Congress. Judges cited it frequently, and each time they found that it confirmed Congress’s assertion of power. Section III.A explores the “original understanding” of McCulloch, looking first to the case itself and then to the work of its earliest interpreters. The great constitutional treatises of the early nineteenth century by Justice Joseph Story and Chancellor James Kent read McCulloch as the authoritative text on congressional power. The Supreme Court relied upon it throughout the antebellum era, and by the 1860s, judges recognized McCulloch as the definitive and canonical exposition of congressional power.

    The Reconstruction Congress would invoke these works, and the McCulloch decision itself, in drafting the Fourteenth Amendment. Section III.B returns to the congressional debates themselves to show how the McCulloch theory of congressional power found its way into the text. The drafters of the amendment drew on McCulloch and the Civil Rights Act of 1866 as precedents for the discretion later Congresses would enjoy under the Fourteenth Amendment. Both within Congress and before the states, the ratification debates read the Fourteenth Amendment as primarily a grant of power to Congress to legislate under McCulloch. Section III.C shows how the Supreme Court brought this same understanding to its early interpretation of the Fourteenth Amendment. Against the background of the Reconstruction Court’s struggle to balance constitutional innovation with the federal structure, two themes emerge: The Fourteenth Amendment was a story about congressional power, and Congress would enjoy substantial interpretive discretion in legislating that content.

    Part IV concludes by briefly examining the issues raised by the McCulloch theory outlined in this Note. Even if the argument from original understanding is convincing, is such a vision of judicial deference to congressional action desirable? This Part argues that allowing both the judiciary and the legislature to compete with the states in expanding the zone of liberty reflects the best traditions of our constitutional government and might increase the democratic legitimacy of “substantive due process.” Rather than threatening the federalist balance, granting Congress an increased role in protecting national liberties holds true to a federalism that recognizes a national government of enumerated and limited powers.

  • Jerrymerchant



    17 U.S. 316

    McCulloch v. Maryland


    Argued: — Decided:


    Congress has power to incorporate a bank.

    The Act of the 10th of April, 1816, ch. 44, to “incorporate the subscribers to the Bank of the United States” is a law made in pursuance of the Constitution.

    The Government of the Union, though limited in its powers, is supreme within its sphere of action, and its laws, when made in pursuance of the Constitution, form the supreme law of the land.

    There is nothing in the Constitution of the United States similar to the Articles of Confederation, which exclude incidental or implied powers.

    If the end be legitimate, and within the scope of the Constitution, all the means which are appropriate, which are plainly adapted to that end, and which are not prohibited, may constitutionally be employed to carry it into effect.

    The power of establishing a corporation is not a distinct sovereign power or end of Government, but only the means of carrying into effect other powers which are sovereign. Whenever it becomes an appropriate means of exercising any of the powers given by the Constitution to the Government of the Union, it may be exercised by that Government.

    If a certain means to carry into effect of any of the powers expressly given by the Constitution to the Government of the Union be an appropriate measure, not prohibited by the Constitution, the degree of its necessity is a question of legislative discretion, not of judicial cognizance.

    The Bank of the United States has, constitutionally, a right to establish its branches or offices of discount and deposit within any state.

    The State within which such branch may be established cannot, without violating the Constitution, tax that branch.

    The State governments have no right to tax any of the constitutional means employed by the Government of the Union to execute its constitutional powers.

    The States have no power, by taxation or otherwise, to retard, impede, burthen, or in any manner control the operations of the constitutional laws enacted by Congress to carry into effect the powers vested in the national Government.

    This principle does not extend to a tax paid by the real property of the Bank of the United States in common with the other real property in a particular state, nor to a tax imposed on the proprietary interest which the citizens of that State may hold in this institution, in common with other property of the same description throughout the State.

    This was an action of debt, brought by the defendant in error, John James, who sued as well for himself as for the State of Maryland, in the County Court of Baltimore County, in the said State, against the plaintiff in error, McCulloch, to recover certain penalties, under the act of the Legislature of Maryland hereafter mentioned. Judgment being rendered against the plaintiff in error, upon the following statement of facts agreed and submitted to the court by the parties, was affirmed by the Court of Appeals of the State of Maryland, the highest court of law of said State, and the cause was brought by writ of error to this Court.

    It is admitted by the parties in this cause, by their counsel, that there was passed, on the 10th day of April, 1816, by the Congress of the United States, an act entitled, “an act to incorporate the subscribers to the Bank of the United States;” and that there was passed on the 11th day of February, 1818, by the General Assembly of Maryland, an act, entitled, “an act to impose a tax on all banks, or branches thereof, in the State of Maryland, not chartered by the legislature,” [p318] which said acts are made part of this Statement, and it is agreed, may be read from the statute books in which they are respectively printed. It is further admitted that the President, directors and company of the Bank of the United States, incorporated by the act of Congress aforesaid, did organize themselves, and go into full operation, in the City of Philadelphia, in the State of Pennsylvania, in pursuance of the said act, and that they did on the ___ day of _____ 1817, establish a branch of the said bank, or an office of discount and deposit, in the City of Baltimore, in the State of Maryland, which has, from that time until the first day of May 1818, ever since transacted and carried on business as a bank, or office of discount and deposit, and as a branch of the said Bank of the United States, by issuing bank notes and discounting promissory notes, and performing other operations usual and customary for banks to do and perform, under the authority and by the direction of the said President, directors and company of the Bank of the United States, established at Philadelphia as aforesaid. It is further admitted that the said President, directors and company of the said bank had no authority to establish the said branch, or office of discount and deposit, at the City of Baltimore, from the State of Maryland, otherwise than the said State having adopted the Constitution of the United States and composing one of the States of the Union. It is further admitted that James William McCulloch, the defendant below, being the cashier of the said branch, or office of discount and [p319] deposit did, on the several days set forth in the declaration in this cause, issue the said respective bank notes therein described, from the said branch or office, to a certain George Williams, in the City of Baltimore, in part payment of a promissory note of the said Williams, discounted by the said branch or office, which said respective bank notes were not, nor was either of them, so issued on stamped paper in the manner prescribed by the act of assembly aforesaid. It is further admitted that the said President, directors and company of the Bank of the United States, and the said branch, or office of discount and deposit have not, nor has either of them, paid in advance, or otherwise, the sum of $15,000, to the Treasurer of the Western Shore, for the use of the State of Maryland, before the issuing of the said notes, or any of them, nor since those periods. And it is further admitted that the Treasurer of the Western Shore of Maryland, under the direction of the Governor and Council of the said State, was ready, and offered to deliver to the said President, directors and company of the said bank, and to the said branch, or office of discount and deposit, stamped paper of the kind and denomination required and described in the said act of assembly.

    The question submitted to the Court for their decision in this case is as to the validity of the said act of the General Assembly of Maryland on the ground of its being repugnant to the Constitution of the United States and the act of Congress aforesaid, or to one of them. Upon the foregoing statement of facts and the pleadings in this cause (all errors in [p320] which are hereby agreed to be mutually released), if the Court should be of opinion that the plaintiffs are entitled to recover, then judgment, it is agreed, shall be entered for the plaintiffs for $2,500 and costs of suit. B ut if the Court should be of opinion that the plaintiffs are not entitled to recover upon the statement and pleadings aforesaid, then judgment of non pros shall be entered, with costs to the defendant.

    It is agreed that either party may appeal from the decision of the County Court to the Court of Appeals, and from the decision of the Court of Appeals to the Supreme Court of the United States, according to the modes and usages of law, and have the same benefit of this statement of facts in the same manner as could be had if a jury had been sworn and impanneled in this cause and a special verdict had been found, or these facts had appeared and been stated in an exception taken to the opinion of the Court, and the Court’s direction to the jury thereon.

    Copy of the act of the Legislature of the State of Maryland, referred to in the preceding Statement.

    An act to impose a tax on all banks or branches thereof, in the

    State of Maryland not chartered by the legislature

    Be it enacted by the General Assembly of Maryland that if any bank has established or shall, without authority from the State first had and obtained establish any branch, office of discount and [p321] deposit, or office of pay and receipt in any part of this State, it shall not be lawful for the said branch, office of discount and deposit, or office of pay and receipt to issue notes, in any manner, of any other denomination than five, ten, twenty, fifty, one hundred, five hundred and one thousand dollars, and no note shall be issued except upon stamped paper of the following denominations; that is to say, every five dollar note shall be upon a stamp of ten cents; every ten dollar note, upon a stamp of twenty cents; every twenty dollar note, upon a stamp of thirty cents; every fifty dollar note, upon a stamp of fifty cents; every one hundred dollar note, upon a stamp of one dollar; every five hundred dollar note, upon a stamp of ten dollars; and every thousand dollar note, upon a stamp of twenty dollars; which paper shall be furnished by the Treasurer of the Western Shore, under the direction of the Governor and Council, to be paid for upon delivery; provided always that any institution of the above description may relieve itself from the operation of the provisions aforesaid by paying annually, in advance, to the Treasurer of the Western Shore, for the use of State, the sum of $15,000.

    And be it enacted that the President, cashier, each of the directors and officers of every institution established or to be established as aforesaid, offending against the provisions aforesaid shall forfeit a sum of $500 for each and every offence, and every person having any agency in circulating any note aforesaid, not stamped as aforesaid directed, shall forfeit a sum not exceeding $100, [p322] every penalty aforesaid to be recovered by indictment or action of debt in the county court of the county where the offence shall be committed, one-half to the informer and the other half to the use of the State.

    And be it enacted that this act shall be in full force and effect from and after the first day of May next. [p400]

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