NEW YORK CITY -- With his neatly barbered white beard and his calm, careful demeanor, 68-year-old Judge Jed S. Rakoff seems too mild-mannered to be the fierce foe of corporate greed that his admirers see.
And yet it is a measure of how timid our politics have become that this federal judge is widely viewed as the only man in government with the cojones to take on the banking corporations that nearly destroyed the American economy in 2008 and that seem, for the most part, unrepentant.
Rakoff is a federal district judge for the Southern District of New York. He presides from a building on Pearl Street in Lower Manhattan named after the man who proposed him for the bench 16 years ago, the late Sen. Daniel Patrick Moynihan, Democrat of New York.
The judge is no radical. He was drawn as a college student to the "cool rationality" of President Jack Kennedy, proposed for the federal bench by the famously centrist Moynihan, nominated by President Bill Clinton and overwhelmingly confirmed by a bipartisan Senate in 1996.
He is a proceduralist, a former corporate lawyer and hardly a populist firebrand. But because he is fastidious about the law, knows the industry, has worked as a prosecutor and believes in rational regulation of business -- and because he presides over a jurisdiction that includes Wall Street and most Big Banks -- he may sometimes appear to be like the solitary protester in a Tiananmen of Profit.
Time and again over the years, Rakoff has goaded federal regulators into taking a tougher line on the companies they regulate, though he does so in the measured tones of the "cool rationality" he admires.
He recently made headlines by refusing to ratify a $285 million settlement between the Securities and Exchange Commission and Citicorp, which had been accused of packaging and selling mortgage-backed securities it knew were toxic and then profiting by betting against those securities.
In the face of such egregious (and unfortunately, fairly common) behavior among the big banks at the height of the mortgage frenzy of the late '00s, the SEC allowed Citi to avoid the admission of any wrongdoing; to plead only to negligence and not to fraud; and to pay a fine that was less than half of what the bank's customers lost and barely more than what the bank made.
What incensed Rakoff was not so much the result -- although that was bad enough -- but the SEC's willingness to settle without a full airing of the facts -- indeed, without any airing of the facts. If, as Justice Brandeis famously said, "sunlight is the best disinfectant," the SEC was proposing -- as it almost always does in such cases -- to curtain off the whole matter.
The SEC and its supporters pleaded that the agency simply doesn't have the time or the resources to pursue cases more fully or aggressively -- an argument that Rakoff doesn't fully dismiss but one that he refuses to accept as an excuse in the face of alleged wrongdoing so outrageous and emblematic.
"In any case like this," he wrote in his opinion, "which 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." It seems a modest aim, but practically revolutionary in the context of a government policy eager to shore up the banks.
One night recently, after the close of his business day, Judge Rakoff sat down in his chambers to discuss with Huffington Post Editorial Director Howard Fineman the risks and responsibilities of leading from the bench. The rare, wide-ranging interview -- the judge's first since the Citicorp decision -- is part of The Huffington Post's Inspirationals series, which highlights figures who are leaders outside the normal venues of business and politics. What follows are excerpts from that conversation:
Some people see you as a hero. Does that worry you?
It does. I'm flattered, but I also remember from the class I once took on Greek tragedy that all the heroes wind up dead. I'd prefer to be thought of as a judge who takes his job very seriously. If a case comes to you and it presents an issue that you're required by law to examine, then by gosh, you'd better examine it. I've never been impressed with bureaucratic tradition. I don't like it when the parties come to me and say, 'This is the way that it's always done, judge.' I never found anything in the oath I took or the statutes I was asked to look at that said, 'Judge, stop thinking, because this is the way it was done before.'
You sound a little miffed that people don't understand your role.
The people generally understand. It's the parties that don't understand. Every once in a while, I will ask a young assistant attorney from the U.S. attorney's office -- which is my old office -- 'Why are you doing this?' And he'll say, 'It's office policy.' And I will almost say, 'Policy schmolicy! Give me a reason for it, because if you can't give me a reason for it, I can't approve it.'
Who are your political heroes?
I had two very different political heroes when I was growing up. One was President John F. Kennedy, because I thought he represented as close to cool rationality as any political figure of that time, but he also could get things done. Adlai Stevenson was a wonderful person, but he couldn't get it done. JFK was very impressive, though of course I know more about his character now than I did then. And then my other hero was Harry Truman, just because he called a spade a spade, so to speak. And I also liked the fact that he had come out of a political machine but had managed to be totally independent, and was such a man of the people. I admired Truman, among many other things, because he integrated the Army. I admired JFK because the very first civil rights legislation was passed at his insistence. JFK showed what you could do, though he was a deeply flawed person, as we all now know. It's harder to find political heroes when you're my age. Because you see that courage is a much more rare commodity than you realize when you were young.
Can judges be leaders?
They have occasionally been leaders. But I think they are more comfortable -- and it's a more natural role -- to be the conscience of society in some ways. In a democracy, the executive represents, if you will, the government at large, concerned with the people as a whole. The legislature balances special interests and groups with particular overall policies, and sees the larger picture. Judges are the people who have to protect the rights of individuals, have to protect the rights of minorities, have to protect the rights in the Constitution, have to protect the requirement that the executive and the legislature not simply exercise raw power but adhere to standards of reasonableness and constitutionality.
If you look at where the judges of the United States, particularly federal judges, have had their greatest moments, they are in areas like protecting civil liberties, protecting free speech, protecting civil rights. Where they've had their worst moments is where they've caved to the executive or to the legislature. The Dred Scott slavery decision, for example.
Was Bush v. Gore a greatest or worst moment?
I don't think I could express an opinion on Bush v. Gore, other than to say what's most striking about it. Bush v. Gore has never been cited, so far as I know, as precedent in another case.
The court said in the opinion itself that it could not be cited as precedent.
And yet precedent plays a very important role in the American system of justice. When any judge decides a case, one of the things we're required to do is to think about how it will affect the other 100 cases that aren't quite the same, but are similar. If it's not going to make sense for 100 other cases, maybe there is something wrong. That's an essential function of any judge in the American system. So you have to wonder why a decision was written that doesn't have any apparent precedential value.
Isn't it fair to say that the members of the Warren Court were leaders?
Here's the problem you have to be careful with. You are not elected, you are appointed. In a democracy, the fact that you are not elected and therefore don't represent the will -- a direct mandate from the people -- means that you have to proceed with some caution. I frankly agree with almost everything the Warren Court did. I think it's one of the reasons I became a lawyer, because I was so thrilled by what they did. I don't think that they in any shape or form exceeded their constitutional mandate. But if you had to criticize, the one legitimate criticism you could make is that a judge needs to be sure that he's not confusing his beliefs with the will of the people. His is a more narrow will, to apply the law.
And where this came up for me was in the second opinion I wrote on an SEC case. The first settlement they presented to me, frankly, was a no-brainer. It was bad as a legal matter in every possible respect. And then they gave me, if you will, half a loaf on the second go-round. If I had been deciding the matter on a clean slate with total power, I would've said it still fails. But I had to give some deference to the SEC. I had to give some deference to the parties. And if I didn't give that deference, I would be exceeding what a judge would be doing in those situations.
Do you have to take into account the ability of the SEC to handle its workload? They plead that they are overburdened.
I don't think that that's an argument I've taken up. I think there are points to be made both ways. The U.S. attorney's office from the Southern District of New York, which has brought some of the great fraud cases of the last 50 years, has never exceeded 14 human beings in the fraud unit. That's the unit I was in. The SEC has hundreds, if not thousands, of people. On the other hand, they have to cover a very broad territory.
People look at you as one of the few people willing to stand up to unaccountable financial power, seemingly almost alone, and conclude that it is a sad comment on where we are as a society.
I think I feel uncomfortable responding to that. I would say that for at least 50 years, we've been hearing, ever since the Warren Court, complaints about "activist judges." I think most judges -- most thoughtful judges of both the right and the left -- think that is baloney. They think that judges can be distinguished not by ideology, but by their willingness to explore issues deeper. Some judges feel bound to do that; some just want to get rid of a case on the docket.
You're a student of history. Does this era now remind you of any other in recent American life?
You have to be careful in drawing analogies, but I do think that as Americans, we are not good at remembering the lessons of history, so we repeat mistakes. For example, the drawing together of bad assets and gussying them up is nothing new. About 20 years ago it was junk bonds.
What often happens in those situations is someone will come up with a bright idea. It goes like this: 'We take a lot of bad investments, but we put them all together.' So instead of the pool being a pool of bad assets, it becomes a pool of terrible assets, because there's a huge desire to create new pools and expand into riskier assets. So in the mortgage crisis, we saw a similar thing happening. Mortgages were actually pretty safe investments. But once no one cared anymore about the mortgages per se, the source of value was the securities. Then you had a huge demand for new mortgages, to create more pools that were going to make a ton of money. And then you have new mortgages being created that are much riskier.
Didn't we also forget the lessons of the Depression, which led to the separation of commercial banks and investment houses?
I think that's a fair comment. In recent decades, as everyone knows, there has been a huge movement towards deregulation. It's funny because a certain amount of this is cyclical. You have people saying, 'We've got to stop this, we've got to have some regulation.' Often the regulation carries some disadvantages of its own, and it's expensive and cumbersome. So then people say, 'Let's deregulate.' Then they throw out the baby with the bath water, and then we go through this again. Having said all that, every bubble has its own special story ... You look back and say, 'That's crazy,' but that's the way it gets.
Does a widening gap between rich and poor have anything to do with the move to deregulate? Are the issues related? And if so, do you take note of that?
Every judge has a million views about policy and politics and life and everything under the sun concerning human beings, but our job is quite specialized in applying the laws the best we can. It is disturbing to many people that there is such a concentration of wealth in a relatively small percentage of the population today. Many years ago you had the so-called robber barons, and the fear that it is not healthy for a democracy to have so much economic wealth, so much economic power, concentrated in a relatively few hands. Interpreting the Sherman Act in the early years, you can see in the Supreme Court and the lower courts the tension. Some courts said, 'We can't outlaw this particular business practice because there's no showing that it actually decreases competition.' And other courts said, 'But it leads to a grossly unfair distribution of economic power, and that has long-term consequences.'
So those are tensions. In the 1990s, of course, free enterprise, capitalism and so forth were glorified to a degree. Some of that was political. We had finally won the battle against the Iron Curtain, and part of the reason we won was because our economic system was a lot better than theirs. But I think maybe it was an over-glorification of capitalism. I don't mean to suggest that I'm personally for socialism. I'm not. But I am personally for some regulation.
Do you think that today's concentration of wealth and economic power adds urgency to the matters you deal with?
I think that it is a legitimate concern for regulators. I'm not so sure it's a legitimate concern for judges. We take an oath to administer justice for rich and poor alike, and that means that Daddy Warbucks gets the same justice from us as Little Orphan Annie. So most judges -- and I like to think I'm one of them -- are pretty good at excluding those kinds of considerations from their determination of a case.
But don't those concentrations of wealth bear down on the machinery of government so that they can protect what they have?
Well, I guess what I'm saying is, I think part of our job is to blind myself to whether that is a factor or not. For example, take the issue of regulatory "capture" [the idea that industries wind up controlling the agencies that oversee them]. As long as there have been regulators, that has been a danger. But that is not my concern as a judge. I'm concerned about that as a citizen, but not as a judge. My concern as a judge, in cases in which a settlement has been presented, is that I need to know what are the facts that led to this settlement. And if the facts suggest that this is an unreasonable or unfair or inadequate settlement, I would still have to not approve it. It is certainly true that sometimes the facts reveal a cynical relationship [between regulators and regulated]. But I don't think I should start with any presumption about that.
Who are your judicial favorites?
Obviously, the first is Chief Justice John Marshall. All the basic tenets of the American judiciary are his product. Justice William Brennan, who I thought was the best of the Warren Court. And I have a soft spot for a guy who most law professors regard as mediocre as a justice, William Douglas. He was such a force of nature. He was the Tom Jones of the Court. He was seriously considered as a candidate for president. I would not be comfortable doing things like that, and I think most judges wouldn't. So I'm not saying he's a guy I want to emulate. I'm saying, when you see a force of nature, you can't help but being impressed.
All three of your heroes were very publicly political men. Warren had been governor of California.
The point that's repeatedly made is that what is lacking in the present justices is that none of them had a political background. I think Souter and O'Connor were the last two.
Do you think that's a cause for concern?
Yes, but I wouldn't overstate it. It's not a sine qua non. The Supreme Court looked at with a cold eye is a court that exercises power and a court that makes policy. Anyone who doesn't see that is blinding himself. When Chief Justice Roberts said that the role of a Supreme Court justice is to be an "umpire," he wasn't telling the whole story. "Umpiring" may be what a lower court judge tries to do, but even then it's not a full picture. The folks up there in the Supreme Court are making policy. They are exercising power. And they know it.
You are, too, aren't you?
Yes, but two levels of higher courts review what I do. And if I can't justify my decision with good reasons, they tell me to get lost. The Supreme Court doesn't have that. No one is above them, including the president. And the main check on them is that there are nine of them, plus the rules of the game. I don't want to minimize that there are rules of the game. So someone with a political background has a feel for those rules, which someone who has a purely judicial background may not. So to that extent, I think it's a useful thing. On the other hand, you don't want nine justices that had no judicial experience.
You said one of the roles of the court is to protect the rights of individuals.
I feel strongly that's one of the main roles of all courts. We are the only people who can say the majority has exceeded its bounds. We are the voice, in that sense, of the rights of the individual, the minority. And we are the only voice in the power structure of the three branches for those people.
Does that bear on commercial cases?
Yes. It's in the background of a great many. Not every case, but a great many. The other thing that's in the background of a great many cases is that the process by which a decision was reached was fair and reasonable. Those are like ABCs of the legal function.
When you say individual rights, do corporations fit as individuals with rights?
Well, the Supreme Court has indicated perhaps a rather exalted view of their rights.
Would you care to express an opinion?
No. I was not thinking of corporate rights in the homily I just gave.
Here we are in the building named for the man who nominated you. How did you get to know Moynihan?
I didn't. But he was a fantastic senator and person. He had a screening committee composed not just of lawyers but also of journalists, of professors, of business people. It was also very diverse in terms of gender and race. There was a real cross-section. And if you wanted to be a judge, you applied to his screening committee. I had heard from other people that you had to be politically active and all that, but then they would always say, maybe not with Moynihan. They were right, not with Moynihan. So I applied. They recommended two people for two open spots: Barbara Jones, who is my colleague, and myself. Only then did I meet Moynihan ... I had never met the man in my life. I had of course known a lot about him, and I thought we were going to discuss judicial philosophy. He said, "I see you wrote a thesis at Oxford on Indian history. Let's talk about that." He had been the ambassador to India. And I will tell you without any exaggeration that he knew as much about my subject as I did. And we talked for two hours, exclusively about Indian history. And then at the end he said, 'Oh, I think I'll recommend you as a judge.'