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Bill Clinton's Solution for 'Too Big to Jail' Banks

Stocks in this article: GS JPM

NEW YORK (TheStreet) -- President Bill Clinton believes there is an economically productive way to make use of the billions of dollars in Wall Street fines and settlements that  flood into the U.S. Treasury annually since the financial crisis.

Instead of putting the billions that the Department of Justice and Securities and Exchange Commission squeeze out of Wall Street banks for their misdeeds during the housing bubble into a general account with the U.S. Treasury, President Clinton said at the annual Securities Industry and Financial Markets Association (SIFMA) on Monday that the money should be put into a national infrastructure bank to support investment in renewable energy and other critical capital projects.

Clinton recommended that if fines paid by Wall Street went to an infrastructure bank instead of a general Treasury account, it could be both good public relations for the financial services industry and a much-needed start-up investment in renewable energies like solar power.

The comments addressed both Clinton's perspective on how the nation's financial services sector could improve its image five years after the financial crisis and his concern about a lack of investment that continues to overhang a tepid U.S. economic recovery.

"That's the way we ought be thinking," Clinton said of his hypothetical.

The idea, while unlikely to be carried out, is on the minds of taxpayers.

Earlier in November, U.S. attorney Preet Bharara was pressed by reporters on where the DoJ would put $1.2 billion in funds it won as part of a guilty plea by hedge fund SAC Capital Advisors for a host of insider trading violations. Bharara noted that funds would be put into a general Treasury account; a standard.

Using Wall Street settlements and fines to invest in innovations like renewable energy could also prove to be a more palatable way for the ordinary American to understand a lack of prosecutions of top financial services executives in the wake of the crisis.

At least, tens of billions in settlements would be invested into tangible projects that lack financing and not into government bureaucracy.

If major financial firms are in fact "too big to jail," a notion U.S. attorney Bharara rejected when unveiling SAC Capital's guilty pleas, a better channeling of investment could be more popular. 

Is Wall Street too big to jail?

We are likely to find out any time soon. The DoJ continues to investigate SAC Capital and prosecute traders of the once-mighty hedge fund. The big question is whether founder Steven A. Cohen will be implicated in the U.S. attorney and FBI's multi-year insider trading probe. Currently, Cohen has not been accused of wrongdoing.

In the wake of SAC Capital's criminal pleas, banks such as Goldman Sachs (GS) and JPMorgan (JPM) continue to trade with the hedge fund, according to sources, in a move that allows the DoJ and FBI to build their case against the fund without destabilizing markets or causing undue investor losses.

The DoJ is also in the midst of negotiating a settlement with JPMorgan for its pre-crisis mortgage origination and securitization activities. It remains unclear the extent that the DoJ is looking for JPMorgan to admit criminal wrongdoing or whether the nation's largest bank by assets is ready to concede its exposure to litigation from its acquisition of Washington Mutual.

Clinton's proposal would allow that, were Cohen or top executives at JPMorgan never to face criminal prosecution, at least taxpayers could benefit by having billions in expected settlements fund critical infrastructure projects.

-- Written by Antoine Gara in New York

Follow @AntoineGara

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