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Why aren’t the Wall Street bankers jailed?

No doubt, even if you haven’t seen this political cartoon, you are most likely at least vaguely sympathetic. Sympathetic because the question is a valid one:

Why aren’t the Wall Street bankers jailed?

A history lesson:

For those not in the know, this is not our first rodeo and as surely as the sun rises each morning, history is bound to repeat itself.

If you were old enough to celebrate the 1985 Chicago Bears Super Bowl victory at a bar you’ll recall what happened thereafter. The Savings and Loan Crisis…and the Super Bowl Shuffle though research shows they were unrelated. I was born the following year. But I remember this vividly.

A very brief explanation from the NYTimes, ‘in what became known as the S&L crisis of the late 1980’s, hundreds of thrifts (AKA savings and loans associations) made a torrent of bad loans, ending in a government takeover and bailout that ultimately cost taxpayers over $120 billion’. 747 S&L’s and other institutions failed overall.

That’s strangely familiar. So what was the recourse then? Was the government incredibly lackadaisical in their response which subsequently would allow most everyone to get off scot-free, since that’s what’s happening now?

Yes and no.

Yes, the word lackadaisical is not oft used and I’ve used it twice now, and no in that between 1990 and 1995 no less than 1,852 S&L officials were prosecuted, and 1,072 placed behind bars. Another 2,558 bankers were also jailed, often for offenses which were S&L-linked too.

This is awkward.

So, what gives?

Maybe it’s that the government is building its cases, these things take time after all. Heaps of data and evidence to collect from all the financial regulators. So many potential culprits.

Of course.

It was, after all, the fine work of the financial regulators of the 80’s, the so-called Brat Pack of Tattle Tails, a reference no doubt to the John Hughes classics of the mid-80s, that brought forth all of these convictions via their criminal referrals. So yea, totally, we’re just waiting on that intel to be compiled.

But there’s the tiny, insignificant, barely noticeable fact that in the mid 90’s bank regulators almost completely stopped with the criminal referrals, per then President Clinton’s shifted focus to health care fraud.

Regulator Referrals 1986 to 2010 courtesy NYTimes










Ok fine the number of referrals dropped from 1,837 in in 1995 to about 72 per year, either way, the blatant fraud, mismanagement and immorality is obvious.  Though one can’t necessarily punish immoral behavior, there are certainly other breaches of actual law.

The issue here is that prosecutors depend on the info from bank regulators who are ‘in the know’ about financial matters to help build their cases. In addition as time passes it simply gets increasingly harder to make a case. To complicate matters even further, as of April, there were only about 140 FBI agents working on financial fraud, while during the S&L days there were 100 working in the Dallas branch alone to bring people to justice. This asset crunch came about in large part because of 9/11 when thousands of agents were moved to Homeland Security, about 500 of which came from the white collar crimes division.

 ‘The Securities and Exchange Commission adopted a broad guideline in 2009 — distributed within the agency but never made public — to be cautious about pushing for hefty penalties from banks that had received bailout money. The agency was concerned about taxpayer money in effect being used to pay for settlements’


This has been manifested in what is known as ‘deferred prosecution’, which ‘left open a possibility other than guilty or not guilty, giving leniency often if companies investigated and reported their own wrongdoing. In return, the government could enter into agreements to delay or cancel the prosecution if the companies promised to change their behavior’ according to the NYTimes. This was ‘an effort that aimed at relieving regulators of some of their enforcement loads, but it gave regulators a false assurance that banks would spot and report all wrongdoing, former investigators say.’

However, the ideal intent of deferred prosecution is to scare the company into regulating itself, since a government indictment would require a guilty plea without a trial which is explained more thoroughly by Harvey Silverglate, who contends it’s a useful tool that brings justice, not necessarily to the guilty though, as companies are essentially allowed to pick their own scapegoats.

With all that, it’s likely that you won’t see very many incarcerated.

Insult joins injury.

It seems the government, while outwardly stating their fury at Wall Street and other financial institutions, is actively working to avoid punishing anyone because, well, they get a lot of money from the securities and investment industry.

Specifically, $471,209,985 to campaign finance on both sides of the aisle just since 2007.

Whereas between 1989 and 1994, the era of S&L crisis punishment and the Clinton campaign, $84,200,263 was contributed, about $125 million when adjusted for inflation.

Fast forward to the period between 1999 and 2004 and the number jumps to $386,879,321 contributed to both parties from the securities and investment industry.

Since 1989, $1,188,664,055 has been given to campaigns from that industry alone.

Seems strange, like legal bribery, no?

Maybe helped out by the fact that lawyers/law firms have contributed $2,237,869,358 since 1989.

This begs the question, why isn’t everyone mad at the seller rather than the buyer?

Surely not everyone at the various Occupy movements is a forlorn fool and can grasp the concept that the government is the culprit. The government who is excited you haven’t taken them up on their wrongdoings and have levied all of the blame on Wall Street. The government that allowed history to repeat itself in such short order with such obvious signage.

Was it not the government that allowed itself to be bought?

Was it not the government who gave your money away?

Was it not the government who deregulated and did away with most oversight of the banks to allow for the unchecked leveraging that in large part led to the collapse?

Why not rally the dim-witted masses that make up some chunk of Occupy, who celebrated keeping cleaning crews out of Zuccotti Park as a victory*, and protest the government in Washington, where actual change would have to stem from? Most would remain clueless but at least they’d be in the same zip code as the actual people to blame.

Why not, instead of just being there, coalesce behind a message more concrete than ‘We Are The 99%’? A seething mass with a message holding government accountable and demanding reform rather than yelling at the rich.

More at The NY Times, DailyFinance, The American Prospect and as much as I don’t like MSNBC, I’d be remiss in not mentioning this interview between Darrell Issa (R-Cal) and Dylan Ratigan from February 17th. Issa explains the inaction of regulators, the legal bribery and asks for the American people to ‘get outraged enough to make sure that it never happens again’.

*Which they decided to clean themselves, not that they deserve credit for that given it took the city ‘threatening’ to clean to convince the protestors that living on the street for a month in absolute squalor amongst garbage is disgusting and unsanitary.

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One Response to Blame

  1. Ed Rodfree October 16, 2011 at 3:52 pm #

    Steve… I couldn’t agree more. Well written.