No Crime, No Punishment
CAPITALISM, 27 Aug 2012
When the Justice Department recently closed its criminal investigation of Goldman Sachs, it became all but certain that no major American banks or their top executives would ever face criminal charges for their role in the financial crisis.
Justice officials and even President Obama have defended the lack of prosecutions, saying that even though greed and other moral lapses were evident in the run-up to the crisis, the conduct was not necessarily illegal.
But that characterization of the financial industry’s actions has always defied common sense — and all the more so now that a fuller picture is emerging of the range of banks’ reckless and lawless activities, including interest-rate rigging, money laundering, securities fraud and excessive speculation.
Which is not to say that prosecuting wrongdoing in the financial crisis is easy. Proving federal fraud requires evidence of intent, no small lift. But proving intent does not require a smoking gun. The financial crisis, fomented over years by big banks and presided over by executives, involved reckless lending, heedless securitizations, exorbitant paydays and illusory profits, all of which led to government bailouts and economic calamity. Is it plausible that none of that broke the law and that none of the people in positions of power and authority knew what was going on?
It seems likelier that it’s not intent that’s missing, but creative thinking on the part of federal prosecutors about the web of federal statutes that could be brought to bear on potential cases. As far back as 2009, when the Justice Department lost a financial fraud case against a pair of hedge fund managers at Bear Stearns, it seems to have made an institutional determination that it could not win against big banks and top bankers. That stance has dovetailed with the Obama administration’s emphasis on protecting the banks from any perceived threat to their post-bailout recovery.
In the meantime, the statute of limitations, generally five years for securities fraud and most other federal offenses, is running out, precluding the possibility of bringing many new suits dating from the bubble years.
The result is a public perception that the big banks and their leaders will never have to answer fully for the crisis. The shameless pursuit of Wall Street campaign donations by both political parties strengthens this perception, and further undermines confidence in the rule of law. There may be more civil fraud suits related to the financial crisis, producing settlements and fines. But to date, those cases have rarely named top executives and the banks have rarely admitted wrongdoing. And the fines, even those in the hundreds of millions of dollars, have been small compared with bank profits and banker bonuses.
After all these years, what is still needed are cases with convictions and settlements severe enough to deter future bad behavior. If institutions operating at the heart of the economy really cannot be held to account, the solution should be to break them up, not give them and their leaders a pass.
A version of this editorial appeared in print on August 26, 2012, on page SR10 of the New York edition with the headline: No Crime, No Punishment.
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