When Charles Ferguson received an Oscar for his documentary on the financial crisis, Inside Job, he reminded the audience that “not a single financial executive has gone to jail, and that’s wrong.” Given the abundant evidence of massive fraud, Americans everywhere have asked the same question: Why haven’t any of those bankers gone to jail? If federal investigators could not establish criminal intent for any top-flight executives, didn’t they have enough evidence to prosecute banks or financial houses as law-breaking corporations?
Evidently not. Except for occasional civil complaints by the Securities and Exchange Commission, the nation is left to face a disturbing spectacle: crime without punishment. Massive injuries were done to millions of people by reckless bankers, and vast wealth was destroyed by elaborate financial deceptions. Yet there are no culprits to be held responsible.
Former Senator Ted Kaufman was especially upset by this. Kaufman was appointed in 2008 to fill out the remaining two years of Vice President Biden’s term as senator from Delaware. With no ambition to stay in politics, he was free to speak his mind. He made unpunished bankers his special cause.
“People know that if they rob a bank they will go to jail,” Kaufman declared in an early speech. “Bankers should know that if they rob people, they will go to jail too.” Serving on the Senate Judiciary Committee, he helped get expanded funding and manpower for investigative agencies. In hearings, he politely prodded the Justice Department, the SEC and the FBI to be more aggressive.
“At the end of the day,” Senator Kaufman warned, “this is a test of whether we have one justice system in this country or two. If we do not treat a Wall Street firm that defrauded investors of millions of dollars the same way we treat someone who stole $500 from a cash register, then how can we expect our citizens to have any faith in the rule of law?”
Kaufman, now retired, sounded slightly embarrassed when I reminded him of his question. “When you look at what we got, it ain’t very much,” he conceded. “I’m genuinely concerned there are a lot of guys walking around Wall Street, the bad apples, saying, ‘Hey, man, we got away with it. We’re going to do it again.’”
If the legal system cannot locate the villains in this story, then “the law is a ass—a idiot,” as Charles Dickens put it. The technical difficulties in making a case for criminal prosecutions are real enough, given the complexities of modern finance. But the government’s lack of response to enormous wrongdoing reflects a deeper conflict of values. Will society’s sense of right and wrong prevail, or will corporate capitalism’s amoral need to maximize profit? So far, the marketplace appears to be winning.
The government’s ambivalence about prosecuting the largest corporate interests could be heard in the president’s comments. “Nothing will be gained by spending our time and energy laying blame for the past,” Barack Obama said in a different context (crimes of torture and unlawful detention committed under the Bush administration). Treasury Secretary Timothy Geithner bluntly dismissed the “public desire for Old Testament justice.” That might be morally satisfying, he said, but it would be “dramatically damaging” to economic recovery.
No one had to tell federal prosecutors to go easy. They can read the newspapers. The Treasury’s inspector general called the financial system “a target-rich environment” for financial fraud. But the government at the same time expended a vast fortune in public funds to rescue and restore the biggest banks and brokerages. Criminal indictments would not be good for investor confidence.