The great 19th century English jurist, Sir James Fitzjames Stephens, once wrote that murderers were hung not for reasons of revenge or deterrence — but to underscore what a serious breach of the social compact had been committed.
Federal District Judge Jed S. Rakoff was making a similar point when he recently called attention to the lack of criminal prosecutions in the wake of the 2008 financial crisis. Consider the 1980s Savings and Loan crisis. The losses were minuscule compared to this recent paroxysm, but they still led to hundreds of criminal convictions.
That looks highly unlikely here. The federal statute of limitations for fraud, generally five years, is rapidly running down. There are reportedly a few cases in process. But the odds are that if there are any indictments, they will be in the pattern of the indictment of Goldman Sachs banker Fabrice Tourre, who has been left holding the bag for a complex scheme to load up clients with worthless securities. Email trails leave little doubt that far more senior figures were aware of the purpose of the deal. The firm also executed other similar deals that haven’t been prosecuted.
The big banks have compiled an amazing record of dishonest, and outright criminal, behavior — suggesting that there is no ethical or legal standard that can stand in the way of a chance to fatten the bottom line. Here are some samples, all drawn from the cases settled in the 2000s:
Chase Bank (now part of JPMorgan Chase), Citibank, Merrill Lynch and a number of other financial institutions actively conspired with Enron executives to falsify company financial records. Chase also paid bribes to county officials, and to other banks, for the right to entangle an Alabama county in a byzantine transaction that led to the county’s bankruptcy. Virtually every major bank in the country sold billions in “auction-rate-securities,” without disclosing they carried the risk of becoming nearly worthless — which quickly came to pass. Bank of America has now disgorged $22 billion in fines on these instruments alone.