Too big to jail

The war on drugs is back in fashion. The Justice Department announced a tough new stance that requires prosecutors to pursue the highest charges possible, including those that carry mandatory minimum sentences, for low-level drug users and distributors as the United States continues to supersize the modern prison complex.

But you could combine every gang banger selling crack on a corner in America and they couldn’t generate as much ill-gotten cash as the bankers who engaged in the widespread malfeasance that led to the 2008 financial crisis, which triggered the worst economic crisis since the 1930s.

Despite the gravity – and depravity – of their actions, the number of top Wall Street executives who were prosecuted for fraud related to the financial meltdown is exactly zero, even though they cost millions of Americans their jobs, homes, life savings, and hopes for a decent retirement, and forced the government to hit up those very people to pay for the bailout that saved the country from a financial apocalypse of truly biblical proportions.

Hard to believe, but the truth often is. Meanwhile, the ordinary American is still dealing with the consequences of the financial meltdown; scoring, hustling and struggling to make it in America.

There are many reasons no bankers were jailed, including the complexity of the cases and lack of criminal referrals from regulatory agencies. Prosecutors didn’t want to put executives of “too big to fail” banks in prison, often because they feared that indicting the executives would drive their firms out of business, eliminating jobs and causing serious problems for financial markets and the economy.

In addition, the argument goes that investigating top executives of large firms is difficult because they insulate themselves from day-to- day decision making. In the end, the Department of Justice choked in the clutch. The ordinary American catches the joke that doing the right thing is always harder than simply doing what’s convenient. You would be right to conclude that Lady Justice is blind because she can’t stand to watch what’s happening on the ground.

Those responsible for indicting and prosecuting Wall Street executives seemed to believe that just as there are banks that are too big to fail, there are also people who are “too big to jail”. Instead of targeting individual corporate executives with trial and imprisonment, they almost exclusively settled with corporations for money. Corporate settlements were easier than identifying and prosecuting culpable top executives. Firms could pay the settlements with shareholders’ money; it’s even easier than locking up someone for dealing drugs on a street corner.

It shouldn’t be overlooked that too many in the political elite shill for the top bankers, who come bearing large campaign contributions in both hands. As Illinois Senator Richard Durbin said in 2009, “they own this place”.

More than a century ago, President Theodore Roosevelt noted that concentrated economic power tends to capture political power, which undermines democracy. After 2008, the financial crimes committed with impunity gave rise to a tsunami of anger that washed away normal inhibitions and unleashed the Tea Party and Occupy Wall Street.

Wall Street still exerts inordinate influence over the economy, inequality is near all-time highs and, for the majority of Americans, economic opportunity is close to an all-time low. We send some gangbanger from the hood to prison, but the United States appears to have reached the point where government is afraid to prosecute a Wall Street executive for stealing millions, crashing the economy and wreaking havoc upon millions of people.

A more aggressive response followed the savings and loan crisis of the 1980s and 90s, when hundreds of small banks across the country failed due to reckless real estate loans. Back then the Department of Justice prosecuted over 1,000 people, including top executives at many of the largest failed banks.

These episodes bring to mind Honoré de Balzac’s provocative and memorable line: “Behind every great fortune lies a great crime.”

Originally published: August 5, 2017