So with that big caveat, which is to say we have to speculate, my view is that it's likely that these cases weren't brought because it's very difficult to establish a theory of criminal fraud when you have essentially one sophisticated bank trader selling a product to another sophisticated bank trader and the person who lost in the trade is saying, "Hey, there's more about this that you should have told me that you didn't tell me.
And these are not special fiduciary relationships, like the relationship between some investment advisers and average investors—this is trader against trader in a very sophisticated market. In a criminal case you've got to prove intent to deceive—that is, you've got to prove that there was an individual who at the time they sold that security to the other banker knew that what they were saying was false about that security.
So these are hard cases to make, and I think, bottom line, maybe if we were to go through every single one of them, maybe we could find a case here, a case there, to quibble with the government's decision. But the idea that this is an area where you could have imprisoned large numbers of mortgage-backed-securities traders for what they did and the government just sat by and didn't do it, to me, is just totally implausible.
The frustrating thing about the financial crisis is that the victims, of which there were so, so many of us who were severely victimized when this happened, were not parties to the trades that created the problem. We weren't the ones who bought the mortgage-backed securities. So yes, we were victimized in the sense that we were downstream victims in the economy from a sort of risk fiesta that was allowed to go out of control because it wasn't regulated.
But because we were victimized doesn't mean that somebody can be put in prison. Pinsker: It would be easy to, after reading a Matt Taibbi article or watching The Big Short , to come away with the feeling that you just alluded to, that a lot of people should have been locked up. Can you talk a little bit about what narratives like that don't necessarily capture?
Buell: Well, I think what my book's trying to fill the gap in is for a layperson to understand what's going on in the legal system. Certainly the legal system is not optimal, and there are a lot of deficiencies in it, like in any society, but the reason why there's a lot of friction in the legal system is that it's actually very difficult to draw lines between right and wrong in an area where we're essentially saying two things at once: Be aggressive, take risks, make money—but don't hurt people while you're doing it.
But would we really want a legal system that did that? So in some sense, I agree colloquially with Steve Carell's character in The Big Short when he says, roughly, "Oh my gosh, this was all a big fraud!
That's got to be a much more specific question legally. And it should be, because the way we deal with disasters in the capital markets shouldn't be just to have a big sweep and send a bunch of people to jail just to send a message. That's not the way that the American legal system works and I don't think it's the way most people would want it to work. Pinsker: At various times in the book you liken the American appetite for prosecuting white-collar criminals to some sort of bloodlust.
Can you talk about why that attitude may actually be counterproductive for making businesses operate in a way that people probably want them to operate and is fair to anyone involved in the economy? But I do think there is a sense that people are particularly outraged about this form of crime, understandably, because it's generally perpetrated by people who are in a position of economic and social advantage in society.
There's no reason to have sympathy for the plight of this person in the way that you might for some kinds of street criminals. So there's an anger there about, how dare the privileged abuse their position in society like this? And so it's very understandable, then, that people would turn to the criminal-justice system as an outlet for that anger.
But as you alluded to, one of the arguments I make in the book is, while that's understandable, it may not be the most productive thing in the end because the criminal-justice system is not well-suited and perhaps should not be primarily a vehicle for venting anger.
It should be a vehicle for trying individual cases. When we go into that system with that anger, number one, we may not get what we're looking for, and number two, it's an entirely backward-looking exercise. It's hard to understand where the amounts come from, [and] the conduct isn't really carefully described in the same way that it would be if it was a criminal settlement. But when the Department of Justice says, "That's the best we can do," that may be right because it's the best they can do now.
I just don't think anyone will ever be able to answer whether they could have done better in an imaginary world where they had sort of gone sort of Eliot Ness on these banks right after the crisis.
BG: The simplest version of that is I think they should be brought as real criminal cases. Insisting on convictions, supervised by a judge, with monitoring, with fines calculated for real under the guidelines. The state of mind should be a criminal state of mind. We should be thinking about punishment. We shouldn't be thinking about settlements or convenience. And if it takes more resources to really treat these cases as criminal, then those resources should be found.
I would love for them to be diverted from the resources poured into all the low-level drug and immigration cases that so many prosecutors' offices spend their time on.
If that's the way to readjust the priorities in our federal criminal system, I'm all for it. There would be rehabilitation all around. But the answer is no, that's never going to happen. If Congress doesn't want to fund the SEC, they're not going to want to fund a serious corporate crime unit. Then we have to blame ourselves for not pushing Congress. Our mission has never been more vital than it is in this moment: to empower through understanding.
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Too big to jail: why the government is quick to fine but slow to prosecute big corporations. Share this story Share this on Facebook Share this on Twitter Share All sharing options Share All sharing options for: Too big to jail: why the government is quick to fine but slow to prosecute big corporations.
Reddit Pocket Flipboard Email. Top executives from some of the companies blamed for the financial crisis testify on Capitol Hill. Getty Images Ever since the financial crisis, many Americans and politicians have been calling for more aggressive prosecutions of Wall Street banks and executives to little avail.
DK: What was to you the most surprising or alarming trend you found in writing this book? Source: Brandon Garrett DK: it's so easy to think about these prosecutions as being of banks, ever since the financial crisis. DK: So what does it mean that the type of crime changes by year?
But most companies don't treat it as an opportunity when they get prosecuted for crimes. BG: There have been people shipped off to prison, but not in the cases people have in mind. DK: So what are the biggest changes we need to make to how we do corporate prosecutions?
Next Up In The Latest. Delivered Fridays. Thanks for signing up! Check your inbox for a welcome email. Email required. By signing up, you agree to our Privacy Notice and European users agree to the data transfer policy. For more newsletters, check out our newsletters page. The Latest. Why Biden has disappointed on immigration By German Lopez. Thing is, savings and loan associations had a cap on the amount of interest they were allowed to pay.
Under new state and federal rules, they were actually allowed to make these riskier investments. Black is a former financial regulator and a white-collar criminologist. Banks and real estate companies collapsed, customers lost their savings, and taxpayers had to help foot the bill. David L. Meanwhile, Charles Keating Jr. Both ended up in jail.
Every month, the Federal Home Loan Bank Board told the media how many of these criminal referrals it had made. The criminal referrals — at just this one agency — reached more than 30, Soon, the Washington Post would run stories pointing out the discrepancy between the high number of referrals and the low number of prosecutions, according to Black.
One-thousand FBI agents looked into all those savings and loan referrals. In total, there were almost 5, criminal investigations. The results: 1, criminal prosecutions and more than convictions. At Enron, an energy conglomerate that went bankrupt in , virtually every top executive was indicted and most people went to prison.
There were no earnings to receive, though. Not only was the deal not profitable, but Enron counted most of the loan itself as profit. The next year, the Justice Department created the Corporate Fraud Task Force, which was designed to train lawyers within the department on how to prosecute this new type of accounting fraud, according to Paul Pelletier, a prosecutor who was part of the Enron crackdown.
Pelletier said the Justice Department prosecuted more than executives involved at Enron and other accounting fraud scandals from the early s, including one at the telecom company WorldCom.
Twenty-four Enron executives were convicted for their part in the scandal, according to the Associated Press. Skilling was just released from jail. As a non-profit news organization, Marketplace is on a mission: to raise the level of economic intelligence across the country. Listeners like you who give to Marketplace do more than help keep the show on the air — you help us grow and get better. Contribute now to support independent, public service journalism you value and trust, and thanks for investing in what we do.
It's complicated. The story Your browser does not support the audio format. Who got fined during the financial crisis?
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