Eminent financial journalist William Greider proffers what may be the best explanation for why Wall Street execs aren't going to jail over their misdeeds leading up the housing crash: Large U.S. banks are "too big to prosecute":
Instead of "Old Testament justice," federal prosecutors seek "authentic cooperation" from corporations in trouble, urging them to come forward voluntarily and reveal their illegalities. In exchange, prosecutors will offer a deal. If companies pay the fine set by the prosecutor and submit to probationary terms for good behavior, perhaps an outside monitor, then government will defer prosecution indefinitely or even drop it entirely. The corporation thus avoids the stigma of a criminal trial and the bad headlines that depress stock prices.The Justice Department stepped up its use of these "deferred prosecution" agreements following the Enron, WorldCom and other corporate fraud cases early last decade. The agency laid out its rationale for the policy in a 2003 memo, stating that it helps "preserve the financial viability of a corporation that has engaged in criminal conduct."
Those goals inevitably conflict, since it's impossible to throw the book at a company if you're determined to preserve its commercial value. As a result, government legal officials almost always pursue softer sanctions, favoring financial penalties over prison sentences.
Corporate leaders are naturally amenable to these settlements because, well, it beats doing time. And while fines can hurt, the pain is shared with other stockholders. Notably, meanwhile, the courts have no legal authority to challenge these settlements. They're strictly between federal prosecutors and companies.
Among the major corporations that have struck such deals in recent years, Greider reports: AIG, AOL, Barclays, BP, Daimler Chrysler, Health South, Merrill Lynch, Pfizer, UBS and Wachovia. The charges included healthcare fraud, cheating the government on military contracts, bribing foreign governments, money laundering, tax evasion and violating trade sanctions.
And justice for some
Why defer corporate prosecutions? Ostensibly to avoid wiping out productive companies and punishing innocent employees and shareholders. But Greider punctures that thinking by posing a key question: Is it criminal indictment that brings a company down or its crime? He writes:
Government says it is acceptable to execute people for their crimes, then turns around and tries to eliminate the death penalty for corporations. When an actual person is sentenced to prison, the court does not pause to weigh the unfortunate collateral consequences for his children.When it comes to punishing Wall Street, of course, the government has barely administered a slap on the wrist, let alone charged up the electric chair. One school of thought is that's because no crimes were committed during the financial crisis. Wrong. Mortgage fraud is a crime. Some hapless borrowers are even in jail for it. Yet the mortgage lenders that knowingly passed off millions of bad loans will never see the inside of a court room.
It defies logic, ethics and the law. But it makes perfect sense in view of the cozy relationship between government and the corporate sector.
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