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Financial regulators failed. Crooks went unpunished. Uh-huh. But what will be done about it?

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In case you've been mesmerized in the past couple of days by news of Republicans saying millionaires shouldn't have to pay more taxes, the Pentagon saying that cutting its budget will endanger Americans and Paul Ryan saying the President tricked him by inviting him to sit in the front row for his spending-reform speech Wednesday, you may have missed two important stories from The New York Times, both written by Gretchen Morgenson and Louise Story.

The first was Naming Culprits in the Financial Crisis, coverage of the just-released 650-page report of the Senate Permanent Subcommittee on Investigations, Wall Street and the Financial Crisis: Anatomy of a Financial Collapse:

"The report pulls back the curtain on shoddy, risky, deceptive practices on the part of a lot of major financial institutions," [Committee co-chair Carl] Levin said in an interview. "The overwhelming evidence is that those institutions deceived their clients and deceived the public, and they were aided and abetted by deferential regulators and credit ratings agencies who had conflicts of interest. ...

"The bipartisan report includes 19 recommendations for changes to regulatory and industry practices. These include creating strong conflict-of-interest policies at the nation's banks and requiring that banks hold higher reserves against risky mortgages. The report also asks federal regulators to examine its findings for violations of laws."

Good weekend reading, it would seem. But the problem with asking those federal regulators to look into violations is the subject of Morgenson's and Story's second piece, published Thursday, In Financial Crisis, No Prosecutions of Top Figures.

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They take note of what many critics of the financial crisis have been pointing out for two years: After the collapse of many savings and loan operations in the 1980s, thanks to efforts across several government agencies working together in task forces, 1100 cases were referred for prosecution and 800 S&L officials ultimately found themselves in the slammer. This time, however, no senior executives have been indicted, much less imprisoned.

"This is not some evil conspiracy of two guys sitting in a room saying we should let people create crony capitalism and steal with impunity," said William K. Black, a professor of law at University of Missouri, Kansas City, and the federal government's director of litigation during the savings and loan crisis. "But their policies have created an exceptional criminogenic environment. There were no criminal referrals from the regulators. No fraud working groups. No national task force. There has been no effective punishment of the elites here. "

"If you look at the last couple of years and say, "This is the big-ticket prosecution that came out of the crisis,' you realize we haven't gotten very much," said David A. Skeel, a law professor at the University of Pennsylvania. "It's consistent with what many people were worried about during the crisis, that different rules would be applied to different players. It goes to the whole perception that Wall Street was taken care of, and Main Street was not. "

"When regulators don't believe in regulation and don't get what is going on at the companies they oversee, there can be no major white-collar crime prosecutions," said Henry N. Pontell, professor of criminology, law and society in the School of Social Ecology at the University of California, Irvine. "If they don't understand what we call collective embezzlement, where people are literally looting their own firms, then it's impossible to bring cases." "

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Cranking down the level of regulation has allowed, or better said, encouraged those supposedly being monitored to run wild. Just how far regulation reduced is exemplified by what Mortensen and Story found in data put together by a group at Syracuse University in Transactional Records Access Clearinghouse. In 1995, for instance, bank regulators referred 1,837 cases to the U.S. Department of Justice. In 2006, just 75 cases were referred. And, since then, including the worst years of the crisis, an average of only 72 cases a year have been referred for criminal prosecution.

While the cats slumber, the rats collect their bonuses.

The question now, as always, is what will happen to the recommendations the Senate committee has produced. Will they head for the archives like the January report of the Angelides Commission, whose web site doesn't even exist any more? Will any of those missed prosecutions now show up on Justice's radar?

If the government dealt with street crime the way it has handled the financial crisis, the outcry would be registering 8.9's on the Richter scale every day of the week, in and out of Congress. And we'd be building more prisons if that's what it took to house the crooks. Instead we have the cricket chorus.

 

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