Matt Taibbi's Latest: " Why Isn't Wall Street In Jail?"

Tyler Durden's picture

From Matt Taibbi of Rolling Stone:

Why Isn't Wall Street in Jail?

Financial crooks brought down the world's economy — but the feds are doing more to protect them than to prosecute them

Over drinks at a bar on a
dreary, snowy night in Washington this past month, a former Senate
investigator laughed as he polished off his beer.

"Everything's fucked up, and nobody goes to jail," he said. "That's
your whole story right there. Hell, you don't even have to write the
rest of it. Just write that."

I put down my notebook. "Just that?"

"That's right," he said, signaling to the waitress for the check.
"Everything's fucked up, and nobody goes to jail. You can end the piece
right there."

Nobody goes to jail. This is the mantra of the
financial-crisis era, one that saw virtually every major bank and
financial company on Wall Street embroiled in obscene criminal scandals
that impoverished millions and collectively destroyed hundreds of
billions, in fact, trillions of dollars of the world's wealth — and
nobody went to jail. Nobody, that is, except Bernie Madoff, a flamboyant
and pathological celebrity con artist, whose victims happened to be
other rich and famous people.

The rest of them, all of them, got off. Not a single executive who ran
the companies that cooked up and cashed in on the phony financial boom —
an industrywide scam that involved the mass sale of mismarked,
fraudulent mortgage-backed securities — has ever been convicted. Their
names by now are familiar to even the most casual Middle American news
consumer: companies like AIG, Goldman Sachs, Lehman Brothers, JP Morgan
Chase, Bank of America and Morgan Stanley. Most of these firms were
directly involved in elaborate fraud and theft. Lehman Brothers hid
billions in loans from its investors. Bank of America lied about
billions in bonuses. Goldman Sachs failed to tell clients how it put
together the born-to-lose toxic mortgage deals it was selling. What's
more, many of these companies had corporate chieftains whose actions
cost investors billions — from AIG derivatives chief Joe Cassano, who
assured investors they would not lose even "one dollar" just months
before his unit imploded, to the $263 million in compensation that
former Lehman chief Dick "The Gorilla" Fuld conveniently failed to
disclose. Yet not one of them has faced time behind bars.

Instead, federal regulators and prosecutors have let the banks and
finance companies that tried to burn the world economy to the ground get
off with carefully orchestrated settlements — whitewash jobs that
involve the firms paying pathetically small fines without even being
required to admit wrongdoing. To add insult to injury, the people who
actually committed the crimes almost never pay the fines themselves;
banks caught defrauding their shareholders often use shareholder money
to foot the tab of justice. "If the allegations in these settlements are
true," says Jed Rakoff, a federal judge in the Southern District of New
York, "it's management buying its way off cheap, from the pockets of
their victims."

To understand the significance of this, one has to think carefully
about the efficacy of fines as a punishment for a defendant pool that
includes the richest people on earth — people who simply get their
companies to pay their fines for them. Conversely, one has to consider
the powerful deterrent to further wrongdoing that the state is missing
by not introducing this particular class of people to the experience of
incarceration. "You put Lloyd Blankfein in pound-me-in-the-ass prison
for one six-month term, and all this bullshit would stop, all over Wall
Street," says a former congressional aide. "That's all it would take.
Just once."

But that hasn't happened. Because the entire system set up to monitor and regulate Wall Street is fucked up.

Just ask the people who tried to do the right thing.

Here's how regulation of
Wall Street is supposed to work. To begin with, there's a semigigantic
list of public and quasi-public agencies ostensibly keeping their eyes
on the economy, a dense alphabet soup of banking, insurance, S&L,
securities and commodities regulators like the Federal Reserve, the
Federal Deposit Insurance Corp. (FDIC), the Office of the Comptroller of
the Currency (OCC) and the Commodity Futures Trading Commission (CFTC),
as well as supposedly "self-regulating organizations" like the New York
Stock Exchange. All of these outfits, by law, can at least begin the
process of catching and investigating financial criminals, though none
of them has prosecutorial power.

The major federal agency on the Wall Street beat is the Securities
and Exchange Commission. The SEC watches for violations like insider
trading, and also deals with so-called "disclosure violations" — i.e.,
making sure that all the financial information that publicly traded
companies are required to make public actually jibes with reality. But
the SEC doesn't have prosecutorial power either, so in practice, when it
looks like someone needs to go to jail, they refer the case to the
Justice Department. And since the vast majority of crimes in the
financial services industry take place in Lower Manhattan, cases
referred by the SEC often end up in the U.S. Attorney's Office for the
Southern District of New York. Thus, the two top cops on Wall Street are
generally considered to be that U.S. attorney — a job that has been
held by thunderous prosecutorial personae like Robert Morgenthau and
Rudy Giuliani — and the SEC's director of enforcement.

The relationship between the SEC and the DOJ is necessarily close,
even symbiotic. Since financial crime-fighting requires a high degree of
financial expertise — and since the typical drug-and-terrorism-obsessed
FBI agent can't balance his own checkbook, let alone tell a synthetic
CDO from a credit default swap — the Justice Department ends up leaning
heavily on the SEC's army of 1,100 number-crunching investigators to
make their cases. In theory, it's a well-oiled, tag-team affair:
Billionaire Wall Street Asshole commits fraud, the NYSE catches on and
tips off the SEC, the SEC works the case and delivers it to Justice, and
Justice perp-walks the Asshole out of Nobu, into a Crown Victoria and
off to 36 months of push-ups, license-plate making and Salisbury steak.

That's the way it's supposed to work. But a veritable mountain of
evidence indicates that when it comes to Wall Street, the justice system
not only sucks at punishing financial criminals, it has actually
evolved into a highly effective mechanism for protecting
financial criminals. This institutional reality has absolutely nothing
to do with politics or ideology — it takes place no matter who's in
office or which party's in power. To understand how the machinery
functions, you have to start back at least a decade ago, as case after
case of financial malfeasance was pursued too slowly or not at all,
fumbled by a government bureaucracy that too often is on a first-name
basis with its targets. Indeed, the shocking pattern of nonenforcement
with regard to Wall Street is so deeply ingrained in Washington that it
raises a profound and difficult question about the very nature of our
society: whether we have created a class of people whose misdeeds are no
longer perceived as crimes, almost no matter what those misdeeds are.
The SEC and the Justice Department have evolved into a bizarre species
of social surgeon serving this nonjailable class, expert not at
administering punishment and justice, but at finding and removing
criminal responsibility from the bodies of the accused.

The systematic lack of regulation has left even the country's top
regulators frustrated. Lynn Turner, a former chief accountant for the
SEC, laughs darkly at the idea that the criminal justice system is
broken when it comes to Wall Street. "I think you've got a wrong
assumption — that we even have a law-enforcement agency when it comes to Wall Street," he says.

In the hierarchy of the SEC, the chief accountant plays a major role
in working to pursue misleading and phony financial disclosures. Turner
held the post a decade ago, when one of the most significant cases was
swallowed up by the SEC bureaucracy. In the late 1990s, the agency had
an open-and-shut case against the Rite Aid drugstore chain, which was
using diabolical accounting tricks to cook their books. But instead of
moving swiftly to crack down on such scams, the SEC shoved the case into
the "deal with it later" file. "The Philadelphia office literally did
nothing with the case for a year," Turner recalls. "Very much like the
New York office with Madoff." The Rite Aid case dragged on for years —
and by the time it was finished, similar accounting fiascoes at Enron
and WorldCom had exploded into a full-blown financial crisis. The same
was true for another SEC case that presaged the Enron disaster. The
agency knew that appliance-maker Sunbeam was using the same kind of
accounting scams to systematically hide losses from its investors. But
in the end, the SEC's punishment for Sunbeam's CEO, Al "Chainsaw" Dunlap
— widely regarded as one of the biggest assholes in the history of
American finance — was a fine of $500,000. Dunlap's net worth at the
time was an estimated $100 million. The SEC also barred Dunlap from ever
running a public company again — forcing him to retire with a mere
$99.5 million. Dunlap passed the time collecting royalties from his
self-congratulatory memoir. Its title: Mean Business.

And the conclusion:

So there you have it. Illegal immigrants: 393,000. Lying moms: one.
Bankers: zero. The math makes sense only because the politics are so
obvious. You want to win elections, you bang on the jailable class. You
build prisons and fill them with people for selling dime bags and
stealing CD players. But for stealing a billion dollars? For fraud that
puts a million people into foreclosure? Pass. It's not a crime. Prison
is too harsh. Get them to say they're sorry, and move on. Oh, wait —
let's not even make them say they're sorry. That's too mean; let's just
give them a piece of paper with a government stamp on it, officially
clearing them of the need to apologize, and make them pay a fine
instead. But don't make them pay it out of their own pockets, and don't
ask them to give back the money they stole. In fact, let them profit
from their collective crimes, to the tune of a record $135 billion in
pay and benefits last year. What's next? Taxpayer-funded massages for
every Wall Street executive guilty of fraud?

The mental stumbling block, for most Americans, is that financial
crimes don't feel real; you don't see the culprits waving guns in liquor
stores or dragging coeds into bushes. But these frauds are worse than
common robberies. They're crimes of intellectual choice, made by people
who are already rich and who have every conceivable social advantage,
acting on a simple, cynical calculation: Let's steal whatever we can,
then dare the victims to find the juice to reclaim their money through a
captive bureaucracy. They're attacking the very definition of property —
which, after all, depends in part on a legal system that defends
everyone's claims of ownership equally. When that definition becomes
tenuous or conditional — when the state simply gives up on the notion of
justice — this whole American Dream thing recedes even further from

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Bay of Pigs's picture

Why would you assume we aren't involved in our communities, cities, states and country just because we don't vote? 

Pee Wee's picture

I don't (sorry for the impression).

I'm saying not voting (in the US) is a carpenter who punishes his hammer by throwing it away because it hurt his thumb, and then complaining about the guy that built the table wobbly.

impending doom's picture

Yes, but if both the hammer and the table were used to sodomize the carpenter and the other guy, would that not be a good reason to throw them away?

Pee Wee's picture

So, if I understand, if the two inanimate objects become animated, you're going to set my country music award on fire? 

Nice avatar, kicking it John Romero old school.

Fearless Rick's picture

The idea that you want to get a politician's "ear" tells me everything I need to know about what's wrong with this system. your fucking VOTE is supposed to count, not what's whispered at a private function to your lobbied-for and paid "representative."

If you believe voting helps your cause, imagine what a little MOOLAH does to grease the skids.

Grow a pair, grow up and stop being so naive, Pee Wee.

Pee Wee's picture

So, what's wrong with the political system is the influence of people?  Nonsense.

I can't argue that money doesn't help the cause, but I can assert that jealousy ain't going to help.

Shylockracy's picture

Vote and forfeit your right to complain. Voting is the opium of debt slaves, the blinding smokescreen, and the invisible prison carefully maintained by the Shylockracy.

If you want to see change, you have abstain from the empty political antics, and starve the beast of legitimacy.

Pee Wee's picture

"Vote and forfeit your right to complain"

Maybe in Egypt.

I'd bet money you've not once set foot into the local process (city/county).

DaveyJones's picture

one of my favorite law professors confessed one day that he didn't vote anymore. I gave him the same scolding. Twenty years now and I can still hear him. Only now I understand. History is full of moments when the system becomes incompetent, corrupt, hypocritical, unpredictable, criminal and broken. At that point, the oppressed can only fix the political system through other means: collective, economic, poetic, and human. Whenever you're ready    

Pee Wee's picture

The irony is that you once called a legal fraud, "professor."

I digress...

Confused's picture

How about this. By not voting I'm letting YOU know that I don't approve of either choice. 


It actually marginalizes your opinions as the "lesser of two evils" mentality prevails. 

Pee Wee's picture

Again, more hurting yourself to make a point to others.

It doesn't hurt me, nor does it marginalze my opinions at all.


LFMayor's picture

too bad he's still dead...

Revolution_starts_now's picture

and that my son is how I became an american insurgent, and I must overthrow this government. You see I had no choice:

"When, in the course of human events, it becomes necessary for one people to dissolve the political bands which have connected them with another, and to assume among the powers of the earth, the separate and equal station to which the laws of nature and of nature's God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation"

 so it was written and so it must be done. God speed to the american insurgents.

Fecund Stench's picture

I declared myself an insurgent and domestic terrorist months ago - about the same time I put Zero Hedge bumper stickers on my vehicles.

Miss America's picture

Fantastic article! 


It was even better when I wrote it over 2 years ago.


All the best, Miss America 

poydras's picture

It is remarkable that the populace remains effectively paralyzed.  I am convinced that the status quo remains until the US discovers how broke they are.

crazyjsmith's picture

I get it, they have been building the FEMA camps for all of the Banksters!!

Now it makes sense.  I was getting nervous there, but really our Government is just looking out for us.


Thanks Big Sis, you're the best.

ispeedtoo's picture

Soon the Gangs of New York will be back on the Street looking for the people that destroyed their city and there will be no cops to protect the rich!

What goes around comes around!


Oh regional Indian's picture

Even the Matt Tiabi's of the world cannot con-front the elephant in the room.

The elephant can be dancing on his toes, or even Tyler's toes, but no one can call th eBIG FLAMING LIE that is the UNITED STATES OF AMERICA, out for what it is.

If the truth is known, every treaty signed, every war declared, every compact with citizen (HAH!) or nation would be null and void. 

So the truth about the UNITED STATES OF AMERICA is under a carpet somewhere.

If it came out, tata FED, CONgress, IRS, DC Diabolism......everything. 

Read about it, spread the word.

The Elephant is dancing on your toes too.


DavidPierre's picture

Under just one corner of the rug we find...


 Andrew Carnegie makes an investment of ten million dollars and creates the imaginatively-named Carnegie Endowment for International Peace.

With Carnegie leading the way, America will soon be littered with the tax-free foundations of the ultra-wealthy, with those who profit from war leading the pack. Inside these little legal fictions,
millions, hundreds of millions and billions of dollars multiply completely tax free with the proceeds being used to lobby and propagandize for the interests of the kind hearted philanthropists who created them.

One of the first jobs of the Carnegie Endowment for International Peace will be, with no hint of irony, to propagandize for the U.S. to enter the First World War.

When Woodrow “Making The World Safe For Hypocrisy” Wilson decides that the war really isn’t really such a bad thing after all and takes the U.S. into it, the Carnegie Endowment telegraphs the president and encourages him to "see that the war does not end too quickly."

Andrew Carnegie’s profits from the sale of armor plate and other goodies skyrocket.

Like the other major “philanthropies” of the ruling class, the Carnegie Endowment will create cozy little relationships with American presidents and officials throughout the federal government and the mass media.

Fittingly, the first president of the Carnegie Endowment for International Peace is none other than Elihu Root, one of the twentieth century's first major war criminals.

Shyster for some of the world’s most ruthless robber barons, as U.S. Secretary of War from 1899 to 1904 Root was responsible for numerous massacres, wholesale torture and an almost unending litany of war crimes against the people of the Philippines. Carnegie could scarcely have found a more fitting first president for his "peace" foundation.

Oh regional Indian's picture

Awesome DavidP. Thanks.
The million points of light that Bush Senior spoke of in his famous NWO speech in the UN.
The NGOs.
What was that about the road to being paved with something or the other?

Misean's picture

The legal system as it applies to big business is to act as a barrier to trade.

hedgeless_horseman's picture



MayIMommaDogFace2theBananaPatch's picture

He should call the USAG and let him know about it.  </sarc>

Kobe Beef's picture

Good idea. Wonder where he left his phone. Probably in the toilet at Goldman Sachs where he was polishing the brass.


double ugh.

Boilermaker's picture

Jails and prisons are for the peasants.  Everyone knows that.  There's no story there.

gmj's picture

But for ze nobles, we have ze guillotine.

Gubbmint Cheese's picture

as much as I agree, as much as this entire charade sickens me.. BTFD prevails.

jobs1234's picture

Totally agree, as long as this stuff happens and the Bernanke Put lives in perpetuity, you have to buy every dip (and pretty much every asset known to man) no matter what.

The reason is that people don't seem to ever suffer in this economy for making a mistake unless they are the actual victim of the mistake. The perps of the mistake get off scot-free.

And somehow the "retail" buyer is going to return to a US financial system?


dick cheneys ghost's picture

how can you go to jail if you own congress, run the treasury and sit next to potus? 

blindfaith's picture

and, don't ever forget "count chads", not votes, but chads.  Good, bad, or indifferent...this whole country stood by (including the politicians) and allowed an election to be called by 7 people.  No one said a word about Phil Grahamm on Christmas eve 1999, no one said a word about Long Term Capital Management, so why not a green light on the highest seat in the land.  These things add up.  None of this is a one off, it is all pre-planned years in advance.

SDRII's picture

Just ask OJ 

midtowng's picture

Why not? Because Wall Street owns the regulators and the politicians. Duh!

buzzsaw99's picture

Don't forget "squeal like a pig for me" dimon.

apberusdisvet's picture

Taibbi obviously doesn't realize that the banking cartel, led by the FED actally runs the country with its latest puppet-on-a-string in the WH.  The more things change, the more they remain the same.  Been that way since JFK; notice that all who followed haven't been assassinated, so the system never gets bucked; the lesson has been learned.

huckman's picture

Somebody call Chuck Norris.

luk427's picture

This one stinks so bad we need them all.Norris, Rambo,Terminator,Seagal,Rick Santelli as "the Boss" and Vandamme as "towel boy"

Ancona's picture

No one is in jail because the Fed, the Treasury, SEC, and White House are complicit. They would have to arrest themselves.

We can't have that now can we?

Husk-Erzulie's picture

Start with the disgusting, crooked Clintons.  I'd like to see if they would rat out Poppy on the Mena business rather than do time in solitary.  My guess is that Bill might hold out but Hill would flip like a Flying Wallenda.

bunkermeatheadprogeny's picture

If Amtrak workers are subject to random drug and alchohol screening, then so should all of wall street for derailing the economy.

Rick64's picture

 I would like to see our politicians get tested regularly.

Amish Hacker's picture

So the penalty for massive financial fraud is to forfeit half of one percent what you stole, and you get to keep the rest? Sounds about right.

eddiebe's picture

Whatever, fuck that! I say: Off with their heads!

Bob's picture

No, no, no, no.  The company pays the fine.  You still get your bonus.