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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

Illustration by Victor Juhasz

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By Matt Taibbi

February 16, 2011 9:00 AM ET

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.

This article appears in the March 3, 2011 issue of Rolling Stone. The
issue is available now on newsstands and will appear in the online archive February
18.

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.

Invasion
of the Home Snatchers

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."

Taibblog:
Commentary on politics and the economy by Matt Taibbi

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.

Wall
Street's Naked Swindle

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