Why Wall Streeters Don't Go To Jail

Jesse Eisinger's new piece in the NYT Magazine 'Why Only One Top Banker Went to Jail for the Financial Crisis' leaves you with that unsettled feeling you get after waking up from a nightmare. The feeling that once you go back to bed it will continue.

From its name you can glean that Eisinger takes the piece to ponder why only one high level banker went to jail for crimes committed during the financial crisis.

The banker, Kareem Serageldin, is as much a side show in the story on the page as he is in the story playing out in real life. The real action (or inaction) takes place at the Justice Department and the evolving nature of its strategy for prosecuting high-powered criminals.

Eisinger reports that what was once a department that went after executives with gusto - think: Enron - became a department obsessed with winning. Even if those wins are empty. In the 1990s, over 17% of all federal cases were for white collar criminals, he points out, by 2012 that number was down to 9.4%.

He even got Preet Bharara, the 80-0 New York prosecutor known for striking terror into the hearts of hedge fund managers, to admit to this problem.

From NYT Mag:

The former prosecutor was almost sheepish about the insider-trading cases when I spoke to him: "They made our careers, but they don't change the world." In fact, several former prosecutors in the office told me that going after bankers was never a real priority. "The government failed," another former prosecutor said. "We didn't do what we needed to do."

The whole piece is worth a read, but it's a handful so you may want to bookmark it for some solid free time.

Until then here are five things you need to know about what Eisinger found in his reporting.

1. There's a pendulum swing thing going on here. The white collar guys at the DOJ were inspired by their colleagues that took down the mob. That's why when a man who had worked under Rudy Giuliani named Michael Chertoff because the criminal chief of the DOJ in 2001, the agency was ready for war.
2. When Chertoff went after Arthur Anderson hard for its role in disguising Enron's fraud, there was a backlash. Corporate America, and even some prosecutors, thought Chertoff had overstepped his bounds.
3. Corporate attorneys started figuring out ways to protect their clients. They were trying to counter the 'Thompson Memo', a strategy written by then- deputy attorney general Larry Thompson. Basically he gave corporations carrots for rolling back the attorney client privileges that protected them. Because of the backlash, however, the memo has been all but rolled back, according to Eisinger.
4. In 2003 there was a turning point. The Fed stepped in while the DOJ was prosecuting PNC, and asked for a meeting with Chertoff where Chertoff told then-Fed official Herbert Biern that: "if the DOJ "can't bring these cases because it may bring harm, then maybe these banks are too big." Sound familiar?
5. After that the deferred and non prosecution agreements started pouring out of the DOJ. There were 242 from 2004-2012. There had been 26 in the previous 12 years.