Fascinating inside story on regulation

From Bloomberg (link is here)



A trial attorney from the Securities and Exchange Commission said his
bosses were too “tentative and fearful” to bring many Wall Street
leaders to heel after the 2008 credit crisis, echoing the regulator’s
outside critics. James Kidney, who joined the SEC in 1986 and
retired this month, offered the critique in a speech at his goodbye
party. His remarks hit home with many in the crowd of SEC lawyers and
alumni thanks to a part of his resume not publicly known: He had
campaigned internally to bring charges against more executives in the
agency’s 2010 case against Goldman Sachs Group Inc. (GS)

 

The
SEC has become “an agency that polices the broken windows on the street
level and rarely goes to the penthouse floors,” Kidney said, according
to a copy of his remarks obtained by Bloomberg News.
“On the rare occasions when enforcement does go to the penthouse, good
manners are paramount. Tough enforcement, risky enforcement, is subject
to extensive negotiation and weakening.”



But....should there have been high level prosecutions?



From the New York Review of Books:



Five years have passed since the onset of what is sometimes called
the Great Recession. While the economy has slowly improved, there are
still millions of Americans leading lives of quiet desperation: without
jobs, without resources, without hope.  Who was to blame? Was it
simply a result of negligence, of the kind of inordinate risk-taking
commonly called a “bubble,” of an imprudent but innocent failure to
maintain adequate reserves for a rainy day? Or was it the result, at
least in part, of fraudulent practices, of dubious mortgages portrayed
as sound risks and packaged into ever more esoteric financial
instruments, the fundamental weaknesses of which were intentionally
obscured? If it was the former—if the recession was due, at worst,
to a lack of caution—then the criminal law has no role to play in the
aftermath. For in all but a few circumstances (not here relevant), the
fierce and fiery weapon called criminal prosecution is directed at
intentional misconduct, and nothing less. If the Great Recession was in
no part the handiwork of intentionally fraudulent practices by
high-level executives, then to prosecute such executives criminally
would be “scapegoating” of the most shallow and despicable kind.



But
if, by contrast, the Great Recession was in material part the product
of intentional fraud, the failure to prosecute those responsible must be
judged one of the more egregious failures of the criminal justice
system in many years. Indeed, it would stand in striking contrast to the
increased success that federal prosecutors have had over the past fifty
years or so in bringing to justice even the highest-level figures who
orchestrated mammoth frauds. Thus, in the 1970s, in the aftermath of the
“junk bond” bubble that, in many ways, was a precursor of the more
recent bubble in mortgage-backed securities, the progenitors of the
fraud were all successfully prosecuted, right up to Michael Milken.....



 But the stated opinion of those government entities asked to examine the
financial crisis overall is not that no fraud was committed. Quite the
contrary. For example, the Financial Crisis Inquiry Commission, in its
final report, uses variants of the word “fraud” no fewer than 157 times
in describing what led to the crisis, concluding that there was a
“systemic breakdown,” not just in accountability, but also in ethical
behavior.



And yet, not one high level financier has gone to jail and only a few have had to pay fines.  For a complete list of those jailed, go here.