It is becoming an uncomfortable pattern: Fresh revelations emerge about unscrupulous behaviour by bankers in the runup to the financial crisis. A spasm of outrage follows, along with talk of new investigations. Then, more often than not, nothing happens.
The most recent example came last week, courtesy of a bipartisan committee of U.S. senators that unveiled a 650-page report on the causes of the financial meltdown. The tome provides fascinating details but probably won't set off new prosecutions of banks or executives by authorities.
Senator Carl Levin, the Michigan Democrat who chaired the committee, appeared to admit as much. Asked whether he was disappointed that no one had been imprisoned for crimes related to the financial crisis, he responded, "There is still time and hope springs eternal."
Almost three years after the worst banking catastrophe since the Great Depression, very few cases against major figures involved in the debacle are being brought. That stands in stark contrast to some previous crises. In the aftermath of the savings-and-loan mess in the U.S. in the 1980s, a rash of criminal prosecutions followed, landing 800 bank executives in jail.
There are reasons for the paucity of prosecutions now, some experts say. These actions can be difficult to mount, but just as importantly too few resources were devoted to pursuing them and regulators didn't amass information that would have buttressed such cases. What's more, government officials were reportedly wary of going after banks and their executives in cases where the institutions had been propped up by taxpayers.
Almost all of the highest profile cases charging fraud connected to the financial crisis have focused only on civil actions and have ended in settlements. That includes cases against Goldman Sachs Group Inc. and Angelo Mozilo, the former chief executive officer of mortgage titan Countrywide Financial Corp. Another group of banks, including JPMorgan Chase & Co. and Citigroup Inc., are nearing a deal with securities authorities to settle fraud allegations related to mortgage-bond investments, The Wall Street Journal reported last week.
Critics say that the criminal prosecutions related to the financial crisis have focused on comparatively small mortgage frauds by individuals and companies - what one expert called "teeny tiny cases" - rather than by large banks and their executives.
"Going after the little guys is the equivalent of going to the beach in San Diego, throwing handfuls of sand into the Pacific Ocean, and wondering when you're going to be able to walk to Hawaii," says William Black, a law professor at the University of Missouri-Kansas City and a former regulator. "It's utterly useless for the system."
Mr. Black, who played a key role in the government's response to the savings-and-loan crisis, argues that critical lessons from that time have been ignored. He says that without help and guidance from regulators, prosecutors have a hard time cracking down on complex financial crimes. After the banking crisis of the 1980s, for instance, regulators referred thousands of potential criminal cases to prosecutors over a seven-year period, he notes.
By 2006, a year before the financial system started to shudder, the number of cases that bank regulators were referring to prosecutors had dropped dramatically. In the four years that followed, an average of 72 cases a year were referred for criminal prosecution, according to The New York Times, based on data from the Syracuse University.
The Office of Thrift Supervision, a banking regulator that oversaw a number of institutions that failed during the crisis, including American International Group Inc. and Washington Mutual, hasn't referred any possible criminal cases to federal prosecutors in more than a decade.
While such cases can be challenging to win - proving criminal intent can be difficult and prosecutors face razor-sharp defence lawyers - it's far from impossible. However, it takes time, resources, and often co-operation, whether willing or unwilling, from someone with inside knowledge. Very few such figures have emerged from the financial crisis.
"If you don't have effective whistleblowers and you don't have effective regulators then you are absolutely out of luck," Mr. Black says.
The lack of prosecution of major figures in the wake of the financial crisis is a reflection of a growing intimacy between Washington and Wall Street, some say.
"That relationship has become so close that the regulators and the law enforcement agencies felt their job was not to enforce the laws but to protect the banks," says Lynn Turner, a former chief accountant at the U.S. Securities and Exchange Commission. "You're only a country of laws if they apply to everyone and clearly in this case they don't."
The former chief executive officer of Countrywide Financial Corp., Mr. Mozilo led the firm into the business of subprime loans and other exotic mortgage products. Nearing collapse, it was sold to Bank of America Corp. in 2008. Last year, he agreed to pay $67.5-million (U.S.) to settle fraud and insider-trading charges brought by the Securities and Exchange Commission. He has faced no criminal charges. Mr. Mozilo earned approximately $470-million between 2003 and 2008.
Mr. Cassano was the head of the unit at American International Group Inc. that made the fateful plunge into complex mortgage-backed derivatives. Such bets were enormously profitable but finally torpedoed the entire insurer, prompting a massive rescue by the government. Both the SEC and the Justice Department decided not to file charges against Mr. Cassano.
Richard Fuld Jr.
The legendary chief executive officer of Lehman Brothers Holdings Inc., Mr. Fuld failed to prevent the collapse of his firm in September, 2008, the single most destructive event of the financial crisis. A report by the court-appointed lawyer examining Lehman's bankruptcy suggested there were grounds to charge Mr. Fuld for painting a misleading picture of the firm's financial condition. No civil or criminal charges have been filed against Mr. Fuld.