Law little threat to rogues of finance


“Justice? You get justice in the next world, in this world you have the law.”

That opening line of one of my favorite novels, William Gaddis’ 1994 legal satire “A Frolic of His Own,” comes back to me every time I hear someone call for packing the rich malefactors behind the great financial meltdown of 2008 off to jail.

Having watched 40% of our 401(k)s go up in smoke and jobs vanish by the millions, it’s natural to want to see the guilty subjected to divine justice. There’s no dearth of suspects.


There are heads of banks and mortgage companies who invested their capital and made loans without the most cursory due diligence -- Angelo Mozilo of Countrywide Financial and Charles Prince of Citigroup come to mind. Richard Fuld and James Cayne, the bosses of Lehman Bros. and Bear Stearns, who presided over the extinction of their fine old firms. Maurice R. “Hank” Greenberg of AIG, whom I saw last year on CNBC saying that a government bailout of that irresponsible company ($150 billion at last count) was in the “national interest.”

These execs collected otherworldly salaries and bonuses for years on the grounds that their institutions could scarcely survive a week absent their wisdom and judgment. We know better now, but they haven’t given the money back.

Is America’s legal system up to the task of delivering the justice they deserve? Experience suggests we’re bound to be disappointed. “Before you can punish anybody, you have to determine if there’s a crime, and I’m not sure much of this activity is criminal,” Clifford Hyatt, a former SEC enforcement lawyer now at Pillsbury Winthrop Shaw Pittman in Los Angeles, told me.

As Gaddis understood, the law (in this world) is preoccupied with discrete misdeeds more than with elemental depravity. Kenneth Lay perpetrated the Enron scheme, but he was indicted for such mundane felonies as lying to employees about the firm’s health. Criminal cases involving what’s often excused as bad “business judgment” are notoriously difficult and complex, and who wants to see a guilty CEO skate on a technicality?

Let’s not forget that much of what passes for justice in the public arena is theater. No one appreciates a good perp walk more than I do (except maybe Nancy Grace). Yet the first frisson of excitement never produces lasting nourishment.

No. 1 on the perp walk hit parade of 1987, for instance, was the arrest of three Wall Street traders allegedly involved in the big insider trading scandal of the moment. As news cameras rolled, one was led tearfully from his trading floor and handcuffed by agents of Rudolph Giuliani, then the federal prosecutor in Manhattan.

The charges against all three were dropped four months later. Who was the net beneficiary of this stunt? Only Giuliani, who gained a political platform that enabled him to infest our national politics for the next 20 years.

And what about those who don’t lie or commit outright fraud, but set the stage for disaster? Consider former SEC Chairman Arthur Levitt, who lately has been swanking around lecturing congressmen and the media about the need for rigorous regulation.

Levitt deserves credit for his activism at the SEC on behalf of shareholders. But he led a regulatory hit squad in 1998 that killed an effort to reel in credit default swaps and other derivatives. These fancy unregulated instruments helped bring the international financial system to its knees 10 years later. By the way, Levitt was SEC chief from 1993 to 2001, when Bernard Madoff’s alleged fraud was almost certainly already in full cry, and his agency never laid a finger on the man.

How should we punish him for his dereliction of duty? Indict? Stop giving him airtime? Bill him for his SEC salary?

It’s hard to find a provision of the penal law that would cover Levitt, former Federal Reserve Chairman Alan Greenspan or former Treasury secretaries Lawrence Summers and Robert Rubin, each of whom played an important role in cooking up the financial meringue that has cost America, and the world, so much. Rubin resigned Friday as an executive of Citigroup, but Summers has been nominated as head of the National Economic Council in the Obama White House.

They all portray the meltdown as something they couldn’t have foreseen. “I’m astounded that no one has said, ‘I’m sorry,’ ” said Tamar Frankel, a law professor at Boston University who writes extensively on business morality. She says expressions of shame, guilt and empathy with the victims would go far to restore public confidence in the markets.

But Depression history does give us a template for a public shaming: the so-called Pecora hearings into the 1929 stock market crash. (They were named after the Senate Banking Committee’s indefatigable chief counsel, Ferdinand Pecora.)

Pecora had no patience for bankers and financiers such as J.P. Morgan, who swore they’d had only the public’s interest at heart when they inflated the stock market bubble. He laid out for the world how America’s financial institutions, which had stood for “safety, strength, prudence, and high-mindedness” and were supposedly led by men “possessing almost mythical business genius and foresight” had relied instead on “legal technicians and the complaisance of governmental authorities” to cheat the average investor and foment the Great Crash. (The quotations are from his impassioned 1939 book, “Wall Street Under Oath.”)

Pecora’s chief target was Charles E. Mitchell, chairman of the National City Bank -- precursor of Citigroup, one of the least prudent banks in the current mess. Mitchell was never criminally indicted for his role in the crash, but Pecora made sure his reputation for probity was exposed as a complete sham. National City fired him shortly after the hearings.

An inquisition such as Pecora’s is the minimum we should have, short of indictment and trial.

It will be said that many big financial perps are getting their comeuppance today via the destruction of their personal fortunes, as though being pared back to a seven-digit net from nine digits is tougher on them than three to five in San Quentin would be to a kid from the projects.

Does anyone buy that? The notion brings to mind a quote from Willa Cather’s 1922 novel “One of Ours”: “Even the wicked get worse than they deserve,” she wrote. But Cather lived in more indulgent times.


Michael Hiltzik’s column runs every Monday and Thursday. You can reach him at, and read his archived columns at