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Bankers, Retribution, Justice and Jails

I am loathe to think that one solution to the problem of the credibility of bankers and the banking system is prison. Yes, I know Bernie Madoff is in prison and there are a few more Ponzi schemers who will join him there. But these are not the financiers who destroyed the American financial system basically on a lark, using their skills of ingenuity and deception without considering either the moral or legal constraints on their behavior.

A headline in Friday's Financial Times shouts out at me: "More prison sentences may renew financial credibility." And a sub-head: "There are precious few financiers behind bars." You know I don't much like the FT on foreign policy matters, and on Israel it borders on—no, it crosses the lines of—the anti-semitic. But it is quite reliable on financial matters. Moreover, it is Gillian Tell, a very sound observer of banks and bankers, who has put forward the idea.


She begins with a very provocative question: "How many financiers do you think ended up in jail after America's Savings and Loan scandals?" And here's her dazzling answer.  "...[B]etween 1990 and 1995 no fewer than 1,852 S&L officials were prosecuted and 1,072 placed behind bars. Another 2,558 were also jailed, often for offenses which were S&L-linked too."  She goes on to point out what should be obvious to all. That the current crisis vastly eclipses the S&L debacle in wealth destruction ... and in raw social and economic destruction too.

Ms. Tett informs us that at least 25 companies are under investigation by federal investigators. There is a trial about to commence against Moody's and Standard and Poor's, firms that rated public companies and debt instruments basically by auctioning off their services. What they did to actually rate their clients was clearly false and, maybe, deliberately so. They are now seeking refuge from prosecution by taking the First Amendment defense. Perhaps the A.C.L.U. will take up the cudgels for them.

Here's Tett's conclusion. "If there is no retribution against financiers, it will be difficult to force a real change in behavior."