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It's no secret the government has trouble winning legal cases against big bankers. But a new study published Thursday shows just how hard.
In fact, during the past seven years, Uncle Sam has gone to court or a similar proceeding to contest a case against an employee at one of the 10 largest Wall Street banks just 11 times. It has managed to emerge victorious just five times.
Of course the findings, published Thursday by the Wall Street Journal, don't reflect the government's full effort to pursue financial wrong doing. The Journal found that as many as 47 bank employees were charged, and the majority of those either pleaded guilty or settled their cases. Nonetheless, the findings highlight how rare it is for the government to pursue cases against individual bankers and to prevail in court against actual people (as opposed to the companies they run or that employ them). Indeed, of the 156 cases brought by the Justice Dept., SEC or CTFC and examined by the Journal, the authorities ended up singling out individuals less than a fifth of the time.
The Justice Department, contacted by the Journal, argued that focusing on the 10 biggest bank didn't give a full picture of its efforts. The SEC said it prosecutes individuals when cases merit it. The CFTC declined The Journal's request for comment.
The newspaper's examination was published days after one initially successful civil case, against former Countrywide Financial executive Rebecca Mairone, was overturned by a federal appeals court. Mairone oversaw a division that rubber-stamped questionable mortgages and sold them to Fannie and Freddie as high quality -- not unlike the kind of business practices depicted in last year's award-winning The Big Short.
On Tuesday, the Journal's editorial page, which is distinct from its news operation, crowed about the appeals court ruling, arguing that the Countrywide result shows the government has been too heavy handed with banks. It's reasoning: While the Countrywide executive may have sold Fannie and Freddie loans that didn't meet the criteria they had asked for, there wasn't enough evidence she intended to defraud them to legally justify a penalty. "The judges added that the government 'did not prove—in fact, did not attempt to prove—that at the time the contracts were executed Countrywide never intended to perform its promise of investment quality,'" The Journal editors wrote, quoting the appeals court.
Maybe not. But, of course, the fact that most people at the center of the financial crisis have proved difficult to prosecute doesn't mean that no one was at fault. If you saw The Big Short, you probably remember few of the bad actors on the screen came out and directly admitted they knew what they were doing was wrong. Instead, they winked, they nodded, they offered smirking rationales. In court, that may be enough to keep you just on the right side of the law. But just.