So much for Angelo Mozilo taking the fall for the financial crisis.
Angelo Mozilo, the former chief executive of Countrywide Financial. Prosecutors have found it tough to build cases against executives whose companies helped kindle the financial crisis.
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Late last week, word leaked out that Mr. Mozilo, who had co-founded Countrywide Financial in 1969 — and, for nearly 40 years, presided over its astonishing rise and its equally astonishing fall — would not be prosecuted by the Justice Department. Not for insider trading. Not for failing to disclose to investors his private worries about subprime loans. Not for helping to create a culture at Countrywide in which mortgage originators were rewarded for pushing fraudulent loans on borrowers.
In its article about the Justice Department’s decision, The Los Angeles Times said prosecutors had concluded that Mr. Mozilo’s actions “did not amount to criminal wrongdoing.”
Just months earlier, the Justice Department concluded that Joe Cassano shouldn’t take the fall for the financial crisis either. Mr. Cassano, you’ll recall, is the former head of the financial products unit of the American International Group, a man whose enthusiasm for credit-default swaps led, pretty directly, to the need for a huge government bailout of A.I.G. There was a time when it appeared that there was no way the government would let Mr. Cassano walk. But it did.
And then there’s Richard Fuld, the man who presided over Lehman Brothers’ demise. Though he was the subject of an investigation shortly after the Lehman bankruptcy, it appears that prosecutors are moving on.
Most of the other Wall Street bigwigs whose firms took unconscionable risks — risks that nearly brought the global financial system to its knees — aren’t even on Justice’s radar screen. Nor has there been a single indictment against any top executive at a subprime lender.
The only two people on Wall Street to have been prosecuted for their roles in the crisis are a pair of minor Bear Stearns executives, Ralph Cioffi and Matthew Tannin, whose internal hedge fund, stuffed with triple-A mortgage-backed paper, collapsed in the summer of 2007, an event that anticipated the crisis. A jury acquitted them.
Two and a half years after the world’s financial system nearly collapsed, you’re entitled to wonder whether any of the highly paid executives who helped kindle the disaster will ever see jail time — like Michael Milken in the 1980s, or Jeffrey Skilling after the Enron disaster. Increasingly, the answer appears to be no. The harder question, though, is whether anybody should.
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Aficionados of financial crises like to point to the savings-and-loan debacle of the 1980s as perhaps the high-water mark in prosecuting executives after a broad financial scandal. When the government loosened the rules for owning a thrift, the industry was taken over by aggressive entrepreneurs, far too many of whom made self-dealing loans using savings-and-loan deposits as their own personal piggy banks.
In time, nearly 1,000 savings and loans — a third of the industry — collapsed, costing the government billions. According to William K. Black, a former regulator who teaches law at the University of Missouri, Kansas City, “There were over 1,000 felony convictions in major cases” involving executives of the thrifts. Solomon L. Wisenberg, a lawyer who writes for a blog on white collar crime, said, “The prosecutions were hugely successful.”
That is partly because the federal government threw enormous resources at those investigations. There were a dozen or more Justice Department task forces. Over 1,000 F.B.I. agents were involved. The government attitude was that it would do whatever it took to bring crooked bank executives to justice.
The executives howled that they were being unfairly persecuted, but the cases against them were often rooted in a simple concept: theft. And as prosecutors racked up victories in court, they became confident in their trial approach, and didn’t back away from taking on even the most well-connected thrift executives, like Charles Keating, who owned Lincoln Savings — and who eventually went to prison.
Today, Mr. Black says, the government doesn’t have nearly as many resources to pursue such cases. With the F.B.I. understandably focused on terrorism, there isn’t a lot of manpower left to dig into potential crimes that may have taken place during the financial crisis. Fewer than 150 of the bureau’s agents are assigned to mortgage fraud, for instance. Several lawyers who represent white collar defendants told me that outside of New York, there aren’t nearly enough prosecutors who understand the intricacies of financial crime and know how to prosecute it. It is a lot easier to prosecute people for old-fashioned crimes — robbery, assault, murder — than for financial crimes.
Which leads to another point: as Sheldon T. Zenner, a white collar criminal lawyer in Chicago, puts it, “These kinds of cases are extraordinarily difficult to make. They require lots of time and resources. You have some of the best, highest-paid and most sophisticated lawyers on the other side fighting you at every turn. You are climbing a really high mountain when you try to do one of these cases.”
Take, again, the one big case that prosecutors have brought, against Mr. Cioffi and Mr. Tannin. The Bear Stearns executives had written numerous e-mails expressing their fears and anxieties as the fund began to sink. Prosecutors viewed those e-mails as smoking guns, proof that the men had withheld important information from their investors. Thanks largely to those e-mails, prosecutors saw the case as a slam dunk.
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