Just who should we be blaming anyway?

WHY have so few gone to jail for the financial crisis? The boom and bust in S&L lending in the 1980s ended with nearly one thousand people sent to jail for financial fraud—and that experience was quite mild compared to the recent cycle. A few days ago, America’s public television channel ran a special documentary programme about this curious phenomenon called “The Untouchables.” (You can watch the whole thing here*) The government’s prosecutors argued that it is very difficult to prove fraudulent intent beyond a reasonable doubt. They said that it is more rewarding from the perspective of the public interest to reach negotiated settlements rather than go to trial and lose. After all, America’s Justice Department failed to convict two Bear Stearns hedge fund managers of lying to investors about their exposure to subprime losses, despite initial expectations that the case would be easy. The Securities and Exchange Commission, which had opened a civil lawsuit against the duo, decided to avoid a trial and settled with the accused on terms dismissed by the presiding judge as “chump change.” Most subsequent civil suits launched by the SEC have been targeted at firms rather than individuals, which means that shareholders were the ones who had to pay, rather than anyone who may have been directly responsible. This track record has led others, including several featured in the programme, to wonder whether prosecutors have been sufficiently vigorous and whether they have the right priorities.

Read more: http://www.economist.com/blogs/freeexchange/2013/01/prosecuting-financial-crisis