Jesse Eisinger: Why only one banker went to prison

Talk was preview to his NYTimes piece/ May 1st 2014
Why Only One Top Banker Went to Jail for the Financial Crisis

April 27th 2014Jesse Eisinger, is a senior reporter at ProPublica, covering Wall Street and finance and writes a regular column for The New York Times’s Dealbook section.

ProPublica provides a platform for non-profit investigative journalism on any topic including national security and finance with a goal to generate news rather than responding to it. It’s 12 mil. operating budget is funded by foundations and individual donations

ProPublica promotes Investigative Journalism as something all journalists should be doing, holding those in power accountable, review abuses of power, measure impact and  seek justice.
It is non-partisan and will attack anyone who is in power.

Jesse worked previously at Conde Nast (where he predicted the fall of Bear Stearns and Lehman Bros)
Before that he was at the Wall Street Journal. His awards include the Pulitzer Prize for National Reporting for a series of stories on questionable Wall Street practices together with Jake Bernstein.

He appreciates not having to answer to answer to advertisers  but instead fill the shrinking area of investigative journalism, something the WSJ is turing away from along with the metropolitan dailies.

His next soon to be published NYT story is grappling with the question
‘Why did no one go to prison for financial crisis?’

One guy went to prison, Kareem Serageldin, ex-global head of Credit Suisse Group AG’s structured credit trading business, was sentenced to 2 1/2 years.

But there is indeed a ‘white color prosecution crisis’.

Doesn’t think geitner or anyone in treasury made a order to not let banks fail…in general regulators are looking to spare the organization.  Geitner was looking to preserve the financial system, it was subtle …it was maintaining power structure and all but not conspiracy per se.
the justice department was concerned about fragility of financial system hence they were hesitant to indite people. They confused saving the system with saving institutions.
Corporate America isn’t going to prison because of a conspiracy but in fact a result of recent history.

As a consequence of the (collapse of) Enron/ Arthur Andersen case in 2002 the Department of Justice took wrong lessons.
Even though a shift from focusing on individuals to focusing prosecutions on corporations made sense that rendered the DOJ helpless.

The prosecution of Enron’s auditor ArthurAnderson in the greatest accounting fraud of our times by prosecutor Chertoff was perceived as utter debacle and 10th of thousands of people were put out of work…the victims were the secretaries and the janitorial staff who didn’t find work unlike the accountants.

ArthurAnderson had already a series of fines to the tune of 7m USD, the biggest (!!!) fine given so far and had ordered general council to destroy documents.
The Bush administration was not interested in confronting corporate America and incompetent as well.
ArthurAnderson was ready to settle the Enron business when the jury found them guilty.
In 2005 supreme court threw out the inditement on technicality, faulty jury instruction, not a dispute of facts.
The Justice department consequently got very squid-dish to indite corporations following that.

They went from ArturAnderson …series of mistakes….to KPMG after that “we not consider you co-operative unless you stop paying attorney fees for executives”
Cut off resulting in revolt by white collar, as well as ACLU and Partic Leigh…so they roll back their powers, their way they prosecute…
spector and leigh working on a bill which department of justice sees as danger as well…
in the end they couldn’t stop paying legal fees…
and it was tricky…attorney/client privileges are important and so is representation…don’t want anyone’s human rights violated…
but corporations paying attorney fees could also be seen as a valuable perk….

Jesse believes the justice department should be prepared to indite corporations.
Didn’t help to shift focus to C suite either…which was getting more and more surrounded by lawyers and hence shielded…CEOs getting layers upon layers of executives.
Still, corporate america’s accounting got a lot cleaner in the last decade (with the exception of banking) that’s where he is defending Sarbanes-Oxley Act of 2002 as a success….
Though it became increasingly difficult to prove ‘knowledge of criminal activity’.

What should happen?:
‘Will-full blindness to wrong doing’ should be used more by prosecutors, who need to be provided with better rules.
This one gave prosecutors success against the mob by getting them on what their dependents did and  get people to flip.
You could translate that to corporations and organizational behavior.

Cultural change at the justice department …ie. need to stop recruiting from the elite who has gone to school with all the CEOs
Resource issue…most of the prosecutors were young and wanted to move up into securities unit and the out where they would make 10x what they made as a top prosecutor …next year you could make 1.5 m USD… they want win an insider trading trial to do that…
it’s legitimate prosecution, but not essential though to fix the culture of corruption.
career prosecutors or regulator at the SEC should be seen as a career and not a stepping stone and as society we need to figure out how regulators and prosecutors have a better stand

Further he said, with respect to magazine articles for the times…nobody ever told him not to say anything specific, neither in the column nor for the article…. “I am not an incredibly influential voice at the times…times is a big complicated place with a lot of conflicting voices.
I like to think I am not self-censoring and I am trying to keep myself intellectually honest.”

With respect to Occupy  he noted:
” You have been pretty successful…
Occupy the SEC – Volker rule was a signature accomplishment
it couldn’t be dismissed and it was very powerful because on their own turf speaking their language and matching sophistication.”