Jesse Eisinger

For One Whistle-Blower, No Good Deed Goes Unpunished

It has been noted repeatedly that almost no top bankers have faced serious consequences for their actions in the financial crisis. But there is a Wall Street corollary that might be even more pernicious: good guys are punished.

Whistle-blowers, truth-tellers and fraud-spotters pay a miserable price on Wall Street. They are vilified. They are fired. Sometimes they are even sued. Instead of being sought after, they become persona non grata.

Recently, I caught up with David Maris, a one-time star pharmaceutical analyst for Bank of America who became embroiled in one of the most notorious bull/bear battles of the last decade. His story encapsulates just how broken Wall Street culture is.

In 2003, Mr. Maris put out a sell report on Biovail, a Canadian drug company. He fixed on the company’s bizarre explanation of why it had missed its earnings estimates: a truck carrying a supposedly huge amount of medicine crashed at the very end of the quarter. Mr. Maris detailed why this was wildly implausible.

Desperate to deflect the attention, Biovail took the offensive. It sued Mr. Maris and Bank of America in early 2006. It also sued SAC Capital Advisors, the hedge fund, and Gradient Analytics, an independent research firm, claiming a giant conspiracy to drive down its stock price with false reports.

For a time, Bank of America stood by Mr. Maris. But it eventually caved and fired him — two weeks before the end of 2006, enabling it to not pay his bonus. Mr. Maris is now in arbitration, seeking $21 million in back pay.

“For the first few days, there were high-fives and a lot of media attention,” Mr. Maris said. “People said this is what research should be. But then reality strikes the bank.” Lawsuits and media coverage are unpleasant and unwanted.

Bank of America said: “Mr. Maris’s departure was not connected to Biovail issues or to his research regarding that company. Bank of America values the independence of its research and has a longstanding practice of protecting that independence.”

It turns out there was a fraud and a stock-manipulation scheme all along. But regulators said that it had been perpetrated by Biovail, not the analysts and hedge funds.

In March, Biovail settled with the Securities and Exchange Commission, which had accused the company and four current and former officers, including its former chief executive, Eugene Melnyk, of accounting fraud. Mr. Melnyk, who at one time was reported to be a billionaire, left in 2007.

Only this year, he settled with the S.E.C. and the Canadian securities regulators, paying paltry fines. Biovail didn’t admit or deny wrongdoing. (Biovail settled with the regulators over other, unrelated charges in 2008. The company merged last year with Valeant Pharmaceuticals International, losing the Biovail name.)

In recent years, Biovail retreated from virtually every allegation it made in its lawsuit. It dropped its claims against Mr. Maris and Bank of America in 2007. As part of a settlement, Mr. Maris agreed not to countersue.

The company also paid $10 million to SAC and forked over $138 million to settle a shareholder lawsuit.

So here’s the final Biovail vs. Maris scorecard: Mr. Maris was right on the facts. He was right on the stock. He was right with the law.

For his success, he was sued, fired and stripped of compensation. He also lost access to the world of bulge-bracket Wall Street, was shunned by some institutional investors, and because of the settlement for which he said he felt he had no choice than to enter, he couldn’t sue Biovail to seek vindication.

It’s well known that analysts rarely put sell ratings on the stocks they cover. Typically, the explanation for this is that banks don’t want to jeopardize their investment banking business.

The reality is much more complicated. Skeptics and whistle-blowers risk huge career costs that go beyond conflicts of interest. Investors think they want unvarnished advice, but many don’t truly appreciate it. Most banks don’t want employees to play detective. Regulators abandon whistle-blowers, acting tardily and ineffectually.

After he was fired, Mr. Maris found that other big banks didn’t want to hire him for research jobs. Even some institutional investors and hedge funds, which one might imagine would appreciate a skeptical voice, wanted no part of him. Many investors think an analyst who is picking fights with companies is a glory hound, and the last thing they want is publicity. No matter how frivolous, a lawsuit tars both sides. This is the “Tonya and Nancy” problem, after Tonya Harding and Nancy Kerrigan. One was linked to the perpetrators and one was the victim. But now they are forever linked, and the difference between the two almost becomes blurred.

I don’t want to create the impression that Mr. Maris is suffering. He isn’t. He works at CLSA, a relatively unknown but important research shop, owned by a French bank that encourages its analysts to pursue independent lines of inquiry. Another analyst who has long been a truth-teller on banks, Mike Mayo, has also landed there.

But because Mr. Maris is willing to be publicly negative on stocks, he continues to face obstacles. He is prevented from asking questions on conference calls. Companies don’t allow him to bring clients on visits. Some clients seem concerned about the lawsuits in his past.

“If you asked me what’s my advice for a young analyst who wants to be in business for a long time, I wouldn’t tell them to follow the path I went,” he says. On Wall Street, “everyone knows you play ball or live with the consequences.”

In HBO’s ‘Too Big to Fail,’ the Heroes Are Really Zeroes

HBO’s “Too Big To Fail”—I just caught up with it; thank you, HBO On Demand—is extraordinarily revealing about the financial crisis. Only its revelations are almost entirely inadvertent.

The movie is set up in the Hollywood conventional way: A gang of misfits, each with a special expertise, is brought together for an impossible mission. There’s Treasury Secretary Henry Paulson, steely eyed at the moment of truth. There’s New York Federal Reserve head Timothy Geithner, the athlete (he doesn’t just jog, but also plays what appears to be squash). And then there’s Federal Reserve chairman Ben Bernanke, the professor with a heart of gold and secret knowledge of the Great Depression.

Ostensibly it’s a story of their success against all odds. Michael Kinsley, reviewing the movie in the New York Times, labeled Hank Paulson [1] the “hero” of the account.

Except that the movie actually depicts something entirely different: failure upon failure. “Too Big To Fail” The Movie isn’t the story of how the Three Musketeers saved the global economy. It’s a story of how the three didn’t see the financial crisis coming; hadn’t prepared for it; made mistake after mistake as it was cresting; and then, in their moment of triumph, made their most colossal blunder of all.

That, it turns out (whether or not “Too Big To Fail” knows it), is the true story of the financial crisis.

How much did Curtis Hanson and the writers mean for that to be the story? Throughout, the characters drop hints about their missteps, but the plot unfolds like a financial “Die Hard,” with our intrepid heroes battling fiendishly powerful forces toward a happy ending. (Full disclosure in this era of transparency: I write a regular column [2] for DealBook, the New York Times section edited by Andrew Ross Sorkin, the reporter upon whose book [3] the movie was based.)

Early on, Paulson complains to his staff that they have been behind on everything as the crisis began to emerge. And that’s true! The crisis actually started in the late summer of 2007 [4]. Paulson’s first effort, late that year, was to get a bunch of banks to assemble a giant off-balance-sheet concoction [5] that would save each individual bank’s off-balance-sheet monstrosity. It was a complete flop.

In the movie, as bankers and government officials frantically try to save Lehman, Chris Flowers, the private equity investor and banking impresario, is depicted as informing Paulson and Geithner that AIG is teetering on the edge. In their fumbled response, he immediately grasps the truth. “They’re not on top of it,” he tells a confederate.

And they weren’t. In real life, AIG had been struggling since the middle of 2007. Paulson and Geithner [6] of course had some inkling of the problems [7] at the world’s largest insurer. But they didn’t prepare for it.

In the movie, the chief executive of General Electric, Jeff Immelt, places a terrified call to Paulson [8] saying that GE can’t borrow. GE is standing in for every Real American manufacturing company. We are reminded it makes light bulbs and washing machines. Paulson is shocked that such a stalwart could be having trouble borrowing.

The reality, of course, is that GE was more a finance company than a manufacturer and was teetering because it financed those operations with billions of short-term borrowing. It is also true that Paulson, Bernanke and Geithner had no inkling of GE’s troubles until the very last moment and therefore had no plan to deal with it.

Plans are, in the movie, almost nonexistent. The team of heroes races from crisis to crisis, as Bond goes from chase scene to babe, eventually stumbling on the evil SPECTRE [9] plot to take over the world. Intentionally or not, the movie is echoing real life.

Despite warning signs [10], Paulson, Geithner and Bernanke had no evident plans throughout the last half of 2007 and the first eight months of 2008. Not for how to resolve Lehman after Bear Stearns’ collapse, not for AIG, not for recapitalizing the banking system.

Indeed, they asked Congress for $700 billion to implement the Troubled Asset Relief Plan [11] to buy toxic assets from the banks, and then, without any further discussion, abandoned that idea and injected capital into the banks. Many economists [12] and financial experts had been urging them to do just that, but when they finally hit on that as a solution, it was so poorly thought out that they gave the money to the banks on overly generous terms.

This moment is depicted at the end of the movie, and because it is both a triumph in the conventional narrative sense, but also a major mistake by our heroes, it is the  point at which the movie is most cognitively dissonant. Paulson, Bernanke and Geithner have finally come to their solution: Put capital in the banks. They gather outside the boardroom where they are going to confront the CEOs.

For purposes of dramatic tension, we have to see their nervousness that the deal won’t go through. The Treasury secretary and the two most powerful central bankers in the country are about rescue these CEOs and their institutions from their own recklessness, yet they cower in fear of rejection.

Of course, this rings true because the government drove awful bargains. In the aftermath of the greatest credit bubble in history, it protected creditors at almost every turn. The government gave the banks money but didn’t get voting rights and didn’t prevent the banks from using the money to pay dividends or bonuses. They wrote what was essentially a blank check. In real life, Warren Buffett got much better terms [13] when he invested in Goldman Sachs.

What is the audience to make of these scenes? Paulson, our supposed hero, insists that if the government puts any restrictions on the money, “They won’t take it!”

It’s left to the hapless PR woman, played by Cynthia Nixon (who has, moments earlier, had the crisis explained to her in words of one syllable for the sake of her, and the audience’s, simple minds), to wonder why, if the government is saving these institutions, it couldn’t impose any limits on how the money be used.

The banks do take the money, of course. They have no choice by the conventions of Hollywood. Nor did they in real life, something that the Three Musketeers never fully appreciated.

After the scene, the Big Three gather in a room, relieved, and Bernanke asks, “They will lend the money out, won’t they?” The director, Curtis Hanson, focuses in on Paulson, who gazes out the window, as if contemplating the question for the first time. He insists they will. But an unmistakable moment of doubt passes across his face.

Fade to the postscript. There we learn that, whoops, the banks didn’t lend it out after all. Instead, they got bigger, banker bonuses recovered, and Wall Street is getting bottle service at velvet-roped clubs all over again. The world was saved from ruin, but the banks quickly went back to business as usual and even felt self-righteous about it.

At a Time of Needed Financial Overhaul, a Leadership Vacuum

After the worst crisis since the Great Depression, President Obama has unleashed an unusual force to regulate the financial system: a bunch of empty seats.

With Sheila C. Bair soon to leave her post at the Federal Deposit Insurance Corporation, the Obama administration will have five major bank regulatory positions either unfilled or staffed with acting directors.

The administration has inexplicably left open the vice chairman for banking supervision, a new position at the Federal Reserve created by the Dodd-Frank Act, despite having a candidate thatmany people think is an obvious choice: Daniel K. Tarullo. The new Consumer Financial Products Board chairman is unnamed. There are some lower-level positions that don’t have candidates, including the head of the Treasury’s Office of Financial Research and the Financial Stability Oversight Council insurance post.

Perhaps most important, the Office of the Comptroller of the Currency, is being headed by an acting comptroller, John Walsh, who took over the agency last August. Nine months have passed without a leader who might better reflect the Obama administration’s views on banking regulation, a time lag made worse by the office’s coddling of the banks even as they have acknowledged rampant abuse and negligence in the foreclosure process.

The vacancies come at a time that calls for stiffer regulatory examination. The financial regulatory system was remade under Dodd-Frank and requires strong leaders to put the changes into effect. Though the acting heads insist they feel empowered to make serious decisions, they have roughly the same authority as substitute high school teachers.

Supposedly, the Obama administration is getting close to naming people to head the comptroller’s office and the F.D.I.C. But we’ve been hearing that for a while. In April, Barbara A. Rehm of American Banker wrote that the administration was working on a big package of nominations to send to the Hill all at once. A month later, we’re still twiddling our thumbs in anticipation.

So what’s going on?

In a vacuum of leadership, conspiracy theories arise. One is that Treasury Secretary Timothy F. Geithner is making a power grab and doesn’t mind that these roles aren’t filled. The idea is that he is asserting his influence over the Dodd-Frank rule-making process. A former adviser to Mr. Geithner dismissed that notion as ridiculous, and that’s persuasive to me. It seems too Machiavellian by half.

If it’s not Mr. Geithner, then who or what is responsible for the vacancies? Not surprisingly, people close to the administration blame Republicans. The nomination process has become hopelessly broken in Washington. Even low-level appointments are now deeply partisan affairs, the playthings of score-settling senators with memories like elephants and the social responsibility of hyenas (which probably insults hyenas).

The Obama administration put up Peter A. Diamond for a position on the Federal Reserve board. Winning a little something called the Nobel Prize hasn’t helped him with confirmation, however. Sen. Richard Shelby, the powerful Alabama Republican and ranking member of the banking committee, is standing in his way. The senator alsoquashed the nomination of Joseph A. Smith Jr. to head the Federal Housing Finance Agency.

But much of the blame for this situation lies with the Obama administration. It’s almost as if the president and his staff have thrown up their hands. The administration has had trouble finding good candidates who are willing to go through the vetting process and has shied away from fights. It also hasn’t seeded the ground or supported the nominations it has made, people complain.

A Democratic Senate staff member confided worry to me about the fate of Mark Wetjen, whom the administration nominated last week as a candidate for a seat on the Commodity Futures Trading Commission. “They didn’t shop it and they didn’t get buy-in,” the staff member said. “The administration doesn’t seem to be putting any sort of effort into it.”

Making these appointments will help answer a question: Where does Mr. Obama stand on financial regulation?

With the Geithner appointment, the president chose early on the path of continuity over muscular regulation. Immediately, the Treasury secretary became the personification of every Obama financial policy. Mr. Geithner remains the most politically costly appointment Mr. Obama has made, saddling him with all the Bush presidency’s financial crisis decisions. After all, Mr. Geithner, as head of the Federal Reserve Bank of New York, was intimately involved in the emergency actions of September 2008. Republicans made great hay tying Democrats to the Wall Street bailouts in the 2010 midterm elections. Now, of course, Republicans are leading Democrats in Wall Street campaign donations.

With these positions unfilled, Mr. Obama is losing out on a political opportunity to draw a line between himself and his opposition.

But it’s more important than that. Allowing these vacancies to linger drains leadership from the financial overhaul at the exact moment when it is needed most.

What do 50 Cent, Carmen Electra & Shaquille O’Neal have in common? Touting penny stocks

Over the weekend, the popular rapper 50 Cent urged his 3.8 million Twitter followers to buy [1] the stock of a microscopic company in Florida. The penny stock jumped 290 percent on Monday. The rapper, who owns 7.5 million shares and warrants for 22.5 million more in the company, had a paper profit that was briefly worth almost $5.2 million on paper.

The company, H&H Imports, sounds like it might be related to the famed maker of New York bagels. No such luck. H&H is a Clearwater, Fla., company that distributes headphones favored by Curtis Jackson, the real name of rapper 50 Cent. It’s the parent company of TV Goods Inc., which markets its products through infomercials and the QVC channel, has virtually no revenue ($293,000 in its most recent quarter), and loses money.

“HNHI is the stock symbol for TVG there launching 15 different products. they are no joke get in now,” went one promotional tweet [2] from the rapper.

As the Twitter hype (Twype?) wore off, the stock fell from 39 cents to 30 cents a share on Tuesday and a further 4 cents Wednesday morning, meaning 50 Cent gave back just over 290 million cents ($2.9 million dollars). The company has a miniscule market capitalization of $63 million. It traded for 10 cents last week.

Strip away the involvement of a celebrity and the use of social networking and this story bears some resemblance to one of the oldest stock market games around: The pump and dump.

In their classical form, such schemes work this way: Insiders talk up the attributes of a worthless stock (the pump) and then sell when its price jumps (the dump). So far, 50 Cent appears to have avoided violating laws against this sort of behavior because he has not sold H&H stock.

A spokesman for the rapper pointed out that the 7.5 million shares are restricted — meaning they can’t be sold until certain conditions are met. The warrants allow him to buy up to 22.5 million shares, which gives 50 Cent a powerful incentive to talk up the stock. They can only be profitable if the price of H&H rises above certain thresholds. He paid $750,000 for the shares and warrants.

“This kind of stuff has given the SEC headaches for a long time,” says Rick Sauer, a former Securities and Exchange Commission attorney who wrote a book about fighting stock fraud at the agency called “Selling America Short.” “It’s probably OK unless he knew the stock was bad and touted it anyway, which is hard to prove.”

An amateur boxer and drug dealer who turned to music after a stint in prison, 50 Cent’s most famous record is entitled “Get Rich or Die Tryin’.” He is known for his muscular physique and for surviving an attack in which he was shot nine times at close range.

But 50 Cent apparently has little taste for a fight with securities regulators.

Several hours after his first tweet about H&H, 50 Cent tweeted some suspiciously sober cautionary notes [3]. I’m taking a wild guess that they were suggested, though not copy-edited, by a worried lawyer. And the initial promotional tweets were wiped from Twitter, though they live on forever on the web.

Celebrities, often off the B and C lists, seem particularly attracted to penny stock promotions. Or, perhaps more accurately, they are particularly susceptible to offers to shill for stock promoters.

Carmen Electra, the Playboy model turned actress, has made a habit of pitching [4] bulletin board stocks. A few months ago, the SEC sued the guy who played the blond partner of Erik Estrada [5] in the 1970s cop-show ChiPs, charging him with securities fraud. Even Shaquille O’Neal [6], the NBA star with a massive Twitter following, has promoted a microcap stock that he owned, which subsequently plummeted.

And yes, it’s amazing that the penny stock market, a Petri dish of fraud, exists at all. It’s caveat emptor all the way.

But is what 50 Cent did really that different from what happens all day long on CNBC when professional money managers take to the airwaves to praise the stocks of companies they already own?

Back in the days of the Internet bubble, the SEC charged a 15-year-old kid, Jonathan Lebed, with engaging in a serial pump-and-dump operation, which netted him hundreds of thousands of dollars.

Michael Lewis, in a famous piece in the New York Times Magazine, argued at the time [7] that there was little distinction between Lebed and the Merrill Lynches of the world. Indeed, a few years later, then-New York Attorney General Eliot Spitzer wrung a $1.4 billion global settlement out of Wall Street for promoting stocks that they privately didn’t believe in.

The blurry line between “respectable” money manager and celebrity shill was blurred last Friday, when 50 Cent himself appeared [8] on CNBC. Dutifully, the CNBC host asked 50 Cent for an investment idea. The hip-hop star replied that he was putting his money into Gunnar Optiks, a company that makes glasses that protect eyes from the strain of looking at computer monitors.

Thankfully, Gunnar isn’t publicly traded.

This story appeared originally at ProPublica

 

Standard & Poor’s Triple A ratings collapse again. The question is why?

Two weeks ago, Standard & Poor’s put out a press release: The credit rating agency warned it was poised to downgrade [1] almost 1,200 complex mortgage securities.

So what? Isn’t that dog-bites-man at this point?

Well, two-thirds of these mortgage bonds were rated only last year, long after the financial crisis. And S&P was supposed to have taken the distress of the housing crash and credit crisis into account when it assessed them. But in December, the ratings agency admitted that it had made methodological mistakes, including not understanding who would get interest payments when.

As everyone knows by now, the credit ratings agencies played an enormous role in creating the conditions that led to the financial crisis. Their willingness to slap Triple A ratings on all manner of Wall Street- engineered mortgage rot was enormously lucrative for the raters but a disaster for the global economy.

Unfortunately, as the episode in December shows, the credit ratings agencies are still struggling [2] to get it right. These likely downgrades arose in a small corner of the market called “re-remics.” What you need to know about them is that they were do-overs. Wall Street took bonds that had collapsed (and which the agencies had mis-rated the first time) and re-bundled them again. Generally, the top half was rated Triple A, supposedly exceedingly safe.

The agencies rated billions of dollars worth of these bonds, mostly just in the last two years. With shocking rapidity, even some of those Triple As have defaulted.

The lesson is that the agencies are still susceptible to problems that plagued them before the crisis. “What we’ve seen in re-remics truly does encapsulate everything that was wrong not just with ratings agencies, but with banking system as a whole prior to the boom,” says Eric Kolchinsky, a former Moody’s executive who tried to blow the whistle [3] on ratings problems at the firm.

During the mortgage securities boom, bankers knew more about their bonds than the ratings agencies and took advantage. A similar problem occurred here. “Chances are that if a bond is getting re-remicked, it’s a bad bond and the holder wants to forestall the inevitable reckoning,” says Kolchinsky. The ratings agencies somehow missed that.

There also looks to have been “ratings shopping,” [4] in which issuers seek out the most lenient firms, rather than the best. S&P, according to Kolchinsky, was slower to downgrade residential mortgages than Moody’s. Lo and behold, it nabbed the bigger market share in new offerings of residential securities. And then it had the big debacle.

An S&P spokesman didn’t respond to a question about the ratings shopping issue. In an email, he said: “A great deal has changed at S&P over the course of the past three years. We have significantly strengthened the ratings process.” One new aspect, he pointed out, is that the firm now has a policy to correct errors publicly.

The state of the ratings agencies might be less worrisome if effective regulatory oversight were coming. Unfortunately, the Dodd-Frank reforms of credit ratings are in limbo.

Here’s the problem: Credit rating companies have long contended that their conclusions are protected by the First Amendment, much as if their ratings were as irrelevant to the markets as, say, your average financial column. Dodd-Frank tried to change that, designating the agencies “experts,” just like lawyers or accountants, when their ratings were included in S.E.C. documents for certain kinds of offerings. That would make them liable for material errors and omissions in their ratings.

But the agencies revolted. They refused to allow their ratings to be used in offering circulars, freezing up the markets. Panicked, the S.E.C. immediately suspended the rule for six months, pending more study. Then in late November, the SEC extended the delay indefinitely [5].

“For ratings reform to be successful it needs to provide incentives for rating agencies to be objective. The Dodd-Frank Act achieves some of that, but absent the legal liability, or accountability, it’s much weaker,” says Gene Phillips, a former Moody’s analyst who runs a ratings consulting firm.

So much for that. And the news gets worse. In early December, the SEC issued an obscure notice [6] that it doesn’t have the money to implement big parts of the Dodd-Frank reforms. And now that Republicans have taken over the House, the SEC’s budget for fiscal 2011 (which started back in October) is an even greater question mark.

One thing on hold [7]: Creating the “Office of Credit Ratings” to oversee the powerful firms.

This office could wield enormous influence. You see, Dodd-Frank tabled many of the most important ratings agencies controversies, pending studies [8] of the issues. If the S.E.C actually produces the zillions of reports it’s supposed to over the next several years, every employee should be awarded an honorary Ph. D.

But since the S.E.C. can’t afford to create the office in the first place, we’ll probably still be waiting by the time the next crisis hits. Meanwhile, the agencies’ rubber stamp factories are humming, much to the delight of those on Wall Street with very short memories or very deep pockets.

You can contact Jesse Eisinger at jesse@propublica.org.

 

This article appeared originally at ProPublica


Where are the financial crisis prosecutions?

You may have noticed that prosecutors in this country are in something of a white-collar slump lately.

The stock options backdating prosecutions have largely been a bust [1], not because it wasn’t a true scandal. The Securities and Exchange Commission and the Justice Department investigated more than 100 companies. Over a hundred took accounting restatements. Yet only a handful of executives went to prison, with some high-profile cases fizzling out.

Prosecutors also stumbled in other high priority corporate fraud prosecutions, like the KPMG [2] tax shelter and the stock-exchange specialists [3] cases.

The most spectacular prosecutorial flameout [4] was the case against the Bear Stearns hedge fund managers. The consequences of that disaster are still reverberating. The United States attorney’s office in Brooklyn rushed to haul low-level executives in front of a jury based on a few seemingly incriminating emails. The defense was easily able to convince jurors that these represented only out-of-context glimpses of fear as markets swooned, not a conspiracy to mislead.

Now we have a supposedly new push: the insider trading scandal.

The United States attorney in Manhattan, Preet Bharara, and the United States Attorney, General Eric H. Holder Jr., are hyping their efforts. “Illegal insider trading is rampant and may even be on the rise,” Mr. Bharara dubiously pronounced in a speech [5] in October. The Feds are raiding [6] hedge funds and publicly celebrating their criminal investigations related to insider trading.

The storyline is that Wall Street now lives in fear. Hedge fund managers’ phones might be tapped, any stray remark is suspect, and old trades are being exhumed so that the entrails can be examined.

In fact, plenty of folks on Wall Street are happy about the investigation. A scant few — the ones with clean consciences — like the idea that the world of special access to favorable tips is being cleaned up.

But others are pleased for a different reason: They realize the investigation is a sideshow.

All the hype carries an air of defensiveness. Everyone is wondering: Where are the investigations related to the financial crisis?

John Hueston, a former lead Enron prosecutor, wonders: “Have they committed the resources in the right place? Do these scandals warrant apparent national priority status?”

Nobody from Lehman, Merrill Lynch or Citigroup has been charged criminally with anything. No top executives at Bear Stearns have been indicted. All former American International Group executives are running free. No big mortgage company executive has had to face the law.

How about someone other than the Fabulous Fab [7] at Goldman Sachs? How could the Securities and Exchange Commission merely settle with Countrywide’s Angelo Mozilo [8] — and for a fraction of what he made as C.E.O.?

The world was almost brought low by the American banking system and we are supposed to think that no one did anything wrong?

The most common explanation from lawyers for this bizarre state of affairs is that it’s hard work. It’s complicated to make criminal cases in corporate fraud. Getting a case that shows the wrong-doer acted with intent — and proving it to a jury — is difficult.

But, of course, Enron was complicated too, and prosecutors got the big boys. Ken Lay was found guilty (he died before he served his time). Jeff Skilling is in prison now, though the end result was bittersweet for prosecutors when much of his conviction was overturned by the Supreme Court. WorldCom’s Bernie Ebbers and Tyco’s Dennis Kozlowski are wearing stripes.

Sure, it takes time to investigate complicated cases. Many people think that the S.E.C,., at the least, will bring some charges against top executives at Lehman Brothers. The huge, ground-breaking special examiner’s report [9] on Lehman Brothers laid bare problems with Lehman’s accounting. But that report came out back in March — on a bank that blew up more than two years ago. That seems awfully slow.

The most popular reason offered for the dearth of financial crisis prosecutions is the 100-year flood excuse: The banking system was hit by a systemic and unforeseeable disaster, which means that, as unpleasant as it may be to laymen, it’s unlikely that anyone committed any crimes.

Or, barring that wildly implausible explanation (since, indeed, many people saw the crash coming and warned about it), the argument is that acting stupidly and recklessly is no crime.

As I ride the subway every morning, I often fantasize about criminalizing stupidity and fecklessness. But alas, it’s not to be.

Nevertheless, it’s hardly reassuring that bankers, out of necessity, have universally adopted the dumb-rather-than-venal justification. That doesn’t mean, however, that the rest of us need to buy it. It’s shocking how pervasive and triumphant this narrative of the financial crisis has been.

Just as it’s clear that not all bankers were guilty of crimes in the lead-up to the crisis, it strains credulity to contend no one was. Corporate crime is usually the act of desperate people who have initially made relatively innocent mistakes and then seek to cover them up. Some banks went down innocently. Surely some housed bad actors who broke laws.

As a society, we have the bankers we deserve. Sadly, it’s looking like we have the regulators and prosecutors we deserve, too.

This article appeared originally at ProPublica. You can contact Jesse Eisinger at jesse@propublica.org.