Are We Going to Let the Biggest Financial Fraudsters Keep Their Money and Avoid Jail Time?
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What are the prospects for these three vital changes occurring in 2011? They are poor. There is no evidence that any of the three changes is in process. The new House committee chairs have championed even weaker regulation and have not championed the prosecution of Wall Street elites.
The media, however, has begun to pick up our warnings about the failure of the criminal justice response to the epidemic of fraud. Prominent economists, particularly Joseph Stiglitz and Alan Greenspan, have joined Akerlof, Romer, Galbraith,Wray, and Prasch in emphasizing the key role that elite fraud played in driving this crisis. Even Andrew Ross Sorkin, generally seen as an apologist for the Street’s elites, has decried the lack of prosecutions.
Our best bet is to continue to win the scholarly disputes and to continue to push media representatives to take fraud seriously. If the media demands for prosecution of the elite banking frauds expand there is a chance to create a bipartisan coalition in Congress and the administration supporting prosecutions. In the S&L debacle, Representative Annunzio was one of the leading opponents of reregulation and leading supporters of Charles Keating. After we brought several hundred successful prosecutions he began wearing a huge button: “Jail the S&L Crooks!” Bringing many hundreds of enforcement actions, civil suits, and prosecutions causes huge changes in the way a crisis is perceived. It makes tens of thousands of documents detailing the frauds public. It generates thousands of national and local news stories discussing the nature of the frauds and how wealthy the senior officers became through the frauds. All of this increases the saliency of fraud and increases demands for serious reforms, adequate resources for the regulators and criminal justice bodies, and makes clear that elite fraud poses a severe danger. Collectively, this creates the political space for real reform, vigorous regulators, and real prosecutors.