Let us assume that the Justice Department vastly would have preferred to prosecute Goldman Sachs for its shady dealings in peddling toxic mortgages during the real estate boom, rather than put out the statement it issued late Thursday saying in essence, "Never mind, and enjoy the Hamptons."
Let us assume this, because the visuals of not prosecuting are bad for nearly everyone involved. The failure to prosecute enhances the public perception that ordinary people got screwed during the real estate bubble, while savvy Wall Street executives loaded money bags onto private jets and decamped to comfortable islands.
Had prosecutors at Justice been able to make a good case -- a case likely to put some Goldman people behind bars -- they would have done so, because the deterrent effect of American law enforcement in the next financial orgy that inevitably lies ahead is looking mighty weak. A prominent win for the prosecutors might have helped.
The same logic explains more broadly why nearly all of the seamy characters who profited while bludgeoning taxpayers, working people, retirees and homeowners have gotten away scot-free: The prosecutors can't muster cases with a good enough chance at winning.
All of which means there is something seriously amiss with the laws and regulations that allowed the financial crisis to build to such proportions. The fact that Goldman will walk away without incident -- unless you count the piddly settlement with the SEC -- has occasioned predictable hand-wringing about the supposed timidity of the government's cops on the beat. But the problem here is not the prosecutors: It is the rules under which they are working. It is the regulatory abdication that enabled a predatory mindset to capture American finance.
The bad guys have gotten away with bad deeds because the bad deeds were mostly legal, or at least sufficiently ambiguous in the light of the law to embolden institutions wealthy enough to employ empires' worth of lawyers to try their luck. The game was rigged in their favor. It was, 'Heads we win, tails the taxpayer loses -- and if the cops show up to bust the game, we grab the cash and ride free long before they nab us, leaving behind a trail of indecipherable ledger books.'
The Clinton administration failed the American public, led by two Treasury Secretaries, Larry Summers and Bob Rubin, who ensured that derivatives gambling could expand exponentially without regulation, manipulating Congress into going along.
Fannie and Freddie failed by buying up predatory mortgages while fattening their own executives, ensuring that the housing Ponzi scheme could continue -- again with a huge congressional assist.
The George W. Bush administration failed, in spreading the gospel of unregulated markets and encouraging Wall Street to speculate recklessly without fear of scrutiny.
The Federal Reserve failed, led by Alan Greenspan and Ben Bernanke, by neglecting to police the predatory lending that became the dominant mode of mortgage markets and then assuring everyone that all would be fine.
The Obama administration merely inherited this mess, but it failed to use the cleanup as an opportunity to change the fundamental conditions of finance, and administered the second half of taxpayer-financed bailouts without imposing better rules.
Most of us are, one way or another, still paying for these disastrous failings. We are confronting a chronically weak job market, a foreclosure crisis without end and the loss of government services in the face of budgetary cutbacks. Older workers are postponing retirement because their savings have been whacked. College graduates can't pay back their student loans. The wisest people know well that we are just as vulnerable to another crisis as we were in the run-up to the last one.
Nothing of great consequence has changed.
When the government finally put Bernie Madoff in prison, there was a kind of public exultation, because here was a face we could blame for our troubles. So many people had lost so much wealth, and the explanations all seemed so inscrutable: low interest rates, derelict credit rating agencies, credit default swaps, global savings imbalances. It was all so confusing, given such an unsatisfying account of where all the money went, and here was a simple answer: That guy took it. Madoff had carted away people's savings in brazen violation of the law and common decency.
But his odious acts will go down in history as a rounding error in the context of the financial misdeeds that were legal, or close enough to legal to make prosecution unlikely. Maybe the next person who contemplates running a Ponzi scheme will pause in light of Bernie Madoff's current address, but the fundamental workings of high finance have hardy been altered.
A few arrogant Goldman people moving from their estates in Connecticut to one or another penitentiary might have improved the optics for those who find consolation in vengeance, an understandable urge in light of what has gone down. But it, too, would not have changed much. It would not have created jobs or kept any families in their homes or reshaped the basic state of play.
Ripping people off on a grand scale has become an intrinsic part of the contemporary business model on Wall Street. Changing that requires more than some people walking in front of TV cameras in handcuffs. It necessitates a rewriting of the rules and a willingness on the part of regulators to intervene long before the miscreants get out of hand.