Guardian UK | RS_News | May 22 2012

Wall Street bankers could have averted the global financial crisis, so why didn’t they? In this exclusive extract from his book Inside Job, Charles Ferguson argues that they should be prosecuted.

OPINION ~ Bernard L Madoff ran the biggest Ponzi scheme in history, operating it for 30 years and causing cash losses of $19.5bn. Shortly after the scheme collapsed and Madoff confessed in 2008, evidence began to surface that for years, major banks had suspected he was a fraud. None of them reported their suspicions to the authorities, and several banks decided to make money from him without, of course, risking any of their own funds. Theories about his fraud varied. Some thought he might have access to insider information. But quite a few thought he was running a Ponzi scheme. Goldman Sachs executives paid a visit to Madoff to see ifthey should recommend him to clients. A partner later recalled: “Madoff refused to let them do any due diligence on the funds and when asked about the firm’s investment strategy they couldn’t understand it. Goldman not only blacklisted Madoff in the asset management division but banned its brokerage from trading with the firm too.”

The Obama government has rationalised its failure to prosecute anyone (literally, anyone at all) for bubble-related crimes by saying that while much of Wall Street’s behaviour was unwise or unethical, it wasn’t illegal. With apologies for my vulgarity, this is complete horseshit.

When the government is really serious about something – preventing another 9/11, or pursuing major organised crime figures – it has many tools at its disposal and often uses them. There are wiretaps and electronic eavesdropping. There are undercover agents who pretend to be criminals in order to entrap their targets. There are National Security Letters, an aggressive form of administrative subpoena that allows US authorities to secretly obtain almost any electronic record – complete with a gag order making it illegal for the target of the subpoena to tell anyone about it. There are special prosecutors, task forces and grand juries. When Patty Hearst was kidnapped in 1974, the FBI assigned hundreds of agents to the case.

In organised crime investigations, the FBI and government prosecutors often start at the bottom in order to get to the top. They use the well-established technique of nailing lower-level people and then offering them a deal if they inform on and/or testify about their superiors – whereupon the FBI nails their superiors, and does the same thing to them, until climbing to the top of the tree. There is also the technique of nailing people for what can be proven against them, even if it’s not the main offence. Al Capone was never convicted of bootlegging, large-scale corruption or murder; he was convicted of tax evasion.

A reasonable list of prosecutable crimes committed during the bubble, the crisis, and the aftermath period by financial services firms includes: securities fraud, accounting fraud, honest services violations, bribery, perjury and making false statements to US government investigators, Sarbanes-Oxley violations (false accounting), Rico (Racketeer Influenced and Criminal Organisations Act) offences, federal aid disclosure regulations offences and personal conduct offences (drug use, tax evasion etc).

Let’s take the example of securities fraud. Where to begin?

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