The Banker Boys After the Crash

This weekend’s New York Times Magazine features a very thorough and absorbing piece by Jesse Eisinger (in a collaboration between the Times and ProPublica), “Why Only One Top Banker Went to Jail for the Financial Crisis.” It starts with the story of Kareem Serageldin, a Credit Suisse banker who concealed losses in his employer’s mortgage-backed securities portfolio during the financial crisis. Eisinger writes:

Serageldin lied about the value of his bank’s securities — that was a crime, of course—but other bankers behaved far worse. Serageldin’s former employer, for one, had revised its past financial statements to account for $2.7 billion that should have been reported. Lehman Brothers, AIG, Citigroup, Countrywide and many others had also admitted that they were in much worse shape than they initially allowed. Merrill Lynch, in particular, announced a loss of nearly $8 billion three weeks after claiming it was $4.5 billion. Serageldin’s conduct was, in the judge’s words, “a small piece of an overall evil climate within the bank and with many other banks.”

Despite his relatively small role, Serageldin was sentenced—to 30 months in jail—thereby earning “the distinction of being the only Wall Street executive sent to jail for his part in the financial crisis.” So, why him? And why not anyone else? Where’s the crackdown we’ve all been waiting for? It’s not ineptitude that’s holding the Justice Department back, exactly, or cronyism. As always, it’s a more subtle and more complicated story. Eisinger goes on to explain all the ways in which Justice’s prosecutorial tools have been dulled by a combination of corporate lobbies, Congressional pressure, court rulings, and its employees’ own fear of failure.

This great piece of reporting reminded us of Christian Lorentzen’s piece, “Anything for the Libor Boys,” an analysis of the similarly unsatisfying consequences of banking shenanigans in the UK, from our Issue 21. Lorentzen opens the piece with the crime scene surrounding a banker’s suicide in London—Michael Foreman, senior bank manager for HSBC, had jumped off the Tate Modern museum:

In a sense, the mystery of Foreman’s death didn’t matter. All summer long, the bankers of London were locked into a different kind of Totentanz, pantomiming their profession’s moral vacuity. They were making headlines as interest-rate riggers at Barclays, Mexican drug-money launderers at HSBC, and accomplices to the systematic violation of U.S. sanctions against Iran at Standard Chartered.

By August the cascade of financial news had become so relentlessly grim that the British began spitting bile across the Atlantic, displaying all the telltale symptoms of a persecution complex [. . .]

Indeed, as the headlines have dragged their way across the British press, I’ve heard some people say that Libor is a fake scandal, a crime where there were as many victims as there were unwitting beneficiaries on either side of the rigged rates.

In addition to the rolling fallout of a series of audacious rate-rigging schemes, Lorentzen’s piece is also about Danny Boyle, and the opening ceremony of the 2012 Olympics, and the London riots—and it’s all as strong and bitter as a mouthful of Vegemite. Read it here.