The Sunday opinion section of the New York Times has an editorial they could have run every day for the last four years, asking why nobody has been prosecuted for the greatest financial collapse since the Great Depression. It’s really a familiar story, and while I appreciate seeing it in their pages, I hold no hope that it will spur activity of any kind. And neither does the Times ed board, I should say.

Proving federal fraud requires evidence of intent, no small lift. But proving intent does not require a smoking gun. The financial crisis, fomented over years by big banks and presided over by executives, involved reckless lending, heedless securitizations, exorbitant paydays and illusory profits, all of which led to government bailouts and economic calamity. Is it plausible that none of that broke the law and that none of the people in positions of power and authority knew what was going on?

It seems likelier that it’s not intent that’s missing, but creative thinking on the part of federal prosecutors about the web of federal statutes that could be brought to bear on potential cases. As far back as 2009, when the Justice Department lost a financial fraud case against a pair of hedge fund managers at Bear Stearns, it seems to have made an institutional determination that it could not win against big banks and top bankers. That stance has dovetailed with the Obama administration’s emphasis on protecting the banks from any perceived threat to their post-bailout recovery.

It’s deeply ironic that the biggest prosecution to date, of Lee Farkas from Taylor Whitaker, came about largely due to the efforts of Neil Barofsky while the Special Inspector General for TARP. Needless to say, the Justice Department or Treasury Department would not be super-willing to share that credit.

Adam Levitin picks this up and notes that the statutes of limitations under FIRREA last 10 years, which means there’s actually still time for prosecutions. But they’re not going to happen, and the closing of the books on things like the Goldman Sachs violations detailed in Carl Levin’s Senate report proves this. We may get an October surprise in the form of some Libor prosecutions (specifically relegated to small traders and not executives), but that’s about it.

Levitin writes:

My prediction is that when the history of the Obama Administration is written, there will be some positive things to say about it, but also two particular blots on its escutcheon. First, the failure to act decisively to help homeowners avoid foreclosure, and second, the failure to hold anyone accountable for the financial crisis. These two failures are intimately tied, of course. Both are explained by the “Obama administration’s emphasis on protecting the banks from any perceived threat to their post-bailout recovery.”

The logic here is that financial stability and economic recovery are more important than rule of law. There’s an argument to be made that law has to give way to basic economic needs. I, however, would reject the choice as false. Instead, the best way to restore confidence in markets is to show that there is rule of law. The best route to economic recovery was through rule of law, not away from it. (Yes, I realize there are those who would argue that the GM/Chrysler bankruptcies and cramdown aren’t rule of law, but rule of law can include flexible systems like bankruptcy, rather than just rigid rules.)

I obviously agree. It’s also the best route to future stability in the financial system and the broader economy. There wouldn’t be a whole lot to worry about from rental revenue securitizations if the people who designed and packaged the very similar mortgage backed securities were picked up and thrown in jail for their fraudulent misconduct. Instead, they’ll be the same people putting together these new deals.

This has led to the same zombie banks running the show. I really don’t think that Mitt Romney has anything radically different to offer than what he described this weekend as “four more years of the big banks getting bigger, the small banks getting smaller.” But I cannot say he doesn’t have a point.