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The Obama administration collected some crowd-pleasing headlines with its announcement that the Justice Department is suing Standard & Poor’s, the rating agency that notoriously fueled the financial crisis and crash by duping investors into buying billions in rotten securities. The government is said to be seeking a cash penalty of more than $1 billion.

That sounds good, but President Obama and his administration are stalked by a question of scandal that will not go away: Why isn’t anyone going to jail? The lawsuit’s accusation against S&P sounds like a crime. The firm, it charges, “knowingly and with intent to defraud, devised, participated in, and executed a scheme to defraud investors.” Yet federal investigators seem unable to identify any Wall Street executives to prosecute as criminals.

Why not? The popular explanation, widely shared among citizens, is that leaders of the largest banks and financial firms are given a pass because they are “too big to jail.” The public’s cynicism sounds right. It has become a momentous black mark on the Obama presidency, like a blood stain that cannot be washed away. Does the government operate two systems of justice—one for mom-and-pop criminals and another for influential titans who run the “too big to fail” banks?

These are hard cases to make, as Justice lawyers argue. But when the feds go after the mafia, they usually start at the bottom of the criminal syndicate, put the squeeze on the little thugs and turn them to testify against the big guys who called the shots. That is what financial crimes may require, too.

I have a hunch this scandal is not going away and it will gnaw at Obama during his second term. The outrage will expand as more bits of evidence keep surfacing in various lawsuits. It reminds me a little of the Watergate scandal in the 1970s that unfolded gradually, drip by drip, long after Richard Nixon had won his reelection landslide. As evidence accumulated of criminality in the White House, Nixon was stalked by a single question: What did the president know and when did he know it?

Obama is haunted by a roughly similar question: Who decided that Wall Street mega-banks and their executives must not be prosecuted as criminals for fear this might bring down the entire economy?

Potential examples of the contradiction keep piling up. The Justice Department settles lawsuits with handsome fines, but no indictments. After years of suspicion, HSBC, Europe’s largest bank, was finally nabbed for aiding drug peddlers. Its US affiliate laundered at least $880 million in dollars for Mexican and Colombian drug cartels (often driving the cash over the US border in their own armored cars). HSBC paid a fine and was given what the Justice lawyers call a “deferred prosecution.”

UBS, the Swiss banking giant, was nailed for having manipulated the London-set bank loan rate that determines what borrowers in the US and around the world must pay in interest rates. UBS settled in cash. American protesters in San Franciso are demanding a federal investigation of whether leading US banks also had a hand in setting fraudulent interest rates.

After years of ignoring accusations, some Obama officials—Attorney General Holder and Lanny Breuer, chief of the criminal division—have essentially admitted that their decisions on prosecution were directly influenced by the question of whether indictments would rattle the entire global system and maybe trigger another crash. On PBS Frontline, Breuer acknowledged that he consulted federal regulators on whether to go ahead with criminal cases. Breuer said, “If I bring a case against Institution A, and as a result of bringing that case, there’s some huge economic effect—if it creates a ripple effect so that suddenly, counterparties and other financial institutions or other companies that had nothing to do with this are effected badly—it’s a factor we need to know and understand.”

This is essentially the Obama adminstration’s “get out of jail free” card. If a mega-bank breaks the law, its leaders merely apologize and put up some money to compensate for their crime, lest the economy and other bankers suffer collateral consequences. Imagine if the government enforced its drug laws on that principle. That would empty the prisons overnight.

Non-enforcement scandals will keep piling up because—no secret really—the financial system is riddled with fraud and related crimes. As the heat rose on Justice, Breuer resigned or rather “retired” with appropriate applause from colleagues. Treasury Secretary Tim Geithner, who doubtlessly influenced forgiveness for banks and bankers, has already left office and returned to New York. Was Federal Reserve Chairman Ben Bernanke consulted by the prosecutors? Was the White House? Who said what to whom? And what did the president know?

There are many explosive questions to ask, and dismayed members of Congress are beginning to seek answers. Senators Sherrod Brown (D-OH) and Charles Grassley (R-IA) announced they will join in a thorough search, calling upon the attorney general and other high level officials to explain their decisions or rather their failure to seek justice. As more facts surface, the scandal may become politically unavoidable.

That is what happened in Watergate. Most politicians were initially reluctant to dig deeper, but eventually they realized something deeper than political scandal was involved. It was really the question of whether Americans can believe in equal justice. Indeed, that is the question now.

The Department of Justice has some dirty hands of its own. Read Greg Mitchell’s report.