For years, people have been asking the question: in all of the financial crisis, why hasn't anyone from Wall Street gone to jail?

The answer is simple: because the Washington regulators who investigate Wall Street are intent on providing no proof that anyone ever did anything wrong.

When the Securities and Exchange Commission puts the heat on a bank or hedge fund for doing something inappropriate, the negotiations follow a predictable dance. The first step is that the SEC gathers evidence that the banks or hedge funds broke the rules. Much of that information is provided by the banks themselves, since the SEC has a small budget and no resources to chase the thousands of instances of Wall Street malfeasance every day. Regulators like the SEC are outmatched and underfunded. The second step is that the bank, confronted with the possibility of public humiliation, agrees to pay a fine to settle the allegations. The third step is that the bank agrees to a press release in which it "neither admits nor denies" any wrongdoing.

So this is the problem: courts can't send anyone to jail without proof. But the Securities and Exchange Commission and other regulators don't allow proof of guilt in their investigations. This is designed specifically to keep the banks out of court. And that's why there are no significant cases around Wall Street malfeasance: they're practically impossible.

There have been two examples of this absurd bureaucratic dance in the past week. The first is the case of SAC Capital, a giant hedge fund that the SEC is investigating for insider trading. SAC is very close to a $600m settlement with regulators. It would be the third-largest fine ever paid to the SEC. All the SEC has to do is allow SAC Capital to "neither admit nor deny wrongdoing," in the customary legal language of these settlements. That sounds like a victory for the regulators, who are as close as they've ever been to catching the biggest fish on Wall Street.

But the judge in the case, Victor Marrero has grave and well substantiated doubts. "Neither admit nor deny?" What does that mean? As Marrero said:

"There is something counterintuitive and incongruous in a party agreeing to settle a case for $600m if it truly did nothing wrong."

He's not the first to evince some skepticism of the arrangement. As former Democratic Senator Ted Kaufman asked last year:

"How can you have the chutzpah to say, 'I didn't do anything wrong, but I'm paying $285m fine. They have to admit their guilt and if they won't, the SEC should go to trial and we should have a trial."

On Friday, another judge – Judge Naomi Reice Buchwald, in New York – let a dozen banks off the hook for manipulating a key interest rate, Libor. Three of those banks – UBS, Barclays and HBSC – have already agreed to pay over $2bn in fines for allegedly toying with the interest rate. But those settlements – with only monetary fines – proved nothing that could hold up in a court of law. In the case of UBS, regulators were reportedly happy that the substantial fines did not actually hurt the banks or expose them to further harm.

There's no question that the banks, as well as almost all of their rivals, did manipulate Libor. It was an industry standard. There are thousands of pages of evidence that the banks manipulated the rate; an investigation of Barclays, for one, showed that traders were so brazen in falsifying the interest rate that one of them actually set himself a Microsoft Outlook reminder every week so he wouldn't forget.

We all know that rules were bent and often broken, that fraud and lying and dodgy behavior were pervasive. The legal system runs on proof, and the financial regulatory system is set up in such a way that Washington will never provide that proof. On occasion, the Department of Justice will have a win, or the SEC will. But more often than not, government agencies don't work together well, and don't share information because they don't want to share the glory.

Even when regulators manage to drag the defendants into court, as the government did with Bear Stearns hedge fund managers Ralph Cioffi and Matthew Tannin, they're found not guilty because the regulators are often out-lawyered by Wall Street.

In the SAC Capital case, the FBI arrested Michael Steinberg, a trader with an affiliated firm, and charged him with securities fraud. The idea is that Steinberg can be flipped to talk about the big fish: Steven Cohen, the founder of SAC. Until Steinberg's arrest, Cohen was so confident that he bought a Picasso, Le Reve, for $155m. But Steinberg's eventual trial, if it occurs, will take months and is unlikely to change the fact of the "neither admit nor deny" SEC settlement. Steinberg, whose lawyer and SAC both say are innocent of the charges, is likely a pawn in the government's game, no closer to jail time than any other Wall Streeter accused of malfeasance.

This is what allows Wall Street hubris, in many cases: the conviction that wrongdoers won't be caught, and if they are, that they'll get off easy. Regulators are sacrificing accountability for convenience. They're also giving up historical proof that fraud actually happened, that rules were broken, that Wall Street's self-image deserves to take a humiliating dent when the system is abused by greedy traders, bankers or lenders. You can't fix the system until you have proof of what's wrong with it. That proof is woefully hard to come by because government settlements are designed to dodge it.

In the popular Netflix series House of Cards, the main character, a diabolical plotter by the name of Francis Underwood, is always lurking in corners, dropping hints about his cartoonishly evil plans. When someone catches on to his schemes, he drawls archly, "You might think that. I couldn't possibly comment." That tone – the wink, the nudge – encapsulates the co-conspiratorial nature of Washington politics. Unfortunately, that same wink and nudge have extended to how banks are regulated. For years, financial regulators who have found banks breaking the rules have accepted the nonsense illogical dodge of "neither admit nor deny."

Neither admit nor deny is not the language of financial regulation. It is motto of co-conspirators. Co-conspiracy, unfortunately, is not the kind of relationship we want between our government and our financial institutions.