The great 19th century English jurist, Sir James Fitzjames Stephens, once wrote that murderers were hung not for reasons of revenge or deterrence — but to underscore what a serious breach of the social compact had been committed.

Federal District Judge Jed S. Rakoff was making a similar point when he recently called attention to the lack of criminal prosecutions in the wake of the 2008 financial crisis. Consider the 1980s Savings and Loan crisis. The losses were minuscule compared to this recent paroxysm, but they still led to hundreds of criminal convictions.

That looks highly unlikely here. The federal statute of limitations for fraud, generally five years, is rapidly running down. There are reportedly a few cases in process. But the odds are that if there are any indictments, they will be in the pattern of the indictment of Goldman Sachs banker Fabrice Tourre, who has been left holding the bag for a complex scheme to load up clients with worthless securities. Email trails leave little doubt that far more senior figures were aware of the purpose of the deal. The firm also executed other similar deals that haven’t been prosecuted.

The big banks have compiled an amazing record of dishonest, and outright criminal, behavior — suggesting that there is no ethical or legal standard that can stand in the way of a chance to fatten the bottom line. Here are some samples, all drawn from the cases settled in the 2000s:

Chase Bank (now part of JPMorgan Chase), Citibank, Merrill Lynch and a number of other financial institutions actively conspired with Enron executives to falsify company financial records. Chase also paid bribes to county officials, and to other banks, for the right to entangle an Alabama county in a byzantine transaction that led to the county’s bankruptcy. Virtually every major bank in the country sold billions in “auction-rate-securities,” without disclosing they carried the risk of becoming nearly worthless — which quickly came to pass. Bank of America has now disgorged $22 billion in fines on these instruments alone.

HSBC, UBS and a number of other European banks, meanwhile, created a lucrative business expressly aimed at facilitating U.S. tax evasion. HSBC and Bank of America enabled billions in drug money laundering. HSBC, Credit Suisse, Barclays and Lloyds created units with the express purpose of violating U.S. laws — which they had sworn to uphold — against facilitating money transfers for named terrorist regimes.

Wachovia (now part of Wells Fargo) had, over the years, transferred at least $378 billion from Latin America, a money flow clearly associated with the drug trade. Bank of America and Wachovia also assisted in the purchase of commercial jets for drug lords. Chase Bank, again, most glaringly, but other banks as well, violated their internal control standards to enable Bernie Madoff’s Ponzi scheme.

In the run-up to the 2008 credit crash, Bear Stearns (now part of JPMorgan Chase), Morgan Stanley, and other banks undertook frantic last-minute campaigns to unload worthless mortgage securities [paywall] on unsuspecting customers. When the mortgages failed, Bear Stearns extracted lucrative settlements from the original mortgage lenders, without telling the customers that Bear had sold the worthless mortgages to. So they got paid coming and going, while their customers bore all the losses. (The emails apparently leave a clear trail suggesting that senior management was fully informed.)

More recently, a cabal of bankers was caught manipulating the most widely-used short-term money market base rate (LIBOR, or the London Interbank Offering Rate) to improve their trading profits — at the expense of borrowers throughout the world.

Rakoff is a former chief of the securities fraud unit in the office of the U.S. attorney for the Southern District of New York, so he is sensitive to the problems of enforcement. He notes that the Securities and Exchange Commission, in the wake of its Madoff embarrassment, was obsessed with Ponzi schemes and also committed to several big insider trading cases. Federal investigative resources, meanwhile, were heavily weighted toward terrorism.

On top of that, the new Obama administration, having seen the collapse of one large financial institution after the other, quite reasonably feared that an aggressive prosecutorial program might derail their efforts to put the banks back on a stable financial footing. President Barack Obama had little experience in finance, and his closest economic advisers — men like former Treasury Secretary Robert Rubin (former Goldman Sachs co-chairman), former Deputy Treasury Secretary Lawrence Summers, former Commerce Secretary William Daley (former JPMorgan Chase executive) and Timothy Geithner, the former president of the Federal Reserve Bank of New York whom Obama named Treasury secretary — would all have made that argument.

The most telling example of a scare for the administration was the 2002 collapse of the accounting firm Arthur Anderson, after it had been indicted for its contributions to the Enron scandal.

But, as Rakoff points out, there is a big difference between indicting a company, and indicting a handful of executives. A proper response would have been to continue with the rescue operations — and separately empower a crack team of prosecutors and investigators working in secret to build a half-dozen exemplary cases.

Rakoff is clearly right in principle. But he may be understating the difficulty of nailing senior executives beyond a reasonable doubt in cases like this. Most of the indictments in the savings-and-loan cases, for example, were based on well-documented embezzlements of depositor money. The blockbuster insider trading convictions usually turn on wire taps that capture the actual passing of the illegal information. In the crash-related cases, however, email trails are often the best evidence against senior executives. A skilled defense lawyer can readily exploit ambiguities and self-contradictions to undermine the certainty required in criminal prosecutions. Though the government won its case against Goldman’s Tourre, it had sued under a civil fraud statute that has a lower standard of proof.

There may be a better approach. Indicting a bank is actually a more fearsome, and more appropriate, weapon to deal with an institution that has a record of pervasive wrongdoing — because a criminal indictment effectively puts a company out of business. Just the credible threat of such an action would heighten the sensitivity of stakeholders and executives to criminal behavior on the part of underlings.

The obstacle is that the current banks, especially the largest ones spawned from forced mergers and shotgun marriages during the worst of the crisis, are so big that shutting them down could cause seismic economic tremors. But there is a substantial lobby of senior regulators, former bankers and federal legislators enamored of the idea of breaking up the banks.

They are far short of carrying the issue, but the obvious lack of effective sanctions against behemoth institutions strengthens their case. Simon Johnson, the former chief economist of the International Monetary Fund, has proposed that no bank should control assets in excess of 4 percent of gross domestic product. That’s now about $700 billion. Consider that JPMorgan’s current balance sheet is roughly 3-1/2 times that much.

Among the virtues of smaller banks is that it is easier to enforce stricter capital standards; their operations are typically more visible to regulators — and they’re not too big to fail.

Or to be criminally indicted and put out of business.

ILLUSTRATION (TOP): MATT MAHURIN



PHOTO (INSERT): From left to right, Lloyd Blankfein, chief executive of Goldman Sachs Group, Jamie Dimon, chief executive of JPMorgan Chase, John Mack, chairman of Morgan Stanley, and Brian Moynihan, chief executive of Bank of America are sworn in before their testimony at the Financial Crisis Inquiry Commission and its first public hearing in Washington, January 13, 2010