Aargh, it is frustrating to see how quickly establishment-serving shallow arguments become conventional wisdom. We get a big dose of this line of thinking from the New York Times’ Joe Nocera in an article titled, “Biggest Fish Face Little Risk of Being Caught.”

Now you can’t disagree with the conclusion: no major banking industry figure is going to be brought to justice. But the explanation he offers is incomplete and misleading, and serves to misdirect the public from more fundamental and more troubling causes.

At the start of the piece, Nocera recounts some of the unsavory acts of Countrywide’s Angelo Mozilo, and mentions in passing two other prime suspects, AIG’s Joe Cassano and Lehman’s Richard Fuld. Then he points to the decisions not to pursue criminal prosecutions of Mozilo and Cassano, and recites oft-repeated arguments. First, it’s too costly. The S&L crisis required a huge commitment of resources by the FBI, that ain’t happening now. Second, it’s too hard. Look at how the prosecution of two hedge fund managers at Bear Stearns failed. Third, the top brass has successfully insulated itself from the really bad actions at their firms.

Let’s deal with these arguments in reverse order. The logic of leadership in America is fundamentally perverted, in that the top brass takes credit and huge paychecks for organizational successes, but is nowhere to be found when their organizations go off the rails. But in the case of Mozilo, Nocera’s list of possible charges that could be laid is revealingly incomplete:

But this case, too, would have been awfully difficult to make. Countrywide’s descent into subprime madness was hardly a secret. It made all sorts of crazy adjustable rate mortgages that required no documentation of income; its array of products was also well known and disclosed to investors. Indeed, Mr. Mozilo was quite vocal and public in saying that the housing market was due to fall, and fall hard. But he always assumed that whatever its losses, Countrywide was so strong that it would be one of the survivors and would feast on the carcasses of its former competitors. No internal e-mail he wrote contradicted that belief. Was there outright fraud at Countrywide? Of course there was. That is a large part of the reason that Bank of America, which bought Countrywide in early 2008, has struggled so mightily with the legacy of all the Countrywide loans now on its books. But most of the fraudulent actions at Countrywide took place at the bottom of the food chain, at the mortgage origination level. It has been well-documented that mortgage brokers induced borrowers to take loans that they never understood, and often persuaded them to lie on their loan applications.

This is really flattering to Mozilo. First, the statement, “fraudulent actions at Countrywide took place at the bottom of the food chain” suggests that it was low level employees operating on their own. Huh? Countrywide had the best organized call centers in the industry. It has been widely reported that the bank would call borrowers six months after a loan closing and tell them, falsely, that a reset was imminent in order to get them to refi quickly and generate more fees for the bank. Similarly, Countrywide would also advertise specials, most often for no-fee loans. Ex employees have told me that it was a pure bait and switch. The call centers were armed with scripts to tell callers why that product was not good for them and another one was more suitable. My source have told me they are highly confident none of the advertised loans was every sold.

This point to institutionalized patterns of deception, involving senior managers, not low level employees out of control.

Similarly, Nocera suggests investors knew Countrywide’s loans were drecky. That too is misleading. The bank made specific representations about the quality of the loans they were making, and now a number of court cases allege the bank violated those promises by putting far worse loans into its deals. So the idea that the investors knew what they were buying is a canard, and one Nocera surely knows about, and chooses to overlook.

He also ignores what would appear to be an easily provable instance of chicanery, although it may not rise to the criminal level: the “friends of Anglo” program, in which Congressmen were given Countrywide mortgages on extremely favorable terms (I’m told that this program was “marketed” very aggressively to the members of various financial services industry oversight panels). This may be more of a problem from the recipient’s end, since it would seem to run afoul of all sorts of ethics rules. But I imagine a creative litigator could find in it a cause of action against Countrywide, and better yet Mozilo, since he was by all accounts personally involved in this initiative.

Let’s work back to Nocera’s second argument, that these cases are hard to win and the failed Bear hedgie case proves it.

Yes, financial fraud litigation is hard to win. But a single data point proves very little. This case was a clear example of inept prosecution. As Nocera does correctly depict, the feds tried to build a case on e-mails taken out of context, when other e-mails painted a very different picture. This was world class bad preparation (and confirmation bias). This isn’t even a matter of failing to probe witnesses for possible exculpating or confounding information; this is a failure to read documents the prosecution had in hand and connect the dots.

Now this points to a separate issue: the weakened state of the various offices that ought to be chasing banking industry crooks. But using current bad performance to say it’s inevitable is also lame. We’d never accept that from military or a sports team; why are we willing to accept subpar performance from something as important as criminal justice professionals? As we’ve indicated, top law school grads flock to kick-ass prosecutors, so this problem could be turned around faster than most imagine.

And he also has the wrong implicit standard. The goal is not to win every case, or even most cases. It’s to win enough to be a threat and not to lose them in the embarrassing fashion of the Bear case. And prosecutions that fail can still be powerful deterrents. They put information in the public domain that private litigants can use to mount civil cases.

If finance cops can mount credible lawsuits, filing suit will send a chill through the targets. That’s the sort of situation we need to have, that top financial executives see that criminal prosecution is something to be feared.

Let’s finally turn to Nocera’s first reason: it’s too costly, and the successful effort during the S&L crisis depended on the FBI throwing a lot of horsepower at the problem. But this is the wrong analogy. First, we are three years past the crisis, and a lot of forensic have been done. They are not complete, we’ve railed at the important gaps, but this is not a tabula rasa.

But the S&L crisis is not the right model. These cases are much more like Enron, where a number of executives were in cahoots in both creating questionable products and presenting a misleading picture to the outside world. And the Enron case did not start at the top. It used the same model that prosecutors have perfected with the Mafia and drug rings: go after the foot soldiers, get them to turn state’s evidence in return for immunity. For financial crimes, that also vastly lowers the cost of prosecution. The cooperating insiders provide the road map and enable the prosecutors to do much more focused discovery, as well as potentially serving as witnesses.

But why could prosecutors take that approach with Enron? Because it had already failed. We are back to fundamental mess the officialdom has created by leaving the management and boards of bailed-out companies in place. Any systematic investigation of crimes committed during the crisis would also target managers and executives now in place. It would be tantamount to a criminal investigation of the entire enterprise. And we can’t have major financial institutions subject to tha level of scrutiny, now can we? Trying to build a case against a Mozilo any other way is indeed too hard.

So we are back to the same ugly fact set. The overly generous terms of the TARP, and the failure of Team Obama to force management changes on the industry in early 2009 was a fatal error. It has embedded and emboldened a deeply corrupt plutocracy. The only way to go after them, as Eliot Spitzer suggested in the movie Inside Job, may be to target lower and mid-level employees on the widespread and well accepted practice of having securities firms pay for prostitutes and drugs out of research budgets. All it would take is a sufficiently bloody-minded prosecutor. But that sort of individual is notably absent from any of the perches where he could take on this mission. Given what happened to Spitzer, that seems to be no accident.