In This Article Expand or collapse the "in this article" section The Global Financial Crisis and White-Collar Crime

  • Introduction
  • Historical and Political Context
  • Punishing the Financial Industry: Government Response to the Crisis
  • Why So Few Prosecutions?
  • Global Comparisons
  • Legitimacy and Efficacy of Criminal Punishment
  • Regulatory Reforms

Criminology The Global Financial Crisis and White-Collar Crime
Justin Rex, Spencer Headworth
  • LAST REVIEWED: 24 February 2021
  • LAST MODIFIED: 24 February 2021
  • DOI: 10.1093/obo/9780195396607-0291


No senior Wall Street executives were imprisoned for actions that contributed to the global financial crisis. The few criminal prosecutions for management were reserved for executives at small and regional financial firms. This stands in stark contrast to the approximately 1,000 executives jailed after the 1989 savings and loan crisis. It also runs counter to public support for criminal accountability post-crisis as well as the general trend toward criminal social control in the United States. Likewise, few firms faced criminal prosecution. Instead, the primary punishment resulted from civil penalties leveled against individuals and firms, with most of the largest banks paying billions in fines to regulatory agencies and in restitution to victims. Now that the five- or ten-year statute of limitations for the criminal fraud statutes most relevant to questionable pre-crisis behavior has passed, and the political salience and public outcry over financial misdeeds has subsided, the window of opportunity for criminal accountability is closed. Still, the lack of accountability raises important questions for financial regulation, the state of prosecution for white-collar crime, the nature of financial industry influence over politics, and the broader health of US democracy. What role did Wall Street, and the broader financial services industry, play in bringing about the crisis? What behaviors, if any, crossed the line from legitimate business activity intro criminal behavior? Is that distinction easily drawn? And if actors did behave criminally, why did state and/or federal prosecutors not pursue criminal charges more aggressively? What can be learned from countries that used criminal prosecutions more successfully? Even if criminal behavior occurred, is strong prosecution the appropriate remedy to deter future crime and prevent another financial crisis? There is substantial agreement that financial industry behavior contributed to, and amplified the severity of, the crisis. There is, however, much less agreement about whether white-collar crime occurred; if it did, why it went unpunished; and whether criminal punishment is the proper response on moral or practical grounds. The historical and political context for how white-collar crime was (re)framed, how this framing contributed to the deregulation of the financial industry, and the rise of its political power explain how the Wall Street’s behavior was understood, rationalized, and left largely unpunished.

Historical and Political Context

A crisis this large, which was decades in the making, has too many causal factors to consider here, but scholars focusing on the role of white-collar crime highlight a few in particular. Headworth and Hagan 2016 contextualizes the crisis in terms of the rise of neoliberalism, the reorientation of state involvement toward a laissez faire approach to markets and business practices, while also actively intervening in markets in key areas to support them, like developing mortgage-backed security products later implicated in the crisis. Hacker and Pierson 2010 describes how in this environment, deregulation of financial markets became the dominant policy approach, and was supported by both major political parties in the United States. Johnson and Kwak 2010 explains that not only did deregulatory acts remove restrictions on interstate banking and firewalls between commercial and investment banking, but policymakers made key decisions to leave credit ratings agencies, derivatives, and shadow banking unregulated. Philippon and Reshef 2012 estimates that by the eve of the crisis, the financial sector had the highest level of deregulation since prior to the Great Depression. Angelides, et al. 2011 argues that deregulation also empowered the financial industry, making firms bigger, more interconnected, and more politically influential. Hagan 2012 discusses how public rhetoric about white-collar crime underwent a reframing in the “age of Reagan” that offered an increasingly laissez faire approach to elite behavior and encouraged risk taking and deregulation, while downplaying the social costs. Together these changes reshaped legal boundaries and oversight of finance and created what Friedrichs 2013 calls a criminogenic environment, in which fraud in the mortgage lending and securitization industries became rampant.

  • Angelides, Phil, Brooksley Born, Byron Georgiou, Bob Graham, Heather H. Murren, and John W. Thompson. 2011. The financial crisis inquiry report. Washington, DC: The Financial Crisis Inquiry Commission.

    The official report written by the commission tasked by Congress to investigate the 2008 crisis. Provides a comprehensive overview of the crisis and its aftermath.

  • Friedrichs, David O. 2013. Wall Street: Crime never sleeps. In How they got away with it: White-collar criminals and the financial meltdown. Edited by Susan Will, Stephen Handelman, and David C. Brotherton, 3–25. New York: Columbia Univ. Press.

    This chapter presents a Wall Street–centric view of the crisis and the way in which “the present financial system, its culture, and its collective practices and policies are fundamentally criminal and criminogenic” (p. 6).

  • Hacker, Jacob S., and Paul Pierson. 2010. Winner-take-all politics: How Washington made the rich richer and turned its back on the middle class. New York: Simon and Schuster.

    An analysis of the rise of economic inequality that includes the growing power of the financial industry, particularly its leverage over the Democratic Party, which grew close to Wall Street in an attempt to close the campaign funding gap with Republicans.

  • Hagan, John. 2012. Who are the criminals? The politics of crime policy from the age of Roosevelt to the age of Reagan. Princeton, NJ: Princeton Univ. Press.

    DOI: 10.1515/9781400845071

    An analysis of criminal policy in the United States, contrasting the problem of mass incarceration of common lawbreakers with lax or nonexistent punishments for white-collar criminals, largely due to a lack of regulation. Hagan contrasts two eras of policymaking with different approaches to crime: the age of Roosevelt and the age of Reagan.

  • Headworth, Spencer, and John L. Hagan. 2016. White-collar crimes of the financial crisis. In The Oxford handbook of white-collar crime. Edited by Shanna R. Van Slyke, Michael L. Benson, and Francis T. Cullen, 275–293. New York: Oxford Univ. Press.

    Provides an overview of the 2008 crisis from a white-collar crime perspective, highlighting the role of the state in shifting the boundaries of legality.

  • Johnson, Simon, and James Kwak. 2010. 13 bankers. New York: Pantheon.

    Provides an overview of the causes of the crisis, with a particular emphasis on the growth of the financial industry’s cultural and political power.

  • Philippon, Thomas, and Ariell Reshef. 2012. Wages and human capital in the US finance industry: 1909–2006. The Quarterly Journal of Economics 127.4: 1551–1609.

    DOI: 10.1093/qje/qjs030

    Analyzes trends in financial sector deregulation, job complexity, skills, and wages. Provides an index to measure the level of financial deregulation over time.

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