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The Regulatory Shortfall

SINCE THE 2008 CRASH, one question has dominated the public debate over it: Why were no senior executives on Wall Street prosecuted? How did those guys escape prison? Politicians, scholars, television commentators, and participants in nearly every cocktail party at which the 2008 crash was discussed have asked this question—usually in tones suggesting outrage, suspicion, or, at the least, pure puzzlement.1

Indeed, this suspicion is understandable because earlier financial debacles did produce high-profile and sometimes massive prosecutions. When Enron and WorldCom collapsed in 2001–2002, their chief executives (among ...

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