The trillion-dollar lesson we’d rather not learn again

September 18, 2013, 1:52 PM UTC

FORTUNE — Perhaps without recognizing it, we’ve engaged in a multi-trillion dollar exchange.  U.S. citizens have lost trillions (jobs, homes, and past, current, and future wages, etc.) due to the financial crisis — and what have we received in return? We’ve gotten hold of a secret that was previously only fully understood by Beltway insiders: the extent to which mega-bank executives control the outcomes we receive from government officials.

We should no longer be surprised by reports of J.P. Morgan’s (JPM) latest settlement, in which it may admit some guilt and burn through shareholder and stakeholder cash to the tune of $800 million or more but ultimately leave any one with influence in the business or legal communities untouched. When the dust settles, a Wall Street Journal article suggests there will be no charges for false or misleading Whale disclosures CEO Jamie Dimon may have made on the famous “tempest in a teapot” April analyst conference call. When I asked the SEC if the Journal report was accurate, a spokesperson wrote me in an email, “We can’t comment.”

Certainly, SEC Chair Mary Jo White knows how this game is played. She revealed as much in a deposition she gave on February 16, 2007 as part of the SEC Inspector General’s investigation into the regulator’s failures in the Pequot insider-trading probe. White represented Morgan Stanley’s (MS) board in an engagement that lasted less than one week, according to her deposition testimony, in which she was hired to do “due diligence on [John Mack’s] possible involvement in an insider trading matter involving Peqout.” Mack went on to become Morgan Stanley’s CEO.

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According to a report by the Senate minority staff of the Committee on Finance and the Committee of the Judiciary, then SEC Associate Director of Enforcement Paul Berger was instrumental in the firing of SEC Senior Counsel Gary Aguirre, who wanted to question Mack about the insider trading matter. Aguirre won a wrongful dismissal suit from the SEC, and Berger won a job when White hired him away from the SEC to the white shoe law firm where she worked. “Associate Director Paul Berger contacted [the law firm] Debevoise & Plimpton about potential employment just days after he initialed Aguirre’s termination notice,” the Senate report noted.

In one part of the deposition, White uses language we are familiar hearing from politicians, characterizing Berger as “a very aggressive enforcement lawyer.” Yet in the same deposition, White explained that in her due diligence on hiring Berger she sought to determine how aggressive he really was. When asked if Berger’s aggressive reputation was a positive, she responded, “It was an issue to explore … an issue, we really did talk to a number of people about.”

She went on to explain why doing one’s job in SEC enforcement could be a negative. “We were trying to obviously figure out … was this an issue that was beyond just real commitment to the job and the mission and bringing cases, which is a positive thing in the government, to a point [emphasis added]. Or was it a broader issue that could leave resentment in the business community or in the legal community in a way that would hamper his ability to function well in the private sector. And obviously we were satisfied with the answers …we ask a lot of those questions.”

In other words, she wanted to know if he had upset the wrong people. Obviously, Berger — and others, like former SEC enforcement chief Robert Khuzami who in July glided into a $5 million per year job with law firm Kirkland & Ellis — passed those tests: both were awarded plum private sector jobs.

So who’s heading SEC enforcement now? White has appointed two SEC co-enforcement chiefs. Co-chief Andrew Ceresney worked for White before. In fact, White identified him in her deposition as the Debevoise partner who worked with her on the Pequot probe.

The other co-enforcement chief is George Canellos. According to a recent New York Times investigation, Canellos has been instrumental in ensuring no Lehman executives were prosecuted in the wake of the financial crisis.

Aguirre told me that it’s telling that Canellos, based on the New York Times’ reporting, did not prepare a potential case against Lehman, a standard practice if you are trying to determine whether to bring a case or not.

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Canellos is named in a complaint related to reprisals against SEC attorney Kathleen Furey. (Aguirre is representing Furey in the matter.) Furey pushed the agency on investment management investigations, which was described by Rolling Stone’s Matt Taibbi  in Why Didn’t the SEC Catch Madoff? It Might Have Peen Policy Not To.

Of course, mega-bank executives and others on Wall Street could decide to change on their own. Dimon, in a note to employees, has described a new controls campaign at the bank. But will it address the underlying woes – or flop like former Citi (C) CEO Chuck Prince’s remediation efforts did at that financial institution? In the same memorandum, Dimon wrote, “we [have] never wavered in supporting our clients and communities.”

If what megabanks did caused no harm, we wouldn’t need a strong SEC and strong bank regulators. But from unfair foreclosures and evictions — to commodity price and other market manipulations, even post-crisis mega-banks are continuing to seek money-making endeavors that blow up the lives of those in their wake.

It’s up to the government to put in place reasonable brakes to change the way mega-banks operate.

A board member of a large public utility recently expressed to me the view that fraud and greed are now rampant in our country. Our current perceptions do not enhance our ability to do business with one another and yield ongoing negative consequences for our economy.

Citizens must demand that the motives of those we call public servants be examined. We need to get better answers from prospective appointees about why they want to serve – and whom. And if money-making has been their primary life score, how they propose to change their stripes.

Aguirre doesn’t think former SEC Chair Mary Schapiro stood a chance against the entrenched forces at SEC’s enforcement division. The question now is where White is coming from.

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In the 2007 Pequot deposition, White was asked, “Do you have any knowledge whether you were being considered for a position either at the SEC or the PCAOB?” White responded, “I certainly hope not,” and her attorney Bruce Yannett chimed in, “That makes two of us.” But later White says that SEC Chief Harvey Pitt had asked her about her interest in serving at the PCAOB. Her response to Pitt? “My mother didn’t have children that stupid.”

I sincerely doubt White has lost her smarts since then. But now that we know the game, it’s up to all of us to keep our wits about us. Five years after Lehman, it’s time to drop the disappointment and surprise. It is time to know what we know and take action.

Eleanor Bloxham is CEO of The Value Alliance and Corporate Governance Alliance (

), a board education and advisory firm.