Roger Lowenstein has a big piece out in Bloomberg BusinessWeek, an apology for Wall Street—duly celebrated by The New York Times’s Andrew Ross Sorkin on Twitter as “courageous” and “probably right”—arguing “Wall Street: Not Guilty.”

What’s with our elite financial journalists?

Problem is, this piece is based on a straw man: that fire-breathing critics of Wall Street like Taibbi and, um, Joe Nocera and, well, the news reporters at The New York Times and NPR, think that the crisis was caused by financial fraud alone.

But none of them—not even Taibbi—thinks fraud was the sole cause of the crisis, which had many contributing factors, including excess Chinese savings, regulatory capture, financial wizardry, and, yes, fraud.

Lowenstein himself concedes that the “crisis was accompanied by fraud” and that “mortgage fraud exacerbated the bubble,” but writes like he’s offering the pitchfork-wielding mob of well-paid journalists a new insight that the crisis was “multi-causal.” I’m not aware of anybody who thinks it wasn’t.

And if the crisis was “accompanied” by fraud, as Lowenstein himself says, then the headline—”Wall Street: Not Guilty”—is just wrong isn’t it? Bizweek should have avoided the temptation for sensationalism.

Besides being a name-brand business journalist, Lowenstein is also an outside director of the well respected Sequoia Fund, which has some of its money in (non Wall Street) bank stocks. I don’t think this is a huge deal, but it’s an unusual enough arrangement for a journalist that Bloomberg BusinessWeek should disclose the affiliation, which it doesn’t here. It’s not about conflict, but it is about perspective. Lowenstein, in this piece at least, is excusing people he is working among, a financial-world culture he is working in. State house reporters don’t accept political appointments both for appearance reasons and to help them maintain critical distance.

In any case, here’s his summary of his opponents’ arguments:

There are those who have implied that prosecutors are either too cozy with Wall Street or too incompetent to bring cases to court. Thus, in a measured piece that assessed the guilt of various financial executives, New York Times columnist Joe Nocera lamented that “Wall Street bigwigs whose firms took unconscionable risks … aren’t even on Justice’s radar screen.” A news story in the Times about a mortgage executive who was convicted of criminal fraud observed, “The Justice Dept. has yet to bring charges against an executive who ran a major Wall Street firm leading up to the disaster.” In the same dispassionate tone, National Public Radio’s All Things Considered chimed in, “Some of the most publicly reviled figures in the mortgage mess won’t face any public accounting.” New York magazine saw fit to print the estimable opinion of Bernie Madoff, who observed that the dearth of criminal convictions is “unbelievable.” Rolling Stone, which has been beating this drum the longest and with the heaviest hand, reductively asked, “Why isn’t Wall Street in jail?”

Taken from the top, these sentiments imply that the financial crisis was caused by fraud; that people who take big risks should be subject to a criminal investigation; that executives of large financial firms should be criminal suspects after a crash; that public revulsion indicates likely culpability; that it is inconceivable (to Madoff, anyway) that people could lose so much money absent a conspiracy; and that Wall Street bears collective guilt for which a large part of it should be incarcerated.

These assumptions do violence to our system of justice and hinder our understanding of the crisis.

Note the “measured piece” qualifer on the Nocera quote. That’s a euphemism for: A column Nocera wrote about how prosecutors were probably right not to bring charges against executives, who he thinks were dumb, not criminal. But Lowenstein would have you think Nocera and his ilk think taking big risks should mean jail time, as if Joe wants investigators to swarm Vegas when some guy bets it all on black. Nocera wasn’t saying that any more than any of the other journalists quoted here meant what Lowenstein says they did. Even Madoff didn’t really imply what Lowenstein says he did.

Lowenstein dismisses the rabble wanting Wall Street accountability as “armchair prosecutors” with “populist notions,” emblems of the Paranoid Style in American Politics with parallels to the “dismal historiography of JFK assassination buffs to the beliefs that Washington was implicated in Pearl Harbor and Sept. 11,” saying “it’s easier for people to believe that some bad actor is the cause of bad things.”

Well, yes. This wasn’t a natural disaster, but that doesn’t mean evil puppetmasters set out to crash the global economy on purpose.

The problem with letting Wall Street off the hook now is that so much of this stuff hasn’t really even been investigated yet. Just today, news is out that the New York attorney general is opening a broad investigation into Wall Street securitization practices during the bubble, which was four years ago and that a federal audit found that the top five mortgage companies defrauded the federal government.

It isn’t just that prosecutors haven’t gone after the bigwigs of Wall Street, it’s that they haven’t even gone after the smaller fry. If you think about it, it’s pretty surprising that Senate investigators have found so much damning stuff on email. Everybody knows the really naughty stuff isn’t going to be put into writing. That’s why you find so many LDLs in sensitive areas of Goldman’s emails—“let’s discuss live.”

How do you build a case against the higher-ups then? The tried and true method is to target the proles who committed more-obvious crimes, flip them, and work your way up the chain. None of that has been attempted (as far as we know) with Wall Street for its role in the crisis. Contrast that with the full-court press done to protect other investors in the Galleon and SAC Capital investigations, which have been filled with wiretaps, flips, and convictions.

So what are some of the “big risks” that do deserve criminal investigation? Here are a few off the top of my head:

— Reducing “the number of souring loans they returned to the originator in exchange for the right to buy some of the originator’s next batch of loans.”

That’s what the New Century bankruptcy trustee’s report says Wall Street did while denying putback claims by securities investors.

— “Peddl(ing) these mortgages with a willful disregard, bordering on fraud, for whether their customers could repay them.”

Lowenstein himself wrote that in The End of Wall Street. If even he thinks that the Street’s mortgage practices—which were clearly a major cause of the crash—were “bordering on fraud,” then why the carping about people calling for criminal investigations of and charges for things like Wall Street’s mortgage practices?

— Lying about how much debt you have.

Here’s Lowenstein in BW on Lehman Brothers’ Repo 105 scheme (emphasis mine):

Although Repo 105 enabled Lehman to mask $50 billion of debt, the firm’s reported debt was more than $600 billion. Put differently, Lehman’s net leverage ratio was either 15 times or 17 times, both sky-high. Either way, the world knew it was highly leveraged, and its solvency was a matter of intense public debate. Had Lehman presented its balance sheet with more candor, it conceivably would have suffered its crisis earlier; maybe it would have failed in July instead of September. Regardless, the cause of the failure wasn’t Lehman’s misguided attempt to beautify its books. It was its excessive appetite for debt, and the risk tolerance of its creditors, for years before.

Let’s assume that Repo 105 was the only book-cooking Lehman was doing (it almost surely wasn’t), and that at best it staved off Lehman’s bankruptcy by just two months.

The financial crisis—or at least the scale of it— was due in no small part to investor distrust of the books at banks like Lehman Brothers. Nobody outside Lehman and its auditor Ernst & Young specifically knew about Repo 105 in September 2008, but lots of people, like David Einhorn, knew or suspected that Lehman was cooking its books; that the numbers just didn’t add up.

Einhorn et al. were right and as Lehman’s woes trickled out during 2008, its credibility with the markets deteriorated. Accounting fraud is particularly problematic in a financial company that depends on the short-term whims of creditors. A little (like, say, $50 billion) fudging around the edges can undermine confidence in the whole house of cards and infect peers. So Repo 105 itself may have been just one more stone in the avalanche, but so was every other action that contributed to the crisis, many of which weren’t illegal but were unethical. This one was probably both, and it exemplifies the contempt Lehman executives had for straight dealing.

When you see a blatant fraud like Repo 105, you ought to treat it like the tip of an iceberg—evidence of a rotten culture likely to have perpetuated other crimes.

Deceiving people into buying your toxic assets as they start going bad.

I noticed two words missing from this piece: “Levin” and “Coburn.” 

So turn to Matt Taibbi, who just put out another anti-Goldman jeremiad in Rolling Stone.

Whatever you think about Taibbi’s muckraking style of journalism, it’s hard to read his piece, much less the actual Levin-Coburn report, and not come to the conclusion that securities fraud played a significant role in amplifying the damage from the housing bubble.

Where Lowenstein tells us this:

I wasn’t a fan of Goldman’s slickness in letting a short-seller design a collateralized debt obligation that Goldman marketed to clients, for which it was sanctioned by the Securities and Exchange Commission. However, its unsavory dealmaking should not obscure that in betting, correctly, against the housing market, it helped mitigate the crash. Had more firms done as Goldman and shorted mortgages, fewer unsound loans would have been issued.

Taibbi tells us this:

In the marketing materials for the Hudson deal, Goldman claimed that its interests were “aligned” with its clients because it bought a tiny, $6 million slice of the riskiest portion of the offering. But what it left out is that it had shorted the entire deal, to the tune of a $2 billion bet against its own clients. The bank, in fact, had specifically designed Hudson to reduce its exposure to the very types of mortgages it was selling — one of its creators, trading chief Michael Swenson, later bragged about the “extraordinary profits” he made shorting the housing market. All told, Goldman dumped $1.2 billion of its own crappy “cats and dogs” into the deal — and then told clients that the assets in Hudson had come not from its own inventory, but had been “sourced from the Street.”

Taibbi is much closer to the truth here. Lowenstein’s line that Goldman’s shorts “helped mitigate the crash” is one way to put it. It helped mitigate its own crash, certainly. But it exacerbated others’. Goldman was unloading toxic mortgage securities it had created right until the very end on unsuspecting investors, deceiving them about the firm’s role and interest in them.

And then there’s Timberwolf, the CDO-squared immortalized in a Goldman email as “one shitty deal”—one that internal documents show that the bank was scrambling to unload as it saw the end was nigh. Taibbi:

Goldman executives were so “worried” about holding this stuff, in fact, that they quickly sent directives to all of their salespeople, offering “ginormous” credits to anyone who could manage to find a dupe to take the Timberwolf All-Americans off their hands.

On Wall Street, directives issued from above are called “axes,” and Goldman’s upper management spent a great deal of the spring of 2007 “axing” Timberwolf. In a crucial conference call on May 20th that included Viniar, Sparks oversaw a PowerPoint presentation spelling out, in writing, that Goldman’s mortgage desk was “most concerned” about Timberwolf and another CDO-squared deal. In a later e-mail, he offered an even more dire assessment of such deals: “There is real market-meltdown potential.”

On May 22nd, two days after the conference call, Goldman sales rep George Maltezos urged the Australians at Basis (Capital) to hurry up and buy what the bank knew was a deadly investment, suggesting that the “return on invested capital for Basis is over 60 percent.”

Goldman hosed Basis for $100 million of Timberwolf, sent margin calls two weeks after that, and in two more weeks the fund was bankrupt.

The shadiness goes back further than 2007, of course. Wall Street provided the financing that was the lifeblood of predatory lenders like Ameriquest and Countrywide. In many cases, Wall Street was the predatory lender. Giant banks like Washington Mutual and Lehman Brothers cut out the middlemen, becoming one-stop shops of toxic slop. It’s hard to argue in the face of evidence from the likes of Clayton Holdings, that Wall Street didn’t know it was defrauding investors by repackaging fraudulent loans.

And Lehman, for one, had done it all before, in the 1990s:

The vice president, Eric Hibbert, wrote a memo describing First Alliance as a financial “sweat shop” specializing in “high pressure sales for people who are in a weak state.” At First Alliance, he said, employees leave their “ethics at the door.”

The big Wall Street investment bank decided First Alliance wasn’t breaking any laws. Lehman went on to lend the mortgage company roughly $500 million and helped sell more than $700 million in bonds backed by First Alliance customers’ loans. But First Alliance later collapsed. Lehman landed in court, where a federal jury found the firm helped First Alliance defraud customers.

But wait a minute: Why does this need to be explained to leading financial journalists?

Beyond all that, there’s another core problem that Lowenstein doesn’t take into account: When you have a system set up by and for people getting paid millions or tens of millions of dollars a year and that system goes catastrophically awry and destroys the lives of millions of people while costing taxpayers trillions of dollars—and the people who set it up and failed continue to be paid millions or tens of millions of dollars a year (which Lowenstein has, to his credit, railed against), the desire for scalps is going to be high. People want the folks on Wall Street to pay a price for their recklessness. We sense, and reporting has shown, that in an orgy of greed like the one we saw from 2005 to 2007, that lots of crimes were committed, particularly as the music stopped.

So recklessness and “unconscionable risk-taking” might not be illegal, and most of the actions taken by those in positions of power may have been technically legal, but that doesn’t mean finding other ways to penalize them for the unethical actions is a bad idea. We sent Al Capone away for tax evasion, after all. Why is it a bad thing if Dick Fuld gets shackled for something like Repo 105?

I’ll leave the last word to Andrew Ross Sorkin, of all people, who wrote this in December:

If the government spent half the time trying to ferret out fraud at major companies that it does tracking pump-and-dump schemes, we might have been able to stop the financial crisis, or at least we’d have a fighting chance at stopping the next one.

Now that’s courageous, at least for a financial journalist.

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at