Judge Jed Rakoff woke up yesterday and smelled the coffee.

And then asked — who is to blame for the financial meltdown?

“Five years have passed since the onset of what is sometimes called the Great Recession,” Rakoff opened his speech to a New York bar conference yesterday.

“Who was to blame?” he asked.

“Was it simply a result of negligence, of the kind of inordinate risk-taking commonly called a ‘bubble,’ of an imprudent but innocent failure to maintain adequate reserves for a rainy day?”

“Or was it the result, at least in part, of fraudulent practices, of dubious mortgages portrayed as sound risks and packaged into ever-more-esoteric financial instruments, the fundamental weaknesses of which were intentionally obscured?”

“If it was the former – if the recession was due, at worst, to a lack of caution – then the criminal law has no role to play in the aftermath.”

“For, in all but a few circumstances — not here relevant —  the fierce and fiery weapon called criminal prosecution is directed at intentional misconduct, and nothing less. If the Great Recession was in no part the handiwork of intentionally fraudulent practices by high-level executives, then to prosecute such executives criminally would be ‘scapegoating’ of the most shallow and despicable kind.”

“But if, by contrast, the Great Recession was in material part the product of intentional fraud, the failure to prosecute those responsible must be judged one of the more egregious failures of the criminal justice system in many years. Indeed, it would stand in striking contrast to the increased success that federal prosecutors have had over the past 50 years or so in bringing to justice even the highest level figures who orchestrated mammoth frauds.”

Let us count the ways.

“In the 1970’s, in the aftermath of the ‘junk bond’ bubble that, in many ways, was a precursor of the more recent bubble in mortgage-backed securities, the progenitors of the fraud were all successfully prosecuted, right up to Michael Milken,” Rakoff said.

“Again, in the 1980’s, the so-called savings-and-loan crisis, which again had some eerie parallels to more recent events, resulted in the successful criminal prosecution of more than 800 individuals, right up to Charles Keating.”

“And, again, the widespread accounting frauds of the 1990’s, most vividly represented by Enron and WorldCom, led directly to the successful prosecution of such previously respected C.E.O.’s as Jeffrey Skilling and Bernie Ebbers.”

“In striking contrast with these past prosecutions, not a single high level executive has been successfully prosecuted in connection with the recent financial crisis, and given the fact that most of the relevant criminal provisions are governed by a five-year statute of limitations, it appears very likely that none will be. It may not be too soon, therefore, to ask why.”

“One possibility, already mentioned, is that no fraud was committed,” Rakoff said. “This possibility should not be discounted. Every case is different, and I, for one, have no opinion as to whether criminal fraud was committed in any given instance.”

“But the stated opinion of those government entities asked to examine the financial crisis overall is not that no fraud was committed.”

“Quite the contrary. For example, the Financial Crisis Inquiry Commission, in its final report, uses variants of the word ‘fraud’ no fewer than 157 times in describing what led to the crisis, concluding that there was a ‘systemic breakdown,’ not just in accountability, but also in ethical behavior. As the Commission found, the signs of fraud were everywhere to be seen, with the number of reports of suspected mortgage fraud rising 20-fold between 1998 and 2005 and then doubling again in the next four years”.

“As early as 2004, FBI Assistant Director Chris Swecker, was publicly warning of the “pervasive problem” of mortgage fraud, driven by the voracious demand for mortgagebacked securities. Similar warnings, many from within the financial community, were disregarded, not because they were viewed as inaccurate, but because, as one high level banker put it ‘A decision was made that  — ‘We’re going to have to hold our nose and start buying the product if we want to stay in business.’’”

“Without multiplying examples, the point is that, in the aftermath of the financial crisis, the prevailing view of many government officials (as well as others) was that the crisis was in material respects the product of intentional fraud. In a nutshell, the fraud, they argued, was a simple one. Subprime mortgages, i.e., mortgages of dubious creditworthiness, increasingly provided the sole collateral for highly-leveraged securities that were marketed as triple-A, i.e., of very low risk. How could this transformation of a sow’s ear into a silk purse be accomplished unless someone dissembled along the way?”

Rakoff said that “the Department of Justice has never taken the position that all the top executives involved in the events leading up to the financial crisis were innocent, but rather has offered one or another excuse for not criminally prosecuting them – excuses that, on inspection, appear unconvincing.”

“So, you might ask, what’s really going on here?” Rakoff asks.

“I don’t claim to have any inside information about the real reasons why no such prosecutions have been brought, but I take the liberty of offering some speculations, for your consideration or amusement as the case may be.”

Rakoff discounts the revolving door theory.

“In my experience, every federal prosecutor, at every level, is seeking to make a name for him-or-herself, and the best way to do that is by prosecuting some high level person,” Rakoff said. “While companies that are indicted almost always settle, individual defendants whose careers are at stake will often go to trial. And if the government wins such a trial, as it usually does, the prosecutor’s reputation is made. My point is that whatever small influence the ‘revolving door’ may have in discouraging certain white-collar prosecutions is more than offset, at least in the case of prosecuting high-level individuals, by the career-making benefits such prosecutions confer on the successful prosecutor.”

So, why no prosecutions of top level executives from the big banks?

Rakoff puts forth three explanations.

One, the government had other priorities — terrorism, other Ponzi-like schemes, insider trading.

Two, the government “had a hand in creating the conditions that encouraged the approval of dubious mortgages.”

And three, “the shift that has occurred over the past 30 years or more from focusing on prosecuting high-level individuals to focusing on prosecuting companies and other institutions.”

But in the case of the investigations growing out of the financial crisis, the Department of Justice’s position has been that going after the suspect institutions poses too great a risk to the nation’s economic recovery.

“So you don’t go after the companies, at least not criminally, because they are too big to jail,” Rakoff said. “And you don’t go after the individuals, because that would involve the kind of years-long investigations that you no longer have the experience or the resources to pursue.”

“In conclusion, I want to stress again that I have no idea whether the financial crisis that is still causing so many of us so much pain and despondency was the product, in whole or in part, of fraudulent misconduct,” Rakoff said. “But if it was — as various governmental authorities have asserted it was – then, the failure of the government to bring to justice those responsible for such colossal fraud bespeaks weaknesses in our prosecutorial system that need to be addressed.”