Strikingly few have been punished so far for causing the worst financial crisis since the 1930s, so it’s time to hit more Street executives where it really hurts: their wallets, writes MoneyShow.com editor-at-large Howard R. Gold.

This week, US District Judge Jed S. Rakoff upended the cozy world of securities law by rejecting a settlement between the Securities and Exchange Commission and Citigroup (C).

The SEC had gotten Citigroup to agree to pay $285 million to settle civil fraud charges on one of the horrible deals Wall Street firms foisted on clients during the housing bubble.

This one involved a $1 billion mortgage-bond deal, half of which Citi allegedly bet against. (Goldman Sachs (GS) paid $550 million in its infamous ABACUS deal.)

In his ruling, Judge Rakoff, who made no secret of his dissatisfaction with the Citigroup deal from day one, called it “neither fair, nor reasonable, nor adequate, nor in the public interest.”

He reserved particular scorn for the SEC’s policy of including boilerplate language in which settling firms neither admit nor deny wrongdoing.

In a rhetorical flourish, Judge Rakoff declared this policy was “hallowed by history but not by reason,” adding that such settlements were “viewed…as a cost of doing business.” He called the $95 million penalty part of the settlement “pocket change” for Citigroup.

The SEC’s enforcement director, Robert Khuzami, responded in a public statement that the settlement was “fair, adequate, reasonable, in the public interest, and reasonably reflects the scope of relief that would be obtained after a successful trial.”

Firms demand this language as inoculation against potentially costly private lawsuits, and the formula, in effect for decades, has been adopted by other federal agencies as well. Without it, the SEC says, defendants may refuse to settle and take their chances in court, where costs mount and wronged investors may not get repaid.

But the judge has hit a real nerve here. Despite helping cause the worst financial crisis since the Great Depression, no major Wall Street executive has gone to jail, and few have paid substantial fines.

In fact, after massive taxpayer bailouts, Wall Street banks made huge profits in 2009 and 2010, and paid outrageous bonuses to undeserving employees. They should have forwarded their bonus checks directly to Federal Reserve chairman Ben Bernanke, who truly earned them for slashing interest rates and pumping money into the economy.

The financial industry remains one of the most powerful in Washington, and executives have been grumbling about the onerous regulatory shackles that supposedly keep them from lending to businesses that create jobs. The chutzpah of these people! When did they ever care about anyone’s job but their own?

And now, Occupy Wall Street, for all its shortcomings, has given voice to a widely shared perception: Wall Street helped cause the crisis, but the bankers walked away with millions while the rest of the country was screwed.

 “We haven’t really gone far enough,” said Eliot L. Spitzer, the ex-governor and former attorney general of New York who made a landmark $1.4 billion settlement with major Wall Street firms in 2002 over conflicts of interest between stock research and investment banking.

“It’s frustrating beyond words to see this going on,” he said in an interview. “I know it’s hard to make cases. I’m itching to see some sort of accountability.”

And maverick banking analyst Mike Mayo, who testified before the Financial Crisis Inquiry Commission, told me: “In many ways we’re in the same place today even after the mortgage meltdowns and after the Spitzer settlements. It’s amazing to me.”

“There are all these incentives to make a lot of money in the short term, and that’s still in place today,” said Mayo, who recently wrote an entertaining and insightful book, Exile on Wall Street, about his travails as an analyst trying to speak truth to power.

NEXT: The Big Banks’ Power

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That’s the key word—power. The big Wall Street banks have gotten exponentially bigger, richer, and more powerful.

“The biggest banks are 20 times larger than they were when I was at the Fed in the late 80s,” said Mayo, who is currently managing director at Crédit Agricole Securities.

“The biggest banks have the power to run roughshod over politicians, journalists, rating agencies, Wall Street analysts like myself, and others that get in their way.”

Mayo learned that the hard way by pointing out structural problems with major banks and honing in on their compensation years before the crisis hit. He’s lost more than one job for sticking to his convictions.

He believes the Street’s compensation structure is “warped, if not entirely broken,” even though some firms have stretched out bonuses, pay more in stock, and have instituted “clawbacks” so employees will have to repay their firms when their risky bets go bad.

Wall Street bonuses will be down roughly 30% this year, a private study projected. So, for example, a high-level bond trader who took in $2.9 million last year might make only $1.7 million this year.

Should we take up a collection?

With so much money even in the down years, is it any surprise these people shrug off the kinds of settlements the SEC makes? Especially since they’re spending shareholders’ money, not their own?
On its Web site, the SEC says it has charged 39 CEOs and other senior executives, suspended or barred 24, and won nearly $2 billion in penalties and other monetary relief for misconduct related to the financial crisis.

And Khuzami has said that settlements of this kind allow the SEC to recover substantial damages for investors without getting stuck in endless court proceedings—which it claims would be inevitable if it insisted companies admit wrongdoing.

But the settlements have had little deterrent effect. The New York Times found that since 1996 there were “at least 51 cases in which 19 Wall Street firms had broken antifraud laws they had agreed never to breach.” That pledge, too, is routinely part of the settlements.

The SEC knows it has a problem. The day of Judge Rakoff’s ruling, chairman Mary Schapiro fired off a letter to top senators asking Congress to give the commission “the power to impose much-larger penalties on financial firms and individuals that commit fraud” than the law currently allows, The Wall Street Journal reported.

That’s a good idea, but both Eliot Spitzer and Mike Mayo said they have to start at the top.

“We need to focus more on individual senior executives,” said Spitzer. “They should admit wrongdoing where it’s there.”

“You want an incentive?” asked Mayo. “Say no top executive will get any incentive compensation if they do this again. That would be an incentive.”

I say it’s time to end business as usual with Wall Street and go after them more aggressively on both the civil and the criminal front. That will mean hitting top executives and bankers where they live—in their wallets. The much-maligned Sarbanes-Oxley law gives regulators and prosecutors tools to do that. They should use them.

Yes, it will mean taking more risk and sometimes losing a couple of cases. But sometimes the government will win big, too.

So, SEC, why not take it up a few notches and go for it? I guarantee that the American people will be behind you all the way.

Howard R. Gold is editor at large for MoneyShow.com and a columnist for MarketWatch. You can follow him on Twitter @howardrgold, read more of his commentary on www.howardrgold.com and check out his political blog, www.independentagenda.com.