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> At a big bank like Goldman, a routine part of a banker's or trader's job is running things by the in-house lawyers. By and large that wasn't true for the savi

by pnathan 11y ago

> At a big bank like Goldman, a routine part of a banker's or trader's job is running things by the in-house lawyers. By and large that wasn't true for the savings and loans that failed decades ago. And while legal oversight doesn't prevent excessive risk-taking, or buying loans with bad underwriting, it does tend to prevent activities that can be easily prosecuted as criminally fraudulent. I think this is one of the basic things going on here: this wasn't crime, by and large. This wasn't illegal. People have not understood that. And so they are angry...

RobertoG 11y ago
It seems to me that a lot of people is angry precisely because it wasn't illegal.
- EdHominem 11y ago
  Or rather, wasn't illegal when it was friends of the prosecutor and people too big to fail. You try this and you'll be in jail tomorrow.
- pnathan 11y ago
  > It seems to me that a lot of people is angry precisely because it wasn't illegal. Sure. And that's totally reasonable(I would personally not support that, but I can understand that). But, that isn't generally how things are framed, though - "throw the banking crisis bankers in jail" is one of the popular memes.
dopamean 11y ago
I understand that things can look bad and perhaps even look illegal but then an investigation is done the prosecutors correctly conclude that no actual law was violated. That makes sense and is totally fine by me. What's hard for me to understand and believe is that a company like GS would be willing to pay out that much money when no crime had occurred. If no crime had occurred why did they set aside nearly 2 billion dollars for legal defense. I can understand setting aside that much to defend against an actual prosecution but there was none here. Another thing that is concerning is that if all of this happened but no actual crime was committed then maybe the laws need to be changed. I don't know enough about the current state of the law (or previous) but it would seem that through years of lobbying the big banks were able to buy themselves a much more comfortable legal and regulatory environment within which they could operate. One so comfortable that they could do what they did without even breaking the law. I think that is something worth being angry about.
- rayiner 11y ago
  > What's hard for me to understand and believe is that a company like GS would be willing to pay out that much money when no crime had occurred. The settlement is for a civil action under the FIRREA: http://www.jonesday.com/firrea-civil-money-penalties-the-governments-newfound-weapon-against-financial-fraud http://www.jonesday.com/firrea-civil-money-penalties-the-gov.... That Act provides for the government to bring a civil action for violations of 14 specific criminal statutes. While the government must prove the elements of these crimes, the burden of proof is only the "civil preponderance" of the evidence standard, not the criminal "beyond a reasonable doubt" standard.
  - dopamean 11y ago
    Makes sense. Thanks for the info.
a3n 11y ago
If it wasn't a crime, then why did the Justice Department extort 5.1B from GS? /s
Zigurd 11y ago
There are two glaring areas of fraud that anyone can understand: Many derivatives are insurance by another name, and sold without insurance-like capital backing it. That's fraud. Then mis-rating those derivatives is fraud. There was clear and readily understood illegality at the core of the derivatives bomb. The rating agencies should have been prosecuted, the ibankers who fed them misinformation that caused misratings should be prosecuted, and the people who formulated and sold an insurance product outside the regulatory framework of insurance should be prosecuted.
- rayiner 11y ago
  > Many derivatives are insurance by another name, and sold without insurance-like capital backing it. That's fraud. So 1) you're going to get an expert up there to testify that derivatives and insurance are the same thing; 2) get a jury to believe you in the face of conflicting expert testimony that nobody in the industry thinks they are the same thing; and 3) get the jury to believe that the bankers who sold the derivatives knew that equivalency beyond a reasonable doubt. That's bonkers. I don't think you get past step 1. As for your second theory: the agencies couch all their ratings with the appropriate disclaimers (based on such and such models, etc). If they had a process, and followed that process to produce a rating, and disclosed as much, that's not fraud, even if the result of that process is garbage.
  - Zigurd 11y ago
    It's no more difficult than explaining that income, couched in all kinds of fancy lawyering, is still income, here or in Panama. On your W2 or in a unit trust. People understand that. Tax agencies regulate and prosecute that. Moreover prosecution is a light punishment for what these people did. They literally committed the fraud of the century, and stole massive amounts from the rest of us by it. I would find it difficult to vote to convict anyone who drags these asses into the street for a beating. At least until prosecutors get over having to work for a conviction.
  - EdHominem 11y ago
    The people involved 1) had a duty to understand the structure of the things they sold, and 2) have specific training meaning that they can't (realistically) say they were unable to understand them. If an engineer claimed not to understand the tools of their field they'd merely be trading one set of liability for another. If the same standards were applied to these people as are applied to the non-rich we'd agree that their university transcripts are proof that they understand the field and that their relationship with the people they recommended these investments to was "customer like" enough to show conflict of interest and misrepresentation. As for your process-protection theory, it doesn't hold up. Processes rule up until you have a reason to believe otherwise. You may normally delete email after three months but if you've been notified that the information in question is being sought as evidence in a trial all of a sudden your process has to change. If an engineer tells me he has a process and I show how that it is (dangerously) wrong he has a legal obligation to investigate and correct his recommendations. The ratings agencies had similar obligations and were given specific written evidence showing their claims to be incorrect. That they chose to ignore these communications means their process defense is worthless. And if they had a process that contributed to them not getting this information, that right there should be enough to show malfeasance from a financial organization.
EdHominem 11y ago
It totally was illegal, it just didn't involve actions that are in isolation illegal. That's the thing with white-collar crime. No guns, etc. Most of these people had a duty to their customers and they specifically recommended bad investments, knowing that they were bad. And I'm not talking about how a bank hedges all the risk by playing both sides - I mean that the banks which made these investments knew they were gaming the ratings agencies and they sold what they knew was junk to people they had agreed to represent. Criminal behavior doesn't go away just because two people agree to split the work. It doesn't matter if one branch wrote the bonds and another sold them - they lied about what they knew at all levels. And many stories suggest that there was probably direct criminal collusion with the ratings agencies - above and beyond the simple fact that the agencies serve those who pay them...
- rayiner 11y ago
  > Most of these people had a duty to their customers and they specifically recommended bad investments, knowing that they were bad. Sellers generally do not have a fiduciary duty to buyers. Even to the extent that there were fiduciary duties, violation of a fiduciary duty is a civil wrong, not a crime.
bubbleRefuge 11y ago
I think it was illegal. 1) Appraisal fraud was rampant, known, and encouraged by the mortgage industry. 2) "Stated-Income" loans were created whereby borrowers were again encouraged to falsify applications by the industry. This is fraud.
- rmah 11y ago
  Banks making mortgages did not pay for appraisals, sellers did. So prosecute the appraisers and sellers. Banks did not falsify borrower income, borrowers did. So prosecute the borrowers. Why blame banks for other people's lies? Or do you think that banks should be responsible for the statements of all parties in any transaction they underwrite or engage in?
  - JoeAltmaier 11y ago
    That's whitewashing the banks' participation in a scheme that everybody knew was corrupt. The quality of the mortgages was several ranks lower than presented. Its arguable the banks knew that. If you know other people are lying, and pretend they aren't, you are complicit in the lie.
rainhacker 11y ago
It wasn't illegal because these banks created deliberate loopholes in regulations by lobbying.

by pnathan 11y ago

RobertoG 11y ago

It seems to me that a lot of people is angry precisely because it wasn't illegal.

EdHominem 11y ago
Or rather, wasn't illegal when it was friends of the prosecutor and people too big to fail. You try this and you'll be in jail tomorrow.
pnathan 11y ago
> It seems to me that a lot of people is angry precisely because it wasn't illegal. Sure. And that's totally reasonable(I would personally not support that, but I can understand that). But, that isn't generally how things are framed, though - "throw the banking crisis bankers in jail" is one of the popular memes.

dopamean 11y ago

I understand that things can look bad and perhaps even look illegal but then an investigation is done the prosecutors correctly conclude that no actual law was violated. That makes sense and is totally fine by me. What's hard for me to understand and believe is that a company like GS would be willing to pay out that much money when no crime had occurred. If no crime had occurred why did they set aside nearly 2 billion dollars for legal defense. I can understand setting aside that much to defend against an actual prosecution but there was none here. Another thing that is concerning is that if all of this happened but no actual crime was committed then maybe the laws need to be changed. I don't know enough about the current state of the law (or previous) but it would seem that through years of lobbying the big banks were able to buy themselves a much more comfortable legal and regulatory environment within which they could operate. One so comfortable that they could do what they did without even breaking the law. I think that is something worth being angry about.

rayiner 11y ago
> What's hard for me to understand and believe is that a company like GS would be willing to pay out that much money when no crime had occurred. The settlement is for a civil action under the FIRREA: http://www.jonesday.com/firrea-civil-money-penalties-the-governments-newfound-weapon-against-financial-fraud http://www.jonesday.com/firrea-civil-money-penalties-the-gov.... That Act provides for the government to bring a civil action for violations of 14 specific criminal statutes. While the government must prove the elements of these crimes, the burden of proof is only the "civil preponderance" of the evidence standard, not the criminal "beyond a reasonable doubt" standard.
- dopamean 11y ago
  Makes sense. Thanks for the info.

a3n 11y ago

If it wasn't a crime, then why did the Justice Department extort 5.1B from GS? /s

Zigurd 11y ago

There are two glaring areas of fraud that anyone can understand: Many derivatives are insurance by another name, and sold without insurance-like capital backing it. That's fraud. Then mis-rating those derivatives is fraud. There was clear and readily understood illegality at the core of the derivatives bomb. The rating agencies should have been prosecuted, the ibankers who fed them misinformation that caused misratings should be prosecuted, and the people who formulated and sold an insurance product outside the regulatory framework of insurance should be prosecuted.

rayiner 11y ago
> Many derivatives are insurance by another name, and sold without insurance-like capital backing it. That's fraud. So 1) you're going to get an expert up there to testify that derivatives and insurance are the same thing; 2) get a jury to believe you in the face of conflicting expert testimony that nobody in the industry thinks they are the same thing; and 3) get the jury to believe that the bankers who sold the derivatives knew that equivalency beyond a reasonable doubt. That's bonkers. I don't think you get past step 1. As for your second theory: the agencies couch all their ratings with the appropriate disclaimers (based on such and such models, etc). If they had a process, and followed that process to produce a rating, and disclosed as much, that's not fraud, even if the result of that process is garbage.
- Zigurd 11y ago
  It's no more difficult than explaining that income, couched in all kinds of fancy lawyering, is still income, here or in Panama. On your W2 or in a unit trust. People understand that. Tax agencies regulate and prosecute that. Moreover prosecution is a light punishment for what these people did. They literally committed the fraud of the century, and stole massive amounts from the rest of us by it. I would find it difficult to vote to convict anyone who drags these asses into the street for a beating. At least until prosecutors get over having to work for a conviction.
- EdHominem 11y ago
  The people involved 1) had a duty to understand the structure of the things they sold, and 2) have specific training meaning that they can't (realistically) say they were unable to understand them. If an engineer claimed not to understand the tools of their field they'd merely be trading one set of liability for another. If the same standards were applied to these people as are applied to the non-rich we'd agree that their university transcripts are proof that they understand the field and that their relationship with the people they recommended these investments to was "customer like" enough to show conflict of interest and misrepresentation. As for your process-protection theory, it doesn't hold up. Processes rule up until you have a reason to believe otherwise. You may normally delete email after three months but if you've been notified that the information in question is being sought as evidence in a trial all of a sudden your process has to change. If an engineer tells me he has a process and I show how that it is (dangerously) wrong he has a legal obligation to investigate and correct his recommendations. The ratings agencies had similar obligations and were given specific written evidence showing their claims to be incorrect. That they chose to ignore these communications means their process defense is worthless. And if they had a process that contributed to them not getting this information, that right there should be enough to show malfeasance from a financial organization.

EdHominem 11y ago

It totally was illegal, it just didn't involve actions that are in isolation illegal. That's the thing with white-collar crime. No guns, etc. Most of these people had a duty to their customers and they specifically recommended bad investments, knowing that they were bad. And I'm not talking about how a bank hedges all the risk by playing both sides - I mean that the banks which made these investments knew they were gaming the ratings agencies and they sold what they knew was junk to people they had agreed to represent. Criminal behavior doesn't go away just because two people agree to split the work. It doesn't matter if one branch wrote the bonds and another sold them - they lied about what they knew at all levels. And many stories suggest that there was probably direct criminal collusion with the ratings agencies - above and beyond the simple fact that the agencies serve those who pay them...

rayiner 11y ago
> Most of these people had a duty to their customers and they specifically recommended bad investments, knowing that they were bad. Sellers generally do not have a fiduciary duty to buyers. Even to the extent that there were fiduciary duties, violation of a fiduciary duty is a civil wrong, not a crime.

bubbleRefuge 11y ago

I think it was illegal. 1) Appraisal fraud was rampant, known, and encouraged by the mortgage industry. 2) "Stated-Income" loans were created whereby borrowers were again encouraged to falsify applications by the industry. This is fraud.

rmah 11y ago
Banks making mortgages did not pay for appraisals, sellers did. So prosecute the appraisers and sellers. Banks did not falsify borrower income, borrowers did. So prosecute the borrowers. Why blame banks for other people's lies? Or do you think that banks should be responsible for the statements of all parties in any transaction they underwrite or engage in?
- JoeAltmaier 11y ago
  That's whitewashing the banks' participation in a scheme that everybody knew was corrupt. The quality of the mortgages was several ranks lower than presented. Its arguable the banks knew that. If you know other people are lying, and pretend they aren't, you are complicit in the lie.

rainhacker 11y ago

It wasn't illegal because these banks created deliberate loopholes in regulations by lobbying.