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Are you implying that the bankers should go to jail for the misrepresentations made by the applicant because they didn’t exercise an “appropriate” level of dili

Are you implying that the bankers should go to jail for the misrepresentations made by the applicant because they didn’t exercise an “appropriate” level of diligence?

dragonwriter 8y ago
No, IIRC from reports years back, there is considerable evidence that this kind of fraud was not often not initiated by applicants but encouraged by lender agents, who were in turn encouraged by lender policies and incentive structure, which was set by lender executives. This isn't lack of diligence, this is setting a policy with reasonably foreseeable consequences.
- rayiner 8y ago
  You lost the jury at “lender policies and incentive structures.”
  - tptacek 8y ago
    "Bank employees were instructed to tell prospective clients to lie about their income, drastically, and sometimes helped them do it. Bank employees did this because when people lied about their income, the bank made more money, even though doing so put people at financial risk." I'm not sure this is a hard case to make.
    - gph 8y ago
      >Bank employees were instructed to tell prospective clients to lie about their income But is there explicit proof of this? I didn't think there was, but maybe I'm wrong. I thought at best the argument would be more like: "Bank executives set up incentives for their employees that they knew would encourage fraudulent behaviour."
- mdorazio 8y ago
  Fortunately or unfortunately, "encouraged shady behavior" does not directly equate to "illegal". For example, if you encourage someone to steal a car tomorrow you're not doing anything illegal until they actually do it, they tell you they did it, and you fail to report it (accessory at that point). The actual crime part is on them. It's massively unethical and it feels like people should be in jail, but proving actual crime took place during the lead-up to the recession would be a massive undertaking with little satisfaction as payout, and just as many run-of-the-mill home buyers going to jail as lender associates or executives.
  - vanderZwan 8y ago
    > Fortunately or unfortunately, "encouraged shady behavior" does not directly equate to "illegal". If an expert tells you to break the law and insists it's fine, and you don't really know how all of this works, I don't think we can still call that merely "encouraging shady behavior".
    - mdorazio 8y ago
      I'm pretty sure we can and do exactly that all the time. Case law established a very long time ago that ignorance of the law is not an excuse for illegal activity. The burden of crime is always on the person committing the crime, not the person inciting it, expert or not (there's a small exception here for entrapment, but that's completely separate from this situation). I could be wrong here, so if you or anyone else with more legal background than I have can point to specific prosecutions related to this kind of situation I'd love to read more.
      - ggg9990 8y ago
        “Inciting” is exactly the name given to the crime of inducing someone else to commit a crime.
        mdorazio 8y ago
        No, that's only for inciting physical violence (against a person or property) in conjunction with a felony. It would not apply to anything from the mortgage bubble. Unless you've got a specific law to reference?
olefoo 8y ago
The fraud itself is the crime, but the system set up to profit from it and the inducement to commit the crime are not part and parcel of the act itself? Perhaps we need better prosecutors who can credibly charge crimes that have broad networks of profiteers eagerly pushing dupes into committing crimes that are precisely arranged so that the profiting entity has no liability for the narrowly construed criminal act other than having engineered a situation where it was incredibly possible and only indirectly soliciting the act itself... We could have such prosecutors were the system not already hopelessly captive to the interests of the criminals. But what can you do when law is lawless.
jonhendry18 8y ago
I think these people mostly weren't bankers, they were fly by night mortgage pushers who had no incentive not to write bad loans. They wrote crappy loans and then sold the loans on to the banks. Which is part of the problem with bringing anyone to justice. The actual banks could pretend that they believed they were buying quality debt, which they diced up into CDO and whatnot.

Are you implying that the bankers should go to jail for the misrepresentations made by the applicant because they didn’t exercise an “appropriate” level of diligence?

dragonwriter 8y ago

No, IIRC from reports years back, there is considerable evidence that this kind of fraud was not often not initiated by applicants but encouraged by lender agents, who were in turn encouraged by lender policies and incentive structure, which was set by lender executives. This isn't lack of diligence, this is setting a policy with reasonably foreseeable consequences.

rayiner 8y ago
You lost the jury at “lender policies and incentive structures.”
- tptacek 8y ago
  "Bank employees were instructed to tell prospective clients to lie about their income, drastically, and sometimes helped them do it. Bank employees did this because when people lied about their income, the bank made more money, even though doing so put people at financial risk." I'm not sure this is a hard case to make.
  - gph 8y ago
    >Bank employees were instructed to tell prospective clients to lie about their income But is there explicit proof of this? I didn't think there was, but maybe I'm wrong. I thought at best the argument would be more like: "Bank executives set up incentives for their employees that they knew would encourage fraudulent behaviour."
mdorazio 8y ago
Fortunately or unfortunately, "encouraged shady behavior" does not directly equate to "illegal". For example, if you encourage someone to steal a car tomorrow you're not doing anything illegal until they actually do it, they tell you they did it, and you fail to report it (accessory at that point). The actual crime part is on them. It's massively unethical and it feels like people should be in jail, but proving actual crime took place during the lead-up to the recession would be a massive undertaking with little satisfaction as payout, and just as many run-of-the-mill home buyers going to jail as lender associates or executives.
- vanderZwan 8y ago
  > Fortunately or unfortunately, "encouraged shady behavior" does not directly equate to "illegal". If an expert tells you to break the law and insists it's fine, and you don't really know how all of this works, I don't think we can still call that merely "encouraging shady behavior".
  - mdorazio 8y ago
    I'm pretty sure we can and do exactly that all the time. Case law established a very long time ago that ignorance of the law is not an excuse for illegal activity. The burden of crime is always on the person committing the crime, not the person inciting it, expert or not (there's a small exception here for entrapment, but that's completely separate from this situation). I could be wrong here, so if you or anyone else with more legal background than I have can point to specific prosecutions related to this kind of situation I'd love to read more.
    - ggg9990 8y ago
      “Inciting” is exactly the name given to the crime of inducing someone else to commit a crime.
      - mdorazio 8y ago
        No, that's only for inciting physical violence (against a person or property) in conjunction with a felony. It would not apply to anything from the mortgage bubble. Unless you've got a specific law to reference?

olefoo 8y ago

The fraud itself is the crime, but the system set up to profit from it and the inducement to commit the crime are not part and parcel of the act itself? Perhaps we need better prosecutors who can credibly charge crimes that have broad networks of profiteers eagerly pushing dupes into committing crimes that are precisely arranged so that the profiting entity has no liability for the narrowly construed criminal act other than having engineered a situation where it was incredibly possible and only indirectly soliciting the act itself... We could have such prosecutors were the system not already hopelessly captive to the interests of the criminals. But what can you do when law is lawless.

jonhendry18 8y ago

I think these people mostly weren't bankers, they were fly by night mortgage pushers who had no incentive not to write bad loans. They wrote crappy loans and then sold the loans on to the banks. Which is part of the problem with bringing anyone to justice. The actual banks could pretend that they believed they were buying quality debt, which they diced up into CDO and whatnot.