10 ms·

Why didn’t any Wall Street CEOs go to jail after the financial crisis? (2019)

122 points by mgh2 5y ago

hamburgerwah 5y ago
Citigroup selected most of obamas cabinet so that should give you an inkling of how likely it was any bankers were going to be held responsible for anything: https://wikileaks.org/podesta-emails/emailid/3560 https://wikileaks.org/podesta-emails/emailid/3560
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brg 5y ago
One encouraging thought here is that humanity has come a long way since the gallows of the revolutionary period. But the article doesn't answer its question. The financial crisis here was system failure due to myopia of a sector, not concerted criminal fraud.
bawolff 5y ago
Articles like this never seem to make the case for which crimes were specificly commited. They always talk about the fallout of the financial crisis (losing money on wall street isnt a crime afaik). Idk much about this topic, so im sure crimes could be involved, but its weird how these articles dont start with why didn't someone go to jail for <specific crime here>.
- vkou 5y ago
  It's not weird, it's just populist grousing. Reduce your discontent to a meme, and it will spread to every discussion that ever mentions 2008. I have some opinions about who should have gone to jail (I'd start with the ratings agencies), but that doesn't rabble-rouse quite as well as 'Burn Down Greedy Goldman Sachs!'
  - anigbrowl 5y ago
    I seriously disagree in that there were innumerable thoughtful, measured, and nuanced critiques at the time and they had very little impact. Yes, memes are crude, but they get to the point. And it's a legitimate point; there was a great deal of corruption exposed in numerous markets around the time of the financial crisis, and few of those who profited therefrom suffered any consequences. I could give a long list of examples and detailed analyses, but my secondary point is that a culture of corruption is enabled partly through talking things to death in abstruse legalistic terms, until everyone is so tired that they become demoralized and lose any motivation to do anything about it. The US Constitution (not the only operative document, but an important one given the financial industry's very deep roots here) contemplates judicial powers to examine questions of both law and equity. Law is complex and if you have the resources you can hire legal specialists to problematize and pull apart just about any legal assertion. In many respects, a dense thicket of petty legalism surrounds a moral vacuum at the heart of society in which substantive questions about fairness and decency as eschewed as too political for judicial engagement; if you'll forgive my stretching a metaphor, much of our 'shining city on a hill' is just elaborate topiary growing atop crumbling foundations.
- actually_a_dog 5y ago
  How about we start with massive amounts of loan fraud? https://themreport.com/daily-dose/12-08-2020/the-role-of-lending-fraud-in-a-financial-crisis https://themreport.com/daily-dose/12-08-2020/the-role-of-len...
  - kasey_junk 5y ago
    Worth noting that if you were going to go after loan fraud you likely would be charging low level folks in the mortgage pipeline (appraisers, mortgage brokers, etc) or even the borrowers, not Wall Street CEOs.
    - actually_a_dog 5y ago
      Not at the scale noted in the article I linked: > Mortgage originators that emphasized profit-fueled quantity over loan quality, which resulted in the misreporting of key financial information in 48% of loans securitized by nongovernment agencies; If 48% of your company's financial transactions were fraudulent, would you expect the CEO to bear responsibility for that? At that point, I'd expect to see a RICO case, or something come out of it.
      - rkk3 5y ago
        The corruption may be rampant but those aren't "Wall Street" jobs. Countrywide was based out of Calabasas, California.
        actually_a_dog 5y ago
        There's no way half the loans in a portfolio are fraudulent, and that doesn't get noticed. That includes by the Wall Street firms that are repackaging and securitizing them as CDOs and CDSs. At some point, in a functioning system, that does attract the attention of the CEO.
      - kasey_junk 5y ago
        I probably would but proving that they acted _criminally_ would be hard. You can’t just wave your hands and make up a law they broke. Meanwhile, that number likely means that the borrowers lied on those same applications. That’s where the fraud actually occurred. And would be easy to prove.
- jollybean 5y ago
  Yes, it's bad populism to talk about crimes and then never bother to explain them. There's nuance in explaining systematic failure, but not one that most people couldn't grasp if well written in a few paragraphs. A lot of 'small bad decisions' at the loan level encouraged by an aggressive culture, a failure in ratings, and CEO's to mild to look too intently into the VP Retail Banking's mortgage profits ... and the whole thing can go sideways. But it'd be nice if the experts gave us more detail when the talked about it.
  - notabanker 5y ago
    When you're talking about something as vast as the Great Financial Crisis that led to a monetary policy with no historical precedent (still in effect btw), you simply cannot summarize it in an article. It is simply Too Big To Describe, to paraphrase the favorite mantra of the era. I've noted certain articles and books in another comment above. Those should help get up to speeed.
  - cm2187 5y ago
    If we started putting politicians in jail for bad economic policies...
- notabanker 5y ago
  The article assumes knowledge of facts surrounding the financial crisis. There's plenty written elsewhere about that. Here's a sampling of books and blogs to comprehend what led to the Great Financial Crisis. * Griftopia by Matt Taibbi * https://www.rollingstone.com/politics/politics-news/the-9-billion-witness-meet-jpmorgan-chases-worst-nightmare-242414/ https://www.rollingstone.com/politics/politics-news/the-9-bi... * https://jpmadoff.com/ https://jpmadoff.com/ * https://wallstreetonparade.com https://wallstreetonparade.com
  - nobody9999 5y ago
    Here's some more for you too: https://www.thisamericanlife.org/355/the-giant-pool-of-money https://www.thisamericanlife.org/355/the-giant-pool-of-money (text transcript: https://www.thisamericanlife.org/355/transcript https://www.thisamericanlife.org/355/transcript ) https://www.thebalance.com/what-caused-the-subprime-mortgage-crisis-3305696 https://www.thebalance.com/what-caused-the-subprime-mortgage... https://www.reuters.com/article/us-how-aig-fell-apart/how-aig-fell-apart-idUSMAR85972720080918 https://www.reuters.com/article/us-how-aig-fell-apart/how-ai... https://finecoiitg.wordpress.com/2018/08/16/credit-default-swap-and-its-role-in-the-2008-financial-crisis/ https://finecoiitg.wordpress.com/2018/08/16/credit-default-s...
- taway2021s 5y ago
  Sure. Lets start with an easy example. Why didnt any Directors at Goldman Sachs serve prison time for knowingly bundling Synthetic CDOs with bad CDS that they internally know were garbage? They sold these to pension funds, and other public entities. There were documented losses. There are documented emails with full internal discussion on how bad these investments were. (documented with emails.) Note there was a civil case (https://www.theguardian.com/business/2013/aug/01/fabulous-fab-tourre-guilty-fraud https://www.theguardian.com/business/2013/aug/01/fabulous-fa...) and a low-level fall-guy in his 20s, and conveniently French, did face civil charges. Note, non-connected, poor people go to jail for $500 thefts. Lets be honest about what happened here.
  - candybar 5y ago
    Their counterparties are all sophisticated institutional investors and these things are generally traded on a buyer-beware basis. Sure there may have been some actual wrongdoing that went unpunished, but the nature of these transactions is that the cases are likely be civil rather than criminal. The real reason for the lack of convictions is that there just weren't many cases of big bad wall street bankers defrauding ordinary people. That's typically what results in criminal convictions because 1) the law is far more protective of unsophisticated individuals than of institutional investors and 2) prosecutors have a much easier time winning cases and also benefitting politically from pursuing cases with relatable victims. And the reason why people wanted bankers to go to jail is because they thought wall street bankers did bad things to ordinary people. In reality though, the best cases against Wall Street folks are ones where the victims are also institutional investors (which is often included within the broader definition of Wall Street). The traders at Goldman Sachs outsmarting the traders at AIG just doesn't make for a particularly good fraud case, the same way Enron defrauding individual investors including their employees. And from the public's perspective, they are all part of the same class of people. And where ordinary people were directly involved, they were the ones defrauding lenders (and by extension, Wall Street and so on) by lying on their loan applications.
    - TuringNYC 5y ago
      You are right that ordinary people were not defrauded directly, but pension funds are basically ordinary people's money. There just happened to be a middleman (the pension fund admin.) Plenty of pension funds lost plenty of money
- jcranmer 5y ago
  The closest general-purpose crime I can think of would be some variation of fraud. Except that to be criminally fraudulent, you have to meet the requirement of knowingly making false statements of fact. That's quite difficult for the prosecution to prove in a criminal trial, especially given that the bar is to prove it beyond a reasonable doubt (although I doubt that juries actually adhere to that standard in practice). And honestly, I'm not sure I even believe it to be true--a lot of the failures (especially by the time we're talking CEO-level here) feel a lot more like plain hubris rather than specific fraud.
  - onlyrealcuzzo 5y ago
    How wasn't this blatantly securities fraud? That's already a crime. And they're already supposed to be accountable for that.
    - jcranmer 5y ago
      Again, securities fraud has a pesky knowingly requirement. To my understanding, in most cases, the sellers themselves believed the securities to be far less risky than they actually were.
- jakelazaroff 5y ago
  The focus on whether specific crimes were or were not committed is weird to me — as if people from these companies didn't help write the laws that are supposed to regulate this stuff in the first place. These people gambled with the economy, lost trillions of dollars and destroyed the lives and savings of millions of people… and then got bailed out by the federal government. Who cares whether they committed specific crimes? The issue is the "heads we win, tails you lose" system, in which if you're wealthy enough you can break the world economy and get rewarded for it.
  - bawolff 5y ago
    > as if people from these companies didn't help write the laws that are supposed to regulate this stuff in the first place. So what instead? - just arrest people based on public sentiment? Or rewrite the laws later, ex post facto-ly? I'll take the rule of law, despite the failure case of regulatory capture, over just punishing people because they're unpopular, any day.
    - jakelazaroff 5y ago
      What is the point of respecting a system literally designed to oppress you?
- pwned1 5y ago
  The problem was that everyone was in on it. I spoke to quite a few people in that time period, from mortgage brokers to borrowers to bankers. They all knew what was happening. A friend tried to sell me on getting a NINJA loan (No Income, No Job, No Assets) where, I was told "just tell them any number for your income on the application." It was all done with a wink and nod and everyone in the pipeline knew what was happening. When there's a collective acquiescence to large-scale fraud, who gets thrown in the clink? The bigger question should be how did the sytem evolve to the point where all of this was made possible?
  - pengstrom 5y ago
    It's almost as if there's a kernel of truth in the criticisms of capitalism. Incentives rule the world.
  - AnimalMuppet 5y ago
    Who gets thrown in the clink? How about "as many as possible, and the higher up the better"? "We can't jail them all" does not imply "therefore jail none of them". Precedents matter. The precedent that was set is "widespread fraud is fine; if enough people are in on it, nobody can be jailed". Is that really the precedent we want?
    - pwned1 5y ago
      The underlying question I ask is who set the precedent? Why was the system designed to allow this to happen?
- dredmorbius 5y ago
  The primary underwriter of Marketplace has long been GE Capital. That is, the industry the programme is supposed to be watching, pays it. It is not in the interest of the financial industry to support advocacy for strong regulation against itself. https://idioms.thefreedictionary.com/He+who+pays+the+piper+calls+the+tune https://idioms.thefreedictionary.com/He+who+pays+the+piper+c.... John Kenneth Galbraith's The Great Crash: 1929 gives interesting insights into prosecution and hearings following the Wall Street Crash which precipited the Great Depression and previous illegal and self-serving behaviours. I cannot recommend the book highly enough: it's short, highly readable, quite informative, and exquisitely researched. https://www.worldcat.org/title/great-crash-1929/oclc/1222806294 https://www.worldcat.org/title/great-crash-1929/oclc/1222806...
- ksec 5y ago
  People really need to watch Margin Call.
Forbo 5y ago
> "...we found that the answer has several components, including power shifts at the Department of Justice, a high-profile trial loss, civil lawsuits and punishments that did not include jail time." Too long; didn't read (listen) - America is an oligarchy. https://www.cambridge.org/core/journals/perspectives-on-politics/article/testing-theories-of-american-politics-elites-interest-groups-and-average-citizens/62327F513959D0A304D4893B382B992B# https://www.cambridge.org/core/journals/perspectives-on-poli...
giantg2 5y ago
The simplest answer is that the people/companies have money. It's easier to go after them in the civil courts where it's easier to secure a judgement and collect huge fines than to pursue them in criminal court with a higher chance of losing (some of these actions might not even be crimes) and a lower return. They could do both, but if the government is collecting billions in fines, they don't really care about sending "productive" people to jail.
nickff 5y ago
These stories all seem to ride on similar popular sentiments: 'bad things happened, and rich people were involved, so they should go to jail'. Having read a few of the books cited at the bottom, I have been repeatedly surprised at how these financial disasters came to be; it often seems like the people at the top were deceiving themselves more than anyone else. Bethany McLean's other book, "The Smartest Guys in the Room" (relevant but not cited here) was a particularly good example of this, and I came away from it with a very different view of Enron than I'd had going in.
- deleted 5y ago
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- AlexandrB 5y ago
  In many other jobs, gross negligence resulting in billions of dollars of property damage can get you jail time. Why is it ok for the people at the top of these financial disasters to be immune? Whether they're deceiving themselves is irrelevant. Drunk drivers deceive themselves about their ability to drive safely, we still put them in jail.
  - bpodgursky 5y ago
    If the "property damage" is to your own shareholders, that's a fuckup, not a crime (on its own). If that starts a market rout, or bank collapses, that sucks, but it's still not a crime If that leads to the collapse of the US dollar, it's a catastrophe, but it's still not a crime. US policymakers are responsible for the stability of the US economic system. CEOs are responsible for their own companies. Congress calling for CEOs to be put in jail is in large part simply trying to deflect from the fact that they are not doing their own jobs, and are simply trying to offload responsibility for US economic policy onto the private sector.
    - anigbrowl 5y ago
      Sure, but write a bad check or mess up your cash flow such that you fail to meet some court-ordered financial obligation and watch how much finger-wagging accountability and social opprobrium rains down upon you. You can get in much worse trouble for some transgression involving a thousand dollars than a million or billion. There's a guy in the US Senate who used to be CEO of a healthcare company until he was forced out by the board, and the company had to pay out billions in settlements and fines for defrauding medicare. https://en.wikipedia.org/wiki/Rick_Scott#Columbia/HCA https://en.wikipedia.org/wiki/Rick_Scott#Columbia/HCA I agree with you that many in legislative and executive positions are negligent and or corrupt, but let's not pretend that the private sector doesn't aggressively lobby for its own financial interests or that it is populated by angels brought down by wicked politicians.
KingMachiavelli 5y ago
FYI The actual article is audio/podcast. I skimmed through it and it was considered more effective to go after individuals by civil suite. My personal understanding is a lot that the fraud was widespread among low level mortgage officers (not sure if that's the right word) who were doing things like exagerating a loan applicants income, assets, etc. These individuals may or may not have known the extent of their crimes and most likely were pressured by institional policies. Also proving that the loan/mortgage officer doctored the application and not the mortgage applicant would be difficult to do but it is easy to prove that the bank itself failed to perform due diligence.
- vlovich123 5y ago
  When it's a handful of people, you go after the individuals. When it's wide spread, you go after the institution [1]. The challenge is that the DOJ appears to continue to insist on going after white collar crimes like these with civil penalties against the company rather than piercing the corporate veil & starting to criminally prosecute the officers responsible. Talk about moral hazards they're constantly hand wringing over. [1] https://www.justice.gov/opa/pr/wells-fargo-bank-agrees-pay-12-billion-improper-mortgage-lending-practices https://www.justice.gov/opa/pr/wells-fargo-bank-agrees-pay-1...
  - Forbo 5y ago
    You see the same pattern of behavior with the IRS, where they've determined it's easier to go after individuals committing tax offenses rather than massive corporations.
  - fsckboy 5y ago
    "piercing the corporate veil" generally refers to going after owners/shareholders or their assets, rather than going after employees; that's the level of liability that a corporation protects. IANAL so I'm not sure what level of legal "protection" employees have vs managers etc. for which levels of crimes (obviously, the janitor is not allowed to shoot people, while the accountant's assistant is not going to bear the brunt of some fraud)
glasss 5y ago
Unfortunately doing bad things to get rich isn't always illegal, and a lot of the times the parts that are illegal are hard to prove against institutions who have professionally been getting away with it for a while. Payday loans come to mind - they definitely aren't illegal, have tons of predatory practices built in, but are universally (at least in my experience) seen as a scam. I've been told by several people that used to work at large payday loans company: "Under no circumstance should you or anyone you care about get a payday loan. Go beg for money, steal food, whatever you need to do to survive, but never get a payday loan".
- axguscbklp 5y ago
  I used payday loans a few times back in the day - not for anything large, just for like $300 or so at a time. Getting those payday loans really helped me and I never experienced any negative consequences from taking them. I never thought of them as being a scam. I knew what sort of interest rates I was getting into and I took the loans fully knowingly. Personally I did not experience any predatory practices unless you count the interest rates themselves as predatory. That said, I always paid the loans back pretty quickly so I do not know how the companies behave if people are slow in paying.
  - npteljes 5y ago
    It can be both things at the same time. Maybe you go into a casino once, on your birthday, have some fun with $500, and never again. That doesn't mean that casinos don't fuel addiction for profit. What's important here I think is that while saying that payday loans are bad, I don't mean to take away your positive experience with it. Just that looking at the bigger picture, they do more harm than good. That they exploit the desperation in the people, and that's immoral and should be regulated more.
  - pope_meat 5y ago
    I worked at a payday loan place, and sure, if you make decent income and just find yourself short a few hundred bucks for a few days before a payday you can get out okay, but folks who are at the edge, making ends meet just barely...well those folks get trapped in a very difficult cycle of paying back $795 every two weeks and immediately taking out a $700 loan, rinse repeat 7 cycles of that before the payday company will allow for a different repayment plan (still a hard hole to dig out of, but a little less shitty than the standard pay us 795 right now thing you have to do for 7 cycles before the option for escape is even available to you) It's a gross business, exploitation of human misery.
rspoerri 5y ago
The worst thing is, that the core of capitalism had to be rescured by socialism. Not that socialism is bad, or capitalism is bad. But the core of capitalism stand on, what isnt profitable, isnt sustainable. The system hasnt been provitable, but had been rescured by all the goverments and the money they gather from the inhabitants.
- npteljes 5y ago
  That's not much of a problem, it just shows how capitalism is not a sustainable system on its own. It shows that capitalism is fine and dandy in some contexts, in others, it doesn't work well. So the conclusion is that a mixture of systems need to be in place: for example, strong social programs could take care of people while they are growing up or begin to fall out of the system, and capitalism can always step in on top of that, or as an alternative even.
- jessaustin 5y ago
  Socialism "for me but not for thee" isn't socialism. That's capitalism, although it does edge toward the super-capitalism that some call fascism rather than sharing any important characteristics with various systems of free enterprise that many people imagine when they encounter the word "capitalism".
- actually_a_dog 5y ago
  Socialism is not when the government does stuff.
  - rspoerri 5y ago
    Socialism is when all the people of a country put theyr money together to pay for a system. Such as your taxes or a goverment healthcare. The banks have been rescured by such money.
    - actually_a_dog 5y ago
      No, that's called paying taxes and funding a government. I'd suggest you crack a political science textbook if you want to actually know what socialism is.
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NovemberWhiskey 5y ago
... because none of them were convicted of crimes, in turn because none of them were indicted or tried, presumably because prosecutors either didn't believe they were guilty of any crimes or because they didn't believe the cases against them were strong enough. Fortunately, we by-and-large do not send people to jail without that kind of due process just because large numbers of people are angry at them for whatever reason.
- moate 5y ago
  Are the cases "not strong enough" because A- prosecutors believe that these types of legal battles will be an uncertainty due to the massive wealth CEOs can use to leverage their legal teams, have massive potential political fallout, and/or are an undue burden on the taxpayers; B- the actions perpetuated are not singular and specifically provable, despite their obvious intent and illegality, but instead spread out over a network of subordinates/proxies creating a fig-leaf of plausible deniability; C- the laws were written by a state deeply indebted (on both sides of the aisle) to the funding provided by exactly these types of citizens and their massive personal wealths? My point is: While I am a deep and firm lover of due process, I think there's alternative explanations for why these people weren't convicted of crimes that don't solely point to "they were 100% blameless and these accusations are without merit". That's why people are writing these articles/still want blood from the investor class.
yawaworht1978 5y ago
They likely do a risk assessment before engaging in borderline illegal things and try to offset liability to underlings. Best to ask the prosecutors, they know best i suppose. Maybe we have some lawyers here who can chime in?
johntuld 5y ago
We were selling to willing buyers at the current fair market price.
- normalasnorfolk 5y ago
  Margin Call quote, iirc...
- ksec 5y ago
  So that WE may survive.
gfiorav 5y ago
It's astonishing how banks (saved with your money) can go home scotch-free, and hedge funds (that will die for their recklessness) get all the blame. You see this through policy. Why ban short selling? It's really dumb if you ask me. The banker investors that are used to taking risk and not caring precisely becuase they get their comission and the bank is saved (too big to fail) are the irresponsible people here. A hedge fund manager will ride or die with their risk tolerance.
- TuringNYC 5y ago
  >> It's astonishing how banks (saved with your money) can go home scotch-free, and hedge funds (that will die for their recklessness) get all the blame. The rationale is (not saying I agree with it) that broker dealers' and banks' can cause systemic risk and cause a domino effect. Note that one hedge fund was indeed saved -- AIG-FP, and was given a record $180 billion dollar bailout, albiet on initially punitive terms. Incidentally they were so large (1Trillion USD of exposures, much of it leveraged) that they fell under the category of systemic risk. https://en.wikipedia.org/wiki/American_International_Group#2008_Liquidity_crisis_and_government_bailout https://en.wikipedia.org/wiki/American_International_Group#2... That $180B wasn't all though, one could argue that the QE buy-back program purchasing securities at arguably inflated prices was also an additional bailout, but the amount for that is difficult to quantify and difficult to segment beneficiaries for.
- kasey_junk 5y ago
  Lehman Brothers, a bank founded in 1847 and the very epitome of investment bank, went out of business and was not bailed out due to the 2008 events.
  - cm2187 5y ago
    Nor was it a bank. It was a broker dealer, no banking license.
    - missedthecue 5y ago
      Wachovia went under. So did Bear Stearns and WaMu.
paulpauper 5y ago
People tend to go to jail for malice (willful intent), not mistakes. The financial crisis was viewed as just a giant mistake in risk management. having a 20-sigma event when your financial model says it is an impossibility, is not a crime.
- unyttigfjelltol 5y ago
  “It is difficult to get a man to understand something, when his salary depends upon his not understanding it!” --Upton Sinclair (1934)
- taway2021s 5y ago
  I love how 20-sigma events happen every 8-10 years on Wall Street. Sounds like no statistics I've ever seen. Conveniently, money is extracted along the way in the form of generous fees, everyone apologizes for the thousand-year event they couldnt predict, and we repeat the cycle. People on the outside make excuses while those on the inside craft brilliant tales of hard work and rugged individualism.
nimbius 5y ago
a good book to read about this lack of prosecution is called "the chickenshit club" by Jesse Eisinger. In it the author explores prosecution paralysis brought on by a fear of destabilizing markets, and that this fear ultimately led to fines being preferred over jailtime. it also dives into the revolving door between prosecutors of these organizations and the organizations themselves, and the fact that no prosecutor wants a losing case on their record as it may adversely affect their chance of career success. Its also interesting to note from the book that a CEO fired from a company and indicted may continue to receive payments or parachutes from that company in order to fight government charges and keep quiet about improprieties, whereas other types of criminals see all assets frozen upon such criminal proceedings.
spoonjim 5y ago
There are three ways corporate America protects its executives from jail: 1) they allow their low level people to do the dirty work. They say “compensation will be a percentage of your sales” knowing what will happen, and put the disclaimers in a required training class that you can click though in 10 seconds. 2) they diffuse responsibility over a large set of companies with complicated ownership and partnership relationships 3) the Department of Justice never seems to extract the maximum punishment they can. They settle out of court for money, while bloodthirsty juries might happily hand down a 30 year sentence. The effect is that the tycoons know they can get away with anything. Look at the recent Sackler family message that they would reject the paltry $4.5 billion settlement if they were not indemnified from other lawsuits. That’s the act of a party with a good alternative, not a party begging for his life while the crowd erects a gallows.

122 points by mgh2 5y ago

Citigroup selected most of obamas cabinet so that should give you an inkling of how likely it was any bankers were going to be held responsible for anything: https://wikileaks.org/podesta-emails/emailid/3560 https://wikileaks.org/podesta-emails/emailid/3560

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brg 5y ago

One encouraging thought here is that humanity has come a long way since the gallows of the revolutionary period. But the article doesn't answer its question. The financial crisis here was system failure due to myopia of a sector, not concerted criminal fraud.

bawolff 5y ago

Articles like this never seem to make the case for which crimes were specificly commited. They always talk about the fallout of the financial crisis (losing money on wall street isnt a crime afaik). Idk much about this topic, so im sure crimes could be involved, but its weird how these articles dont start with why didn't someone go to jail for <specific crime here>.

vkou 5y ago
It's not weird, it's just populist grousing. Reduce your discontent to a meme, and it will spread to every discussion that ever mentions 2008. I have some opinions about who should have gone to jail (I'd start with the ratings agencies), but that doesn't rabble-rouse quite as well as 'Burn Down Greedy Goldman Sachs!'
- anigbrowl 5y ago
  I seriously disagree in that there were innumerable thoughtful, measured, and nuanced critiques at the time and they had very little impact. Yes, memes are crude, but they get to the point. And it's a legitimate point; there was a great deal of corruption exposed in numerous markets around the time of the financial crisis, and few of those who profited therefrom suffered any consequences. I could give a long list of examples and detailed analyses, but my secondary point is that a culture of corruption is enabled partly through talking things to death in abstruse legalistic terms, until everyone is so tired that they become demoralized and lose any motivation to do anything about it. The US Constitution (not the only operative document, but an important one given the financial industry's very deep roots here) contemplates judicial powers to examine questions of both law and equity. Law is complex and if you have the resources you can hire legal specialists to problematize and pull apart just about any legal assertion. In many respects, a dense thicket of petty legalism surrounds a moral vacuum at the heart of society in which substantive questions about fairness and decency as eschewed as too political for judicial engagement; if you'll forgive my stretching a metaphor, much of our 'shining city on a hill' is just elaborate topiary growing atop crumbling foundations.
actually_a_dog 5y ago
How about we start with massive amounts of loan fraud? https://themreport.com/daily-dose/12-08-2020/the-role-of-lending-fraud-in-a-financial-crisis https://themreport.com/daily-dose/12-08-2020/the-role-of-len...
- kasey_junk 5y ago
  Worth noting that if you were going to go after loan fraud you likely would be charging low level folks in the mortgage pipeline (appraisers, mortgage brokers, etc) or even the borrowers, not Wall Street CEOs.
  - actually_a_dog 5y ago
    Not at the scale noted in the article I linked: > Mortgage originators that emphasized profit-fueled quantity over loan quality, which resulted in the misreporting of key financial information in 48% of loans securitized by nongovernment agencies; If 48% of your company's financial transactions were fraudulent, would you expect the CEO to bear responsibility for that? At that point, I'd expect to see a RICO case, or something come out of it.
    - rkk3 5y ago
      The corruption may be rampant but those aren't "Wall Street" jobs. Countrywide was based out of Calabasas, California.
      - actually_a_dog 5y ago
        There's no way half the loans in a portfolio are fraudulent, and that doesn't get noticed. That includes by the Wall Street firms that are repackaging and securitizing them as CDOs and CDSs. At some point, in a functioning system, that does attract the attention of the CEO.
    - kasey_junk 5y ago
      I probably would but proving that they acted _criminally_ would be hard. You can’t just wave your hands and make up a law they broke. Meanwhile, that number likely means that the borrowers lied on those same applications. That’s where the fraud actually occurred. And would be easy to prove.
jollybean 5y ago
Yes, it's bad populism to talk about crimes and then never bother to explain them. There's nuance in explaining systematic failure, but not one that most people couldn't grasp if well written in a few paragraphs. A lot of 'small bad decisions' at the loan level encouraged by an aggressive culture, a failure in ratings, and CEO's to mild to look too intently into the VP Retail Banking's mortgage profits ... and the whole thing can go sideways. But it'd be nice if the experts gave us more detail when the talked about it.
- notabanker 5y ago
  When you're talking about something as vast as the Great Financial Crisis that led to a monetary policy with no historical precedent (still in effect btw), you simply cannot summarize it in an article. It is simply Too Big To Describe, to paraphrase the favorite mantra of the era. I've noted certain articles and books in another comment above. Those should help get up to speeed.
- cm2187 5y ago
  If we started putting politicians in jail for bad economic policies...
notabanker 5y ago
The article assumes knowledge of facts surrounding the financial crisis. There's plenty written elsewhere about that. Here's a sampling of books and blogs to comprehend what led to the Great Financial Crisis. * Griftopia by Matt Taibbi * https://www.rollingstone.com/politics/politics-news/the-9-billion-witness-meet-jpmorgan-chases-worst-nightmare-242414/ https://www.rollingstone.com/politics/politics-news/the-9-bi... * https://jpmadoff.com/ https://jpmadoff.com/ * https://wallstreetonparade.com https://wallstreetonparade.com
- nobody9999 5y ago
  Here's some more for you too: https://www.thisamericanlife.org/355/the-giant-pool-of-money https://www.thisamericanlife.org/355/the-giant-pool-of-money (text transcript: https://www.thisamericanlife.org/355/transcript https://www.thisamericanlife.org/355/transcript ) https://www.thebalance.com/what-caused-the-subprime-mortgage-crisis-3305696 https://www.thebalance.com/what-caused-the-subprime-mortgage... https://www.reuters.com/article/us-how-aig-fell-apart/how-aig-fell-apart-idUSMAR85972720080918 https://www.reuters.com/article/us-how-aig-fell-apart/how-ai... https://finecoiitg.wordpress.com/2018/08/16/credit-default-swap-and-its-role-in-the-2008-financial-crisis/ https://finecoiitg.wordpress.com/2018/08/16/credit-default-s...
taway2021s 5y ago
Sure. Lets start with an easy example. Why didnt any Directors at Goldman Sachs serve prison time for knowingly bundling Synthetic CDOs with bad CDS that they internally know were garbage? They sold these to pension funds, and other public entities. There were documented losses. There are documented emails with full internal discussion on how bad these investments were. (documented with emails.) Note there was a civil case (https://www.theguardian.com/business/2013/aug/01/fabulous-fab-tourre-guilty-fraud https://www.theguardian.com/business/2013/aug/01/fabulous-fa...) and a low-level fall-guy in his 20s, and conveniently French, did face civil charges. Note, non-connected, poor people go to jail for $500 thefts. Lets be honest about what happened here.
- candybar 5y ago
  Their counterparties are all sophisticated institutional investors and these things are generally traded on a buyer-beware basis. Sure there may have been some actual wrongdoing that went unpunished, but the nature of these transactions is that the cases are likely be civil rather than criminal. The real reason for the lack of convictions is that there just weren't many cases of big bad wall street bankers defrauding ordinary people. That's typically what results in criminal convictions because 1) the law is far more protective of unsophisticated individuals than of institutional investors and 2) prosecutors have a much easier time winning cases and also benefitting politically from pursuing cases with relatable victims. And the reason why people wanted bankers to go to jail is because they thought wall street bankers did bad things to ordinary people. In reality though, the best cases against Wall Street folks are ones where the victims are also institutional investors (which is often included within the broader definition of Wall Street). The traders at Goldman Sachs outsmarting the traders at AIG just doesn't make for a particularly good fraud case, the same way Enron defrauding individual investors including their employees. And from the public's perspective, they are all part of the same class of people. And where ordinary people were directly involved, they were the ones defrauding lenders (and by extension, Wall Street and so on) by lying on their loan applications.
  - TuringNYC 5y ago
    You are right that ordinary people were not defrauded directly, but pension funds are basically ordinary people's money. There just happened to be a middleman (the pension fund admin.) Plenty of pension funds lost plenty of money
jcranmer 5y ago
The closest general-purpose crime I can think of would be some variation of fraud. Except that to be criminally fraudulent, you have to meet the requirement of knowingly making false statements of fact. That's quite difficult for the prosecution to prove in a criminal trial, especially given that the bar is to prove it beyond a reasonable doubt (although I doubt that juries actually adhere to that standard in practice). And honestly, I'm not sure I even believe it to be true--a lot of the failures (especially by the time we're talking CEO-level here) feel a lot more like plain hubris rather than specific fraud.
- onlyrealcuzzo 5y ago
  How wasn't this blatantly securities fraud? That's already a crime. And they're already supposed to be accountable for that.
  - jcranmer 5y ago
    Again, securities fraud has a pesky knowingly requirement. To my understanding, in most cases, the sellers themselves believed the securities to be far less risky than they actually were.
jakelazaroff 5y ago
The focus on whether specific crimes were or were not committed is weird to me — as if people from these companies didn't help write the laws that are supposed to regulate this stuff in the first place. These people gambled with the economy, lost trillions of dollars and destroyed the lives and savings of millions of people… and then got bailed out by the federal government. Who cares whether they committed specific crimes? The issue is the "heads we win, tails you lose" system, in which if you're wealthy enough you can break the world economy and get rewarded for it.
- bawolff 5y ago
  > as if people from these companies didn't help write the laws that are supposed to regulate this stuff in the first place. So what instead? - just arrest people based on public sentiment? Or rewrite the laws later, ex post facto-ly? I'll take the rule of law, despite the failure case of regulatory capture, over just punishing people because they're unpopular, any day.
  - jakelazaroff 5y ago
    What is the point of respecting a system literally designed to oppress you?
pwned1 5y ago
The problem was that everyone was in on it. I spoke to quite a few people in that time period, from mortgage brokers to borrowers to bankers. They all knew what was happening. A friend tried to sell me on getting a NINJA loan (No Income, No Job, No Assets) where, I was told "just tell them any number for your income on the application." It was all done with a wink and nod and everyone in the pipeline knew what was happening. When there's a collective acquiescence to large-scale fraud, who gets thrown in the clink? The bigger question should be how did the sytem evolve to the point where all of this was made possible?
- pengstrom 5y ago
  It's almost as if there's a kernel of truth in the criticisms of capitalism. Incentives rule the world.
- AnimalMuppet 5y ago
  Who gets thrown in the clink? How about "as many as possible, and the higher up the better"? "We can't jail them all" does not imply "therefore jail none of them". Precedents matter. The precedent that was set is "widespread fraud is fine; if enough people are in on it, nobody can be jailed". Is that really the precedent we want?
  - pwned1 5y ago
    The underlying question I ask is who set the precedent? Why was the system designed to allow this to happen?
dredmorbius 5y ago
The primary underwriter of Marketplace has long been GE Capital. That is, the industry the programme is supposed to be watching, pays it. It is not in the interest of the financial industry to support advocacy for strong regulation against itself. https://idioms.thefreedictionary.com/He+who+pays+the+piper+calls+the+tune https://idioms.thefreedictionary.com/He+who+pays+the+piper+c.... John Kenneth Galbraith's The Great Crash: 1929 gives interesting insights into prosecution and hearings following the Wall Street Crash which precipited the Great Depression and previous illegal and self-serving behaviours. I cannot recommend the book highly enough: it's short, highly readable, quite informative, and exquisitely researched. https://www.worldcat.org/title/great-crash-1929/oclc/1222806294 https://www.worldcat.org/title/great-crash-1929/oclc/1222806...
ksec 5y ago
People really need to watch Margin Call.

Forbo 5y ago

> "...we found that the answer has several components, including power shifts at the Department of Justice, a high-profile trial loss, civil lawsuits and punishments that did not include jail time." Too long; didn't read (listen) - America is an oligarchy. https://www.cambridge.org/core/journals/perspectives-on-politics/article/testing-theories-of-american-politics-elites-interest-groups-and-average-citizens/62327F513959D0A304D4893B382B992B# https://www.cambridge.org/core/journals/perspectives-on-poli...

giantg2 5y ago

The simplest answer is that the people/companies have money. It's easier to go after them in the civil courts where it's easier to secure a judgement and collect huge fines than to pursue them in criminal court with a higher chance of losing (some of these actions might not even be crimes) and a lower return. They could do both, but if the government is collecting billions in fines, they don't really care about sending "productive" people to jail.

nickff 5y ago

These stories all seem to ride on similar popular sentiments: 'bad things happened, and rich people were involved, so they should go to jail'. Having read a few of the books cited at the bottom, I have been repeatedly surprised at how these financial disasters came to be; it often seems like the people at the top were deceiving themselves more than anyone else. Bethany McLean's other book, "The Smartest Guys in the Room" (relevant but not cited here) was a particularly good example of this, and I came away from it with a very different view of Enron than I'd had going in.

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AlexandrB 5y ago
In many other jobs, gross negligence resulting in billions of dollars of property damage can get you jail time. Why is it ok for the people at the top of these financial disasters to be immune? Whether they're deceiving themselves is irrelevant. Drunk drivers deceive themselves about their ability to drive safely, we still put them in jail.
- bpodgursky 5y ago
  If the "property damage" is to your own shareholders, that's a fuckup, not a crime (on its own). If that starts a market rout, or bank collapses, that sucks, but it's still not a crime If that leads to the collapse of the US dollar, it's a catastrophe, but it's still not a crime. US policymakers are responsible for the stability of the US economic system. CEOs are responsible for their own companies. Congress calling for CEOs to be put in jail is in large part simply trying to deflect from the fact that they are not doing their own jobs, and are simply trying to offload responsibility for US economic policy onto the private sector.
  - anigbrowl 5y ago
    Sure, but write a bad check or mess up your cash flow such that you fail to meet some court-ordered financial obligation and watch how much finger-wagging accountability and social opprobrium rains down upon you. You can get in much worse trouble for some transgression involving a thousand dollars than a million or billion. There's a guy in the US Senate who used to be CEO of a healthcare company until he was forced out by the board, and the company had to pay out billions in settlements and fines for defrauding medicare. https://en.wikipedia.org/wiki/Rick_Scott#Columbia/HCA https://en.wikipedia.org/wiki/Rick_Scott#Columbia/HCA I agree with you that many in legislative and executive positions are negligent and or corrupt, but let's not pretend that the private sector doesn't aggressively lobby for its own financial interests or that it is populated by angels brought down by wicked politicians.

KingMachiavelli 5y ago

FYI The actual article is audio/podcast. I skimmed through it and it was considered more effective to go after individuals by civil suite. My personal understanding is a lot that the fraud was widespread among low level mortgage officers (not sure if that's the right word) who were doing things like exagerating a loan applicants income, assets, etc. These individuals may or may not have known the extent of their crimes and most likely were pressured by institional policies. Also proving that the loan/mortgage officer doctored the application and not the mortgage applicant would be difficult to do but it is easy to prove that the bank itself failed to perform due diligence.

vlovich123 5y ago
When it's a handful of people, you go after the individuals. When it's wide spread, you go after the institution [1]. The challenge is that the DOJ appears to continue to insist on going after white collar crimes like these with civil penalties against the company rather than piercing the corporate veil & starting to criminally prosecute the officers responsible. Talk about moral hazards they're constantly hand wringing over. [1] https://www.justice.gov/opa/pr/wells-fargo-bank-agrees-pay-12-billion-improper-mortgage-lending-practices https://www.justice.gov/opa/pr/wells-fargo-bank-agrees-pay-1...
- Forbo 5y ago
  You see the same pattern of behavior with the IRS, where they've determined it's easier to go after individuals committing tax offenses rather than massive corporations.
- fsckboy 5y ago
  "piercing the corporate veil" generally refers to going after owners/shareholders or their assets, rather than going after employees; that's the level of liability that a corporation protects. IANAL so I'm not sure what level of legal "protection" employees have vs managers etc. for which levels of crimes (obviously, the janitor is not allowed to shoot people, while the accountant's assistant is not going to bear the brunt of some fraud)

glasss 5y ago

Unfortunately doing bad things to get rich isn't always illegal, and a lot of the times the parts that are illegal are hard to prove against institutions who have professionally been getting away with it for a while. Payday loans come to mind - they definitely aren't illegal, have tons of predatory practices built in, but are universally (at least in my experience) seen as a scam. I've been told by several people that used to work at large payday loans company: "Under no circumstance should you or anyone you care about get a payday loan. Go beg for money, steal food, whatever you need to do to survive, but never get a payday loan".

axguscbklp 5y ago
I used payday loans a few times back in the day - not for anything large, just for like $300 or so at a time. Getting those payday loans really helped me and I never experienced any negative consequences from taking them. I never thought of them as being a scam. I knew what sort of interest rates I was getting into and I took the loans fully knowingly. Personally I did not experience any predatory practices unless you count the interest rates themselves as predatory. That said, I always paid the loans back pretty quickly so I do not know how the companies behave if people are slow in paying.
- npteljes 5y ago
  It can be both things at the same time. Maybe you go into a casino once, on your birthday, have some fun with $500, and never again. That doesn't mean that casinos don't fuel addiction for profit. What's important here I think is that while saying that payday loans are bad, I don't mean to take away your positive experience with it. Just that looking at the bigger picture, they do more harm than good. That they exploit the desperation in the people, and that's immoral and should be regulated more.
- pope_meat 5y ago
  I worked at a payday loan place, and sure, if you make decent income and just find yourself short a few hundred bucks for a few days before a payday you can get out okay, but folks who are at the edge, making ends meet just barely...well those folks get trapped in a very difficult cycle of paying back $795 every two weeks and immediately taking out a $700 loan, rinse repeat 7 cycles of that before the payday company will allow for a different repayment plan (still a hard hole to dig out of, but a little less shitty than the standard pay us 795 right now thing you have to do for 7 cycles before the option for escape is even available to you) It's a gross business, exploitation of human misery.

rspoerri 5y ago

The worst thing is, that the core of capitalism had to be rescured by socialism. Not that socialism is bad, or capitalism is bad. But the core of capitalism stand on, what isnt profitable, isnt sustainable. The system hasnt been provitable, but had been rescured by all the goverments and the money they gather from the inhabitants.

npteljes 5y ago
That's not much of a problem, it just shows how capitalism is not a sustainable system on its own. It shows that capitalism is fine and dandy in some contexts, in others, it doesn't work well. So the conclusion is that a mixture of systems need to be in place: for example, strong social programs could take care of people while they are growing up or begin to fall out of the system, and capitalism can always step in on top of that, or as an alternative even.
jessaustin 5y ago
Socialism "for me but not for thee" isn't socialism. That's capitalism, although it does edge toward the super-capitalism that some call fascism rather than sharing any important characteristics with various systems of free enterprise that many people imagine when they encounter the word "capitalism".
actually_a_dog 5y ago
Socialism is not when the government does stuff.
- rspoerri 5y ago
  Socialism is when all the people of a country put theyr money together to pay for a system. Such as your taxes or a goverment healthcare. The banks have been rescured by such money.
  - actually_a_dog 5y ago
    No, that's called paying taxes and funding a government. I'd suggest you crack a political science textbook if you want to actually know what socialism is.

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NovemberWhiskey 5y ago

... because none of them were convicted of crimes, in turn because none of them were indicted or tried, presumably because prosecutors either didn't believe they were guilty of any crimes or because they didn't believe the cases against them were strong enough. Fortunately, we by-and-large do not send people to jail without that kind of due process just because large numbers of people are angry at them for whatever reason.

moate 5y ago
Are the cases "not strong enough" because A- prosecutors believe that these types of legal battles will be an uncertainty due to the massive wealth CEOs can use to leverage their legal teams, have massive potential political fallout, and/or are an undue burden on the taxpayers; B- the actions perpetuated are not singular and specifically provable, despite their obvious intent and illegality, but instead spread out over a network of subordinates/proxies creating a fig-leaf of plausible deniability; C- the laws were written by a state deeply indebted (on both sides of the aisle) to the funding provided by exactly these types of citizens and their massive personal wealths? My point is: While I am a deep and firm lover of due process, I think there's alternative explanations for why these people weren't convicted of crimes that don't solely point to "they were 100% blameless and these accusations are without merit". That's why people are writing these articles/still want blood from the investor class.

yawaworht1978 5y ago

They likely do a risk assessment before engaging in borderline illegal things and try to offset liability to underlings. Best to ask the prosecutors, they know best i suppose. Maybe we have some lawyers here who can chime in?

johntuld 5y ago

We were selling to willing buyers at the current fair market price.

normalasnorfolk 5y ago
Margin Call quote, iirc...
ksec 5y ago
So that WE may survive.

gfiorav 5y ago

It's astonishing how banks (saved with your money) can go home scotch-free, and hedge funds (that will die for their recklessness) get all the blame. You see this through policy. Why ban short selling? It's really dumb if you ask me. The banker investors that are used to taking risk and not caring precisely becuase they get their comission and the bank is saved (too big to fail) are the irresponsible people here. A hedge fund manager will ride or die with their risk tolerance.

TuringNYC 5y ago
>> It's astonishing how banks (saved with your money) can go home scotch-free, and hedge funds (that will die for their recklessness) get all the blame. The rationale is (not saying I agree with it) that broker dealers' and banks' can cause systemic risk and cause a domino effect. Note that one hedge fund was indeed saved -- AIG-FP, and was given a record $180 billion dollar bailout, albiet on initially punitive terms. Incidentally they were so large (1Trillion USD of exposures, much of it leveraged) that they fell under the category of systemic risk. https://en.wikipedia.org/wiki/American_International_Group#2008_Liquidity_crisis_and_government_bailout https://en.wikipedia.org/wiki/American_International_Group#2... That $180B wasn't all though, one could argue that the QE buy-back program purchasing securities at arguably inflated prices was also an additional bailout, but the amount for that is difficult to quantify and difficult to segment beneficiaries for.
kasey_junk 5y ago
Lehman Brothers, a bank founded in 1847 and the very epitome of investment bank, went out of business and was not bailed out due to the 2008 events.
- cm2187 5y ago
  Nor was it a bank. It was a broker dealer, no banking license.
  - missedthecue 5y ago
    Wachovia went under. So did Bear Stearns and WaMu.

paulpauper 5y ago

People tend to go to jail for malice (willful intent), not mistakes. The financial crisis was viewed as just a giant mistake in risk management. having a 20-sigma event when your financial model says it is an impossibility, is not a crime.

unyttigfjelltol 5y ago
“It is difficult to get a man to understand something, when his salary depends upon his not understanding it!” --Upton Sinclair (1934)
taway2021s 5y ago
I love how 20-sigma events happen every 8-10 years on Wall Street. Sounds like no statistics I've ever seen. Conveniently, money is extracted along the way in the form of generous fees, everyone apologizes for the thousand-year event they couldnt predict, and we repeat the cycle. People on the outside make excuses while those on the inside craft brilliant tales of hard work and rugged individualism.

nimbius 5y ago

a good book to read about this lack of prosecution is called "the chickenshit club" by Jesse Eisinger. In it the author explores prosecution paralysis brought on by a fear of destabilizing markets, and that this fear ultimately led to fines being preferred over jailtime. it also dives into the revolving door between prosecutors of these organizations and the organizations themselves, and the fact that no prosecutor wants a losing case on their record as it may adversely affect their chance of career success. Its also interesting to note from the book that a CEO fired from a company and indicted may continue to receive payments or parachutes from that company in order to fight government charges and keep quiet about improprieties, whereas other types of criminals see all assets frozen upon such criminal proceedings.

spoonjim 5y ago

There are three ways corporate America protects its executives from jail: 1) they allow their low level people to do the dirty work. They say “compensation will be a percentage of your sales” knowing what will happen, and put the disclaimers in a required training class that you can click though in 10 seconds. 2) they diffuse responsibility over a large set of companies with complicated ownership and partnership relationships 3) the Department of Justice never seems to extract the maximum punishment they can. They settle out of court for money, while bloodthirsty juries might happily hand down a 30 year sentence. The effect is that the tycoons know they can get away with anything. Look at the recent Sackler family message that they would reject the paltry $4.5 billion settlement if they were not indemnified from other lawsuits. That’s the act of a party with a good alternative, not a party begging for his life while the crowd erects a gallows.