5 ms·

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

by 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.
- nickff 5y ago
  In many of these instances, it seems more like multiple layers of ‘rose-colored glasses’, than one person being willfully ignorant. This is somewhat similar to engineering situations where each reviewer adds some safety margin, and the end product becomes bloated. Enron is a particularly interesting case, because the filings and statements were all truthful, but almost nobody ever read them. They also had one or two good businesses, but were dragged down by liabilities from the others, so it wasn’t a total fraud. That said, I do think the Enron CFO was guilty of criminal fraud, though I think Lay and Skilling should have only been held civilly liable.
- the-dude 5y ago
  Do you have (many) examples? And I very much doubt many drunk drivers end up in jail. AFAIK they are not even prosecuted for manslaughter or murder if they kill.
- AnimalMuppet 5y ago
  > In many other jobs, gross negligence resulting in billions of dollars of property damage can get you jail time. Can it? Say I design a bridge, it falls down and kills people, and does a large amount of economic damage in the process (maybe it falls on a chemical factory which explodes, or something). I'm fired, sure. I probably never work as an engineer again. I'm very unpopular, and my name becomes an insult. But do I go to jail?
- 6gvONxR4sf7o 5y ago
  What if someone grossly negligently screws up a $1000 smart contract that convinces the public that bitcoin sucks and the value plummets? It's gross negligence resulting in billions of dollars of losses for others. Are you going to call that property damage in the same way?
  - deleted 5y ago
    [deleted]
- cm2187 5y ago
  You mean like incompetent programmers who leak millions of records of personal information? When is the last time one went to jail for that?
colpabar 5y ago
If I "deceive myself" by thinking I can drive with my eyes closed, and I crash my car and destroy someone's property, aren't I then required to pay the damages or face jail time? It's odd that we can all agree on cases where the number of participants is small, but for some reason, if an entire economy is affected, we have to pretend that the people responsible weren't actually responsible and shouldn't be punished in the same way.
- nickff 5y ago
  I would agree that the self-deceiving fiduciary should be held financially responsible for the impact of their blindness, but I’m not sure all these cases are actually crimes.
  - NovemberWhiskey 5y ago
    I'm sure you know this but a broker-dealer (which is what we're primarily talking about in the context of Wall St banks) doesn't have a fiduciary duty to their counterparty.
    - nickff 5y ago
      I was still addressing Enron case where many of the people charged were fiduciaries, but you're right re: the investment banks.
- jollybean 5y ago
  "we can all agree on cases where the number of participants is small," It was definitely not small, the fraud was top to bottom including the home owners lying on their loan applications, the loan officers, the managers of the loan operations, the VPs, the ratings agencies, those not doing their due diligence and just assuming that the ratings agencies were perfect etc.. It was a mania more than anything, where regulations were bent and the system lost all of it's checks and balances. It's illegal to drive blindfolded, it's not illegal for Bear Stearns to make most kinds of stupid bets in real estate. This was not 'executives do fraud, or at least something like it and banks fall'. It was more like a bad housing bubble where all the limiting parameters were bent out of shape.
jessaustin 5y ago
...it often seems like the people at the top were deceiving themselves more than anyone else. Whose interest does it serve, for that to be a common narrative?
ryandrake 5y ago
I think the sentiment is more "The rich have created this financial system that's essentially a giant casino, where if they make a bet and are right, they profit, and if they make a bet and are wrong, the general public loses their jobs and 401(k)s while the government pays to bail them (the rich) out. The fact that none of it appears to even be criminal is just icing on the cake and shows who the law really protects. If none of the actions that caused all that misery are actually crimes, that's the problem.
- nickff 5y ago
  >"If none of the actions that caused all that misery are actually crimes, that's the problem. " Why? Why should the stock market be further de-risked? Why should the government's poor impulse control be encouraged? Why should mistakes be criminalized?
  - ryandrake 5y ago
    I didn't say anything about the stock market. Reckless decisions made by rich banks and financiers should not effect anyone but themselves, let alone cause economy-wide crises that hurt regular people. Could you imagine if I went off to Macau to play a high stakes game of poker, lost, and as a result, you lost your job and the government staked me in my next poker game? That's pretty much what happened.
    - nickff 5y ago
      You said "401(k)s", so I assumed you meant investments in publicly traded equities; my apologies if I was mistaken. >"Could you imagine if I went off to Macau to play a high stakes game of poker, lost, and as a result, you lost your job and the government staked me in my next poker game? That's pretty much what happened." I understand what happened, I just don't see it the same way you do. It's not your fault if I lose my job because it relied on your gambling, and it's also not your fault that my government makes stupid bets.
taway2021s 5y ago
You conveniently cite the case where the perpetrators were also fooling themselves. What about the case where the perpetrators were saying on thing publicly and privately betting against their products? https://www.nytimes.com/2009/12/24/business/24trading.html https://www.nytimes.com/2009/12/24/business/24trading.html (fast forward to real life -- Princeton grads at Goldman Sachs dont go to jail...) Excerpt from article: A handful of investors and Wall Street traders, however, anticipated the crisis. In 2006, Wall Street had introduced a new index, called the ABX, that became a way to invest in the direction of mortgage securities. The index allowed traders to bet on or against pools of mortgages with different risk characteristics, just as stock indexes enable traders to bet on whether the overall stock market, or technology stocks or bank stocks, will go up or down. Goldman, among others on Wall Street, has said since the collapse that it made big money by using the ABX to bet against the housing market. Worried about a housing bubble, top Goldman executives decided in December 2006 to change the firm’s overall stance on the mortgage market, from positive to negative, though it did not disclose that publicly. Even before then, however, pockets of the investment bank had also started using C.D.O.’s to place bets against mortgage securities, in some cases to hedge the firm’s mortgage investments, as protection against a fall in housing prices and an increase in defaults. Mr. Egol was a prime mover behind these securities.

by nickff 5y ago

deleted 5y ago

[deleted]

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.
nickff 5y ago
In many of these instances, it seems more like multiple layers of ‘rose-colored glasses’, than one person being willfully ignorant. This is somewhat similar to engineering situations where each reviewer adds some safety margin, and the end product becomes bloated. Enron is a particularly interesting case, because the filings and statements were all truthful, but almost nobody ever read them. They also had one or two good businesses, but were dragged down by liabilities from the others, so it wasn’t a total fraud. That said, I do think the Enron CFO was guilty of criminal fraud, though I think Lay and Skilling should have only been held civilly liable.
the-dude 5y ago
Do you have (many) examples? And I very much doubt many drunk drivers end up in jail. AFAIK they are not even prosecuted for manslaughter or murder if they kill.
AnimalMuppet 5y ago
> In many other jobs, gross negligence resulting in billions of dollars of property damage can get you jail time. Can it? Say I design a bridge, it falls down and kills people, and does a large amount of economic damage in the process (maybe it falls on a chemical factory which explodes, or something). I'm fired, sure. I probably never work as an engineer again. I'm very unpopular, and my name becomes an insult. But do I go to jail?
6gvONxR4sf7o 5y ago
What if someone grossly negligently screws up a $1000 smart contract that convinces the public that bitcoin sucks and the value plummets? It's gross negligence resulting in billions of dollars of losses for others. Are you going to call that property damage in the same way?
- deleted 5y ago
  [deleted]
cm2187 5y ago
You mean like incompetent programmers who leak millions of records of personal information? When is the last time one went to jail for that?

colpabar 5y ago

If I "deceive myself" by thinking I can drive with my eyes closed, and I crash my car and destroy someone's property, aren't I then required to pay the damages or face jail time? It's odd that we can all agree on cases where the number of participants is small, but for some reason, if an entire economy is affected, we have to pretend that the people responsible weren't actually responsible and shouldn't be punished in the same way.

nickff 5y ago
I would agree that the self-deceiving fiduciary should be held financially responsible for the impact of their blindness, but I’m not sure all these cases are actually crimes.
- NovemberWhiskey 5y ago
  I'm sure you know this but a broker-dealer (which is what we're primarily talking about in the context of Wall St banks) doesn't have a fiduciary duty to their counterparty.
  - nickff 5y ago
    I was still addressing Enron case where many of the people charged were fiduciaries, but you're right re: the investment banks.
jollybean 5y ago
"we can all agree on cases where the number of participants is small," It was definitely not small, the fraud was top to bottom including the home owners lying on their loan applications, the loan officers, the managers of the loan operations, the VPs, the ratings agencies, those not doing their due diligence and just assuming that the ratings agencies were perfect etc.. It was a mania more than anything, where regulations were bent and the system lost all of it's checks and balances. It's illegal to drive blindfolded, it's not illegal for Bear Stearns to make most kinds of stupid bets in real estate. This was not 'executives do fraud, or at least something like it and banks fall'. It was more like a bad housing bubble where all the limiting parameters were bent out of shape.

jessaustin 5y ago

...it often seems like the people at the top were deceiving themselves more than anyone else. Whose interest does it serve, for that to be a common narrative?

ryandrake 5y ago

I think the sentiment is more "The rich have created this financial system that's essentially a giant casino, where if they make a bet and are right, they profit, and if they make a bet and are wrong, the general public loses their jobs and 401(k)s while the government pays to bail them (the rich) out. The fact that none of it appears to even be criminal is just icing on the cake and shows who the law really protects. If none of the actions that caused all that misery are actually crimes, that's the problem.

nickff 5y ago
>"If none of the actions that caused all that misery are actually crimes, that's the problem. " Why? Why should the stock market be further de-risked? Why should the government's poor impulse control be encouraged? Why should mistakes be criminalized?
- ryandrake 5y ago
  I didn't say anything about the stock market. Reckless decisions made by rich banks and financiers should not effect anyone but themselves, let alone cause economy-wide crises that hurt regular people. Could you imagine if I went off to Macau to play a high stakes game of poker, lost, and as a result, you lost your job and the government staked me in my next poker game? That's pretty much what happened.
  - nickff 5y ago
    You said "401(k)s", so I assumed you meant investments in publicly traded equities; my apologies if I was mistaken. >"Could you imagine if I went off to Macau to play a high stakes game of poker, lost, and as a result, you lost your job and the government staked me in my next poker game? That's pretty much what happened." I understand what happened, I just don't see it the same way you do. It's not your fault if I lose my job because it relied on your gambling, and it's also not your fault that my government makes stupid bets.

taway2021s 5y ago

You conveniently cite the case where the perpetrators were also fooling themselves. What about the case where the perpetrators were saying on thing publicly and privately betting against their products? https://www.nytimes.com/2009/12/24/business/24trading.html https://www.nytimes.com/2009/12/24/business/24trading.html (fast forward to real life -- Princeton grads at Goldman Sachs dont go to jail...) Excerpt from article: A handful of investors and Wall Street traders, however, anticipated the crisis. In 2006, Wall Street had introduced a new index, called the ABX, that became a way to invest in the direction of mortgage securities. The index allowed traders to bet on or against pools of mortgages with different risk characteristics, just as stock indexes enable traders to bet on whether the overall stock market, or technology stocks or bank stocks, will go up or down. Goldman, among others on Wall Street, has said since the collapse that it made big money by using the ABX to bet against the housing market. Worried about a housing bubble, top Goldman executives decided in December 2006 to change the firm’s overall stance on the mortgage market, from positive to negative, though it did not disclose that publicly. Even before then, however, pockets of the investment bank had also started using C.D.O.’s to place bets against mortgage securities, in some cases to hedge the firm’s mortgage investments, as protection against a fall in housing prices and an increase in defaults. Mr. Egol was a prime mover behind these securities.