10 ms·

The total fine of $158 million, after Citi got billions in support, is nothing, a mere rounding error on one of their quarterly reports. A simple cost of doing

The total fine of $158 million, after Citi got billions in support, is nothing, a mere rounding error on one of their quarterly reports. A simple cost of doing business... The key take-away is: no one at Citi went to jail for fraud.

mindcrime 14y ago
Bingo! Give this man a cookie. It's bullshit that these guys perpetrated outright fraud like this, and - at the end - nobody was really punished, even though they basically admitted they were guilty. This shit is what gives capitalism a bad name... I'm as much a proud anarcho-capitalist, Ayn Rand reading, Ludwig von Mises quoting, Gary Johnson supporting libertarian as the next guy, and it pains me to get beat up for believing in capitalism because of these crooks at Citi and BoA, when nobody is being punished for their fraud. Capitalism does not inherently entail accepting fraud like this, but every time these asshats get away with this kind of behavior, it reinforces all the negative images that people have about capitalism. If we're going to accept the idea that government (or something like government) is to protect property rights and enforce a "rule of law" that protects against this kind of fraud, then our government needs to step the %$!# up and prosecute some of these assholes.
- cynicalkane 14y ago
  In a corporate case it's hard--both legally and practically--to pinpoint someone of guilty mind performing guilty acts beyond reasonable doubt. That's why the corporation is a "legal person" that can itself be legally responsible for stuff and get sued: corporate personhood arose partially as a solution to this problem. This has borne out in legal practice, where even when there's obvious blood in the water, prosecutors have trouble convicting all but a few top guys. Anyway, I also find your profanity-laden vitrol unbecoming of discussion on this site. EDIT: I guess it's now considered a sin to state an easily-verifiable truth and ask for polite discourse.
  - laserDinosaur 14y ago
    Technically a corporation is a person, is it not? What if we tried to send the corporation to jail instead? =)
  - maratd 14y ago
    > In a corporate case it's hard--both legally and practically--to pinpoint someone of guilty mind performing guilty acts beyond reasonable doubt. What? We solved this problem a long time ago. Corporations are beneficial because they provide liability protection to the employees. That's it. In the case of fraud, we decided the corporate veil should be lifted. So all you have to do is go through each individual in the corporation, see what laws they broke, and go after them. It's very straightforward. The problems occur when the corporations received ungodly amounts of money from the government, when a government "appoints" individuals to positions within the corporation, and when there's quite a bit of collusion between the corporate entity and the government. At that point, the government has very little incentive to prosecute and the corporate entity has even more incentive to commit fraud.
    - cynicalkane 14y ago
      "Limited liability" and "corporate veil" refer to shareholder protection, not employee protection. Traditionally shareholders, not employees, were on the hook for lawbreaking. Anyway, you say something like "go through each individual in the corporation, see what laws they broke, and go after them" as though it's easy. In practice prosecutors have a hard time doing this even when they want to for the reasons I just said. Some of the Enron guys were acquitted by a jury, for example.
  - mindcrime 14y ago
    That's why the corporation is a "legal person" that can itself be legally responsible for stuff and get sued: corporate personhood arose partially as a solution to this problem. Yes, which should lead one to question whether or not a State created legal fiction like a "corporation" should exist to protect individuals from responsibility for their actions. Anyway, I also find your profanity-laden vitrol unbecoming of discussion on this site. That's too bad, but I'm not changing the way I go about things. If pg were to post and say "profanity is no longer allowed here," then I'd have a decision to make, but otherwise, I choose my words to suit the situation at hand and to suit my personality.
- simonh 14y ago
  Because y'know, fraud _never_ happens in command economies or totalitarian states. This is human nature and has to do with the culture of lrage organisations, and has nothing whatever to do with capitalism per se.
- e40 14y ago
  You make it sound like it's just a few crooks at Citi and BofA. I believe unfettered from regulations, transparency and oversight, this is what capitalism devolves to. I'm a liberal, but I hate too much regulation. I do think, however, the pendulum has swung very far in the lack of the features I mentioned above. The US is definitely in a weird place. On the one hand, financial deregulation allowed the greed on Wall St to cause the 2008 global meltdown, and no real regulations have been put (back) in place to stop the next one. But, on the other hand, we have the government regulating things like the size of sugary drinks. The trend seems to be this: more regulation on people and less on corporations. That is a disturbing trend, for sure. Unfortunately, even though I'm a liberal, I feel that neither party will make this better in the short or long term.
  - mindcrime 14y ago
    You make it sound like it's just a few crooks at Citi and BofA. No, but by the same token, it's hardly the case that all business leaders in a capitalist society are crooks. This is just particularly galling because it's so blatant and because they're basically saying "yeah, we're guilty" and still no one is being punished. I believe unfettered from regulations, transparency and oversight, this is what capitalism devolves to. But we're not in a system that's unfettered from regulations, transparency and oversight. At least not in the sense that we don't have a "government" that purports to provide those things. But the current system obviously doesn't work, so I'm not sure how more government, bureaucracy, rules, regulations, etc. are going to fix anything, when it's clear that certain groups that break the law with (near) impunity. I'm a liberal, but I hate too much regulation. I do think, however, the pendulum has swung very far in the lack of the features I mentioned above. I think lack of enforcement (which I attribute to cronyism and corruption) are more then problem than lack of rules, and laws, and regulations. This is one (but not the only) reason I am so skeptical of government, because the more power you grant it, the more there seems to be temptation for it to devolve, along with the "titans of industry", into this quasi-fascist, corrupt, cronyist system. sigh Times like these, I tend to think it almost doesn't matter what political ideology one believes in... you almost just have to accept that the system is always going to decay and become corrupt eventually, and you just have to scrap the whole thing, throw it out and start over.
- ktizo 14y ago
  Surely these guys were perfect anarcho-capitalists. They bowed to no system of external rule, while making as much money as possible.
  - mindcrime 14y ago
    Surely these guys were perfect anarcho-capitalists. No, being an An-Cap does not necessarily mean a "profit at all costs mentality." Anarcho-Capitalism, as an ideology, embraces the idea of private property rights, enforcement of contracts, and rejects fraud as a mechanism for achieving one's ends. Some of these crooks may have chosen the An-Cap label for themselves, but I damn sure don't claim them, FWIW. And neither do most of the other An-Caps I know.
    - sp332 14y ago
      How do you get private property and contract enforcement without laws and law enforcement?
      - willyt 14y ago
        Guns, pitchforks, lynch mobs, Wild West type shit, no? (I don't want that.)
        mindcrime 14y ago
        Guns, pitchforks, lynch mobs, Wild West type shit, no? (I don't want that.) It sounds like you've already made up your mind that it could only be that way, but see my response above if you are actually interested in some more considered discussion of the topic. I'll just say that I have at least as much faith that people can voluntarily and peacefully reach a workable agreement without using a construct like "The State" as I am that they can do so by using such a construct. In either case, human nature is the ultimate limiting factor.. the State will never be more morally pure, or have more of conscience, etc., than the people who constitute it, IMO.
      - mindcrime 14y ago
- jamesbritt 14y ago
  Capitalism does not inherently entail accepting fraud like this, but every time these asshats get away with this kind of behavior, it reinforces all the negative images that people have about capitalism. Isn't this more a case of state capitalism, or corporate capitalism, or just plain corporatism? I keep seeing the word "capitalism" used but rarely with any assigned definition, as if there were but one universal and agreed-upon meaning. Me, I see these kinds of shenanigans more as an indictment of mixed economies and statism.
- EricDeb 14y ago
  You'll have to excuse my ignorance on politics/government, but under a more libertarian/less government rule who is it that prevents this type of situation from occurring? That is, who ensures that sophisticated financial fraud does not occur? Assuming a small government, would it just be individual whistle blowers up against corporations in court?
- intended 14y ago
  They do get prosecuted. Except they carry so much legal firepower, and then hide behind complexity at a level where the govt. has to consider which cases to go after. See the sec going after goldman for example. Further, the govt in many cases has been co-opted or convinced that should they go after these guys, the economy would collapse. I believe the state wide cases against the mortgage companies foreclosure mills was a close example. I don't have the details on the tip of my fingers anymore, but in essence the mills were getting sued in every state, and were negotiating.. Perhaps to get the suits bundled together I think. At which point they introduced a clause which stated that they would not be sued for anything else after this case, on this matter. Essentially protecting them from further prosecution/investigation. If it weren't for a handful of DAs who said no, particularly the NY DA office, it would have passed. And then there's regulatory capture and resources being reduced to investigative bodies. I used to follow this mess for a while, and there are a lot of prosecutions and maneuvers and counter maneuvers going on. If you are wondering why they aren't being sued I suggest doing some research, rollingstone alone will have some great articles, and if you would like the big picture blog, carries some old articles, and is always tracking the crap the finance industry is pulling. There is a lot going on - make no mistake. It's just that the govt really is the underdog, and is sadly the first one to get bashed on HN.
JackFr 14y ago
You understand what the fraud being perpetrated is right? Citi passed fraudulent mortgages on to investors. That is, either homeowners or third party mortgage brokers fraudulently obtained loans to which they otherwise would not have been able to get. The victim of this fraud is not the homeowner, but the lender. Citi became culpable only when they bought loans that a prudent man would have recognized as obtained through fraud and packaged and sold them as securities. Now if you're willing to send officers of Citi to jail for complicity in a fraud perpetrated by and large by home owners and small time mortgage brokers, who also were the primary beneficiaries, you've got to be willing to send them to jail as well.
- Klinky 14y ago
  Many of the lenders were complicit in fudging numbers to make people qualify for loans they should not have qualified for. They are just as responsible, if not more so than the borrowers.
  - intended 14y ago
    The foreclosure mill mess is ridiculous, and there is downright fraud. The bank lost its papers and forged them for gods sakes. That's a differrent level of wrong doing altogether!
  - FJim 14y ago
    Originators lend the money and sell the loan. It is agreed that the originate to sell model has perverse incentives. However, the point is that home borrowers are not the victims of this fraud. The people who bought securities backed by these loans are the victim of the fraud. The homeowners got the money, the investors lost the money because the homeowners can't pay it back. The originators and the securitizers (Citi) facilitated the fraud, because they got their cut as the money passed through the pipeline.
    - Klinky 14y ago
      Homeowners were mislead as to the viability of the housing market & the concept that a house was a great investment. Many wanted to get in before it got "too expensive". Many of the loan products on the market were misleading as far as the actual costs and mortgage brokers who were hungry to get people into houses often glossed over explaining the viability of the loan. Some homeowners were stupid, but most people are their own unpaid, untrained, part time financial adviser. The banking, investment & real estate industries have extremely well paid employees who should know better and are paid as though they do.
chernevik 14y ago
Here's a question: If Citi was selling out-of-compliance loans to Fannie and Freddie and the FHA, why aren't those institutions forcing Citi to buy those loans back? Likewise JP Morgan, Bank of America, etc. I don't know the answer and there might be a good one. But I can't help noticing that these institutions were "too big too fail", that substantial sums were advanced and pledged to keep them afloat, and that their preservation has been an important consideration of Fed policy for going on five years. It isn't too hard to imagine a decision to accept additional losses among the GSEs and federal housing agencies for the higher purpose of keeping the US financial system afloat. Please note that Fannie and Freddie are something like $100 billion in the hole to the Federal government, financial catastrophes that dwarf any bailout extended and yet have somehow escaped the public attention proportionate to their amazing losses. (Indeed we have politicians advocating still greater losses for them as part of efforts to settle the housing market.) These banks are big beyond the wisdom or fortitude of public officials to conduct prudent and and equitable policy. If banks that big exist, they'll earn rents based on their regulatory position, and their executives' compensation be essentially free from any market discipline. And those banks and executives will provide political contributions and favors and soft landings to politicians and regulators whose views will matter so much to their profitability. It's an "iron triangle" secured by the governments' regulatory monopoly and the flow of capital through the system. The expansion of the government into housing finance through the GSEs and various guarantors only makes the situation worse. There is no doubt that smaller banks lead to higher capital costs and accepting lower slower economic growth. There are real economies of scale in these businesses. But realizing that potential contribution requires an intelligence and integrity of regulation, over sustained periods of time, that is simply beyond the institutional capacities of public institutions. They thus accumulate excess risks, which translate to costs, which ultimately consume their promised potential and leave us with net losses. And political distortions to boot. There are few on this board more conservative than I. But US banking policy must be put into a place where no one can fail to know that the failure of any US financial institution will result in losses for its capital providers, equity and debt, with no possibility of public intervention on any basis. The freedom of our economy and polity must be distorted to the extent of our deviation from that state.

mindcrime 14y ago

Bingo! Give this man a cookie. It's bullshit that these guys perpetrated outright fraud like this, and - at the end - nobody was really punished, even though they basically admitted they were guilty. This shit is what gives capitalism a bad name... I'm as much a proud anarcho-capitalist, Ayn Rand reading, Ludwig von Mises quoting, Gary Johnson supporting libertarian as the next guy, and it pains me to get beat up for believing in capitalism because of these crooks at Citi and BoA, when nobody is being punished for their fraud. Capitalism does not inherently entail accepting fraud like this, but every time these asshats get away with this kind of behavior, it reinforces all the negative images that people have about capitalism. If we're going to accept the idea that government (or something like government) is to protect property rights and enforce a "rule of law" that protects against this kind of fraud, then our government needs to step the %$!# up and prosecute some of these assholes.

cynicalkane 14y ago
In a corporate case it's hard--both legally and practically--to pinpoint someone of guilty mind performing guilty acts beyond reasonable doubt. That's why the corporation is a "legal person" that can itself be legally responsible for stuff and get sued: corporate personhood arose partially as a solution to this problem. This has borne out in legal practice, where even when there's obvious blood in the water, prosecutors have trouble convicting all but a few top guys. Anyway, I also find your profanity-laden vitrol unbecoming of discussion on this site. EDIT: I guess it's now considered a sin to state an easily-verifiable truth and ask for polite discourse.
- laserDinosaur 14y ago
  Technically a corporation is a person, is it not? What if we tried to send the corporation to jail instead? =)
- maratd 14y ago
  > In a corporate case it's hard--both legally and practically--to pinpoint someone of guilty mind performing guilty acts beyond reasonable doubt. What? We solved this problem a long time ago. Corporations are beneficial because they provide liability protection to the employees. That's it. In the case of fraud, we decided the corporate veil should be lifted. So all you have to do is go through each individual in the corporation, see what laws they broke, and go after them. It's very straightforward. The problems occur when the corporations received ungodly amounts of money from the government, when a government "appoints" individuals to positions within the corporation, and when there's quite a bit of collusion between the corporate entity and the government. At that point, the government has very little incentive to prosecute and the corporate entity has even more incentive to commit fraud.
  - cynicalkane 14y ago
    "Limited liability" and "corporate veil" refer to shareholder protection, not employee protection. Traditionally shareholders, not employees, were on the hook for lawbreaking. Anyway, you say something like "go through each individual in the corporation, see what laws they broke, and go after them" as though it's easy. In practice prosecutors have a hard time doing this even when they want to for the reasons I just said. Some of the Enron guys were acquitted by a jury, for example.
- mindcrime 14y ago
  That's why the corporation is a "legal person" that can itself be legally responsible for stuff and get sued: corporate personhood arose partially as a solution to this problem. Yes, which should lead one to question whether or not a State created legal fiction like a "corporation" should exist to protect individuals from responsibility for their actions. Anyway, I also find your profanity-laden vitrol unbecoming of discussion on this site. That's too bad, but I'm not changing the way I go about things. If pg were to post and say "profanity is no longer allowed here," then I'd have a decision to make, but otherwise, I choose my words to suit the situation at hand and to suit my personality.
simonh 14y ago
Because y'know, fraud _never_ happens in command economies or totalitarian states. This is human nature and has to do with the culture of lrage organisations, and has nothing whatever to do with capitalism per se.
e40 14y ago
You make it sound like it's just a few crooks at Citi and BofA. I believe unfettered from regulations, transparency and oversight, this is what capitalism devolves to. I'm a liberal, but I hate too much regulation. I do think, however, the pendulum has swung very far in the lack of the features I mentioned above. The US is definitely in a weird place. On the one hand, financial deregulation allowed the greed on Wall St to cause the 2008 global meltdown, and no real regulations have been put (back) in place to stop the next one. But, on the other hand, we have the government regulating things like the size of sugary drinks. The trend seems to be this: more regulation on people and less on corporations. That is a disturbing trend, for sure. Unfortunately, even though I'm a liberal, I feel that neither party will make this better in the short or long term.
- mindcrime 14y ago
  You make it sound like it's just a few crooks at Citi and BofA. No, but by the same token, it's hardly the case that all business leaders in a capitalist society are crooks. This is just particularly galling because it's so blatant and because they're basically saying "yeah, we're guilty" and still no one is being punished. I believe unfettered from regulations, transparency and oversight, this is what capitalism devolves to. But we're not in a system that's unfettered from regulations, transparency and oversight. At least not in the sense that we don't have a "government" that purports to provide those things. But the current system obviously doesn't work, so I'm not sure how more government, bureaucracy, rules, regulations, etc. are going to fix anything, when it's clear that certain groups that break the law with (near) impunity. I'm a liberal, but I hate too much regulation. I do think, however, the pendulum has swung very far in the lack of the features I mentioned above. I think lack of enforcement (which I attribute to cronyism and corruption) are more then problem than lack of rules, and laws, and regulations. This is one (but not the only) reason I am so skeptical of government, because the more power you grant it, the more there seems to be temptation for it to devolve, along with the "titans of industry", into this quasi-fascist, corrupt, cronyist system. sigh Times like these, I tend to think it almost doesn't matter what political ideology one believes in... you almost just have to accept that the system is always going to decay and become corrupt eventually, and you just have to scrap the whole thing, throw it out and start over.
ktizo 14y ago
Surely these guys were perfect anarcho-capitalists. They bowed to no system of external rule, while making as much money as possible.
- mindcrime 14y ago
  Surely these guys were perfect anarcho-capitalists. No, being an An-Cap does not necessarily mean a "profit at all costs mentality." Anarcho-Capitalism, as an ideology, embraces the idea of private property rights, enforcement of contracts, and rejects fraud as a mechanism for achieving one's ends. Some of these crooks may have chosen the An-Cap label for themselves, but I damn sure don't claim them, FWIW. And neither do most of the other An-Caps I know.
  - sp332 14y ago
    How do you get private property and contract enforcement without laws and law enforcement?
    - willyt 14y ago
      Guns, pitchforks, lynch mobs, Wild West type shit, no? (I don't want that.)
      - mindcrime 14y ago
        Guns, pitchforks, lynch mobs, Wild West type shit, no? (I don't want that.) It sounds like you've already made up your mind that it could only be that way, but see my response above if you are actually interested in some more considered discussion of the topic. I'll just say that I have at least as much faith that people can voluntarily and peacefully reach a workable agreement without using a construct like "The State" as I am that they can do so by using such a construct. In either case, human nature is the ultimate limiting factor.. the State will never be more morally pure, or have more of conscience, etc., than the people who constitute it, IMO.
    - mindcrime 14y ago
jamesbritt 14y ago
Capitalism does not inherently entail accepting fraud like this, but every time these asshats get away with this kind of behavior, it reinforces all the negative images that people have about capitalism. Isn't this more a case of state capitalism, or corporate capitalism, or just plain corporatism? I keep seeing the word "capitalism" used but rarely with any assigned definition, as if there were but one universal and agreed-upon meaning. Me, I see these kinds of shenanigans more as an indictment of mixed economies and statism.
EricDeb 14y ago
You'll have to excuse my ignorance on politics/government, but under a more libertarian/less government rule who is it that prevents this type of situation from occurring? That is, who ensures that sophisticated financial fraud does not occur? Assuming a small government, would it just be individual whistle blowers up against corporations in court?
intended 14y ago
They do get prosecuted. Except they carry so much legal firepower, and then hide behind complexity at a level where the govt. has to consider which cases to go after. See the sec going after goldman for example. Further, the govt in many cases has been co-opted or convinced that should they go after these guys, the economy would collapse. I believe the state wide cases against the mortgage companies foreclosure mills was a close example. I don't have the details on the tip of my fingers anymore, but in essence the mills were getting sued in every state, and were negotiating.. Perhaps to get the suits bundled together I think. At which point they introduced a clause which stated that they would not be sued for anything else after this case, on this matter. Essentially protecting them from further prosecution/investigation. If it weren't for a handful of DAs who said no, particularly the NY DA office, it would have passed. And then there's regulatory capture and resources being reduced to investigative bodies. I used to follow this mess for a while, and there are a lot of prosecutions and maneuvers and counter maneuvers going on. If you are wondering why they aren't being sued I suggest doing some research, rollingstone alone will have some great articles, and if you would like the big picture blog, carries some old articles, and is always tracking the crap the finance industry is pulling. There is a lot going on - make no mistake. It's just that the govt really is the underdog, and is sadly the first one to get bashed on HN.

JackFr 14y ago

You understand what the fraud being perpetrated is right? Citi passed fraudulent mortgages on to investors. That is, either homeowners or third party mortgage brokers fraudulently obtained loans to which they otherwise would not have been able to get. The victim of this fraud is not the homeowner, but the lender. Citi became culpable only when they bought loans that a prudent man would have recognized as obtained through fraud and packaged and sold them as securities. Now if you're willing to send officers of Citi to jail for complicity in a fraud perpetrated by and large by home owners and small time mortgage brokers, who also were the primary beneficiaries, you've got to be willing to send them to jail as well.

Klinky 14y ago
Many of the lenders were complicit in fudging numbers to make people qualify for loans they should not have qualified for. They are just as responsible, if not more so than the borrowers.
- intended 14y ago
  The foreclosure mill mess is ridiculous, and there is downright fraud. The bank lost its papers and forged them for gods sakes. That's a differrent level of wrong doing altogether!
- FJim 14y ago
  Originators lend the money and sell the loan. It is agreed that the originate to sell model has perverse incentives. However, the point is that home borrowers are not the victims of this fraud. The people who bought securities backed by these loans are the victim of the fraud. The homeowners got the money, the investors lost the money because the homeowners can't pay it back. The originators and the securitizers (Citi) facilitated the fraud, because they got their cut as the money passed through the pipeline.
  - Klinky 14y ago
    Homeowners were mislead as to the viability of the housing market & the concept that a house was a great investment. Many wanted to get in before it got "too expensive". Many of the loan products on the market were misleading as far as the actual costs and mortgage brokers who were hungry to get people into houses often glossed over explaining the viability of the loan. Some homeowners were stupid, but most people are their own unpaid, untrained, part time financial adviser. The banking, investment & real estate industries have extremely well paid employees who should know better and are paid as though they do.

chernevik 14y ago

Here's a question: If Citi was selling out-of-compliance loans to Fannie and Freddie and the FHA, why aren't those institutions forcing Citi to buy those loans back? Likewise JP Morgan, Bank of America, etc. I don't know the answer and there might be a good one. But I can't help noticing that these institutions were "too big too fail", that substantial sums were advanced and pledged to keep them afloat, and that their preservation has been an important consideration of Fed policy for going on five years. It isn't too hard to imagine a decision to accept additional losses among the GSEs and federal housing agencies for the higher purpose of keeping the US financial system afloat. Please note that Fannie and Freddie are something like $100 billion in the hole to the Federal government, financial catastrophes that dwarf any bailout extended and yet have somehow escaped the public attention proportionate to their amazing losses. (Indeed we have politicians advocating still greater losses for them as part of efforts to settle the housing market.) These banks are big beyond the wisdom or fortitude of public officials to conduct prudent and and equitable policy. If banks that big exist, they'll earn rents based on their regulatory position, and their executives' compensation be essentially free from any market discipline. And those banks and executives will provide political contributions and favors and soft landings to politicians and regulators whose views will matter so much to their profitability. It's an "iron triangle" secured by the governments' regulatory monopoly and the flow of capital through the system. The expansion of the government into housing finance through the GSEs and various guarantors only makes the situation worse. There is no doubt that smaller banks lead to higher capital costs and accepting lower slower economic growth. There are real economies of scale in these businesses. But realizing that potential contribution requires an intelligence and integrity of regulation, over sustained periods of time, that is simply beyond the institutional capacities of public institutions. They thus accumulate excess risks, which translate to costs, which ultimately consume their promised potential and leave us with net losses. And political distortions to boot. There are few on this board more conservative than I. But US banking policy must be put into a place where no one can fail to know that the failure of any US financial institution will result in losses for its capital providers, equity and debt, with no possibility of public intervention on any basis. The freedom of our economy and polity must be distorted to the extent of our deviation from that state.