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List of Wall Street CEOs prosecuted for the financial crisis

147 points by gere 13y ago

jonmrodriguez 13y ago
Meanwhile, in China: http://www.businessinsider.com/chinese-white-collar-criminals-death-sentence-2013-7?op=1 http://www.businessinsider.com/chinese-white-collar-criminal...
- markyc 13y ago
  "About 4,000 people a year are executed annually in the country" I'm not even a native English speaker and that opening phrase screams sloppy journalism to me. I guess for some reason I expect a higher quality from established news outlets
  - samsolomon 13y ago
    Although "Business" is in the title Business Insider is closer to a Buzzfeed than it is an Atlantic or a New York Times. It is interesting to see the sentences people got for their crimes. I agree all of those mentioned in the article are wrong, but a death sentence seems incredibly harsh.
- jfasi 13y ago
  Is China's justice system really what we want to aspire to?
daniel-cussen 13y ago
Not sure he was a CEO, but Bernard Madoff was prosecuted. http://en.wikipedia.org/wiki/Bernard_Madoff http://en.wikipedia.org/wiki/Bernard_Madoff
- quarterto 13y ago
  Ah, but his crimes were against Wall Street, not the proletariat^H^H^H^H^H^H^H^H^H^H^H general public.
  - asgard1024 13y ago
    Though it's a counterpoint to the argument that U.S. doesn't prosecute business decisions.
    - konstruktor 13y ago
      Madoff ran a Ponzi scheme and was convicted for fraud.
      - asgard1024 13y ago
        There are economists, like Steve Keen, who argued that subprime mortgage crisis and financial crisis in general was a Ponzi scheme. And I would say it's pretty obvious to most people that it essentially was. Madoff could say, in his defense, "I don't know this was a Ponzi scheme, I was just incompetent". At that's similar to what these bankers are saying. We don't accept it as a defense, though; we just prosecute it. The point is, there is no strict line between incompetence and fraud. Every fraud can claim incompetence. The unfortunate truth is that the U.S. indeed prosecutes _obviously_ bad business decisions. Just not in the cases where the fish is big enough. (The same is actually true in my country, Czech Republic.)
      - fnordfnordfnord 13y ago
        Eventually...
JackFr 13y ago
He buries the lead -- its in the fifteenth paragraph: "America doesn’t criminalize bad business decisions, even when they lead to business failure"
- paul_f 13y ago
  The article makes the assumption that criminal activity led to the financial crisis. Rather than poor policy combined with risky behavior by some, and as the above poster said, bad business decisions.
  - jaydub 13y ago
    Certainly should not be a criminal offense if bad biz decisions are made in good faith. But there ought to be severe, lasting civil consequences for grossly irresponsible risk taking in breach of fiduciary responsibilities. (More than an SEC settlement that just gets written down)
    - aetherson 13y ago
      Could you explain what you have in mind? $67 million doesn't sound like a slap on the wrist (it's to a person, not the company, mind), and I'm curious what kind of "lasting" consequences you think are appropriate for civil penalties if not fines.
      - jaydub 13y ago
        My response is probably more emotional than logical and I think you raise good points but let me try to respond. How much did he actually pay out himself in the end? Mozilo's worth ~$600M according to some quick googling. $67M represents ~10% of his net worth (some of which was gained illicitly). From a risk perspective this looks like a great deal! Cheat yourself up to a big fortune and if you get caught so what? You've made it! So I do think the fine should be on the same order of magnitude as the net worth of the individual to really send a message -- and it should not be tax deductible (if it is for individuals, I believe companies can). I also think there should be a more serve and general ban from the securities industry.
xradionut 13y ago
It's good to be a king: http://www.publicintegrity.org/2013/09/10/13326/ex-wall-street-chieftains-living-large-post-meltdown-world http://www.publicintegrity.org/2013/09/10/13326/ex-wall-stre...
gutnor 13y ago
It raises a good point that we cannot (and should not) prosecute people for the consequence of bad but legal business decision. However that also means that "self-regulation" is a get out of jail free card. Which I sort of understand, you would not want to cripple a growing sector with unnecessary constraint, I understand _once_ ( and you may argue, that it was not the first time for the Banking sector to keep only greed as regulation) So it is fine that nobody went to jail. But we should also acknowledge that this self-regulation has failed in a spectacular fashion. So spectacular that it has had no impact in the life of most bankers, except a delayed bonus for a year. And nothing has been done to change that in the last 5 years. To put that in perspective it took a decade for the start-up sector to recover from the .Net bubble. A lot of developer from those time have lost money, and struggled to recover their past salary level. The days of setting your own rules in a company just because you are a developer are also gone. Here is the City of London, nothing has changed for bankers. Edit: should -> should not
- arethuza 13y ago
  "nothing has changed for bankers" Well, Fred Goodwin lost his knightwood for the allmighty omnishambles at RBS - serious stuff! http://en.wikipedia.org/wiki/Fred_Goodwin http://en.wikipedia.org/wiki/Fred_Goodwin [Not long after he was kicked out of RBS I was crossing the road in George Streed Edinburgh and there was a chap sitting in a convertible Ferrari waiting for me to cross and I thought "he looks familiar" - 95% sure it was ex-Sir Fred the Shred]
  - nextw33k 13y ago
    Technically you are correct, however he's still on £342,500 a year pension and £2.7million lump sum for his troubles.
- coob 13y ago
  Manipulating Libor was completely illegal, and whilst banks have been fined, where are the individual prosecutions?
  - 13y ago
ig1 13y ago
Do you really want there to be a law on the books which means people can be prosecuted for making bad decisions, decisions which the people making them thought were perfectly reasonable and legal at the time ? The reason that CEOs haven't been prosecuted is that it's not clear there's any basis for which there to be a prosecution. There's no law criminalizing CEOs from making bad decisions, and it'd be incredibly stupid for there to be one.
- gaius 13y ago
  That is the crux of the matter. Before it all fell apart, Fred Goodwin for example was universally regarded as a shrewd and savvy businessman who transformed RBS from a sleepy regional bank into a global powerhouse. He was a titan of business like Jack Welch or Richard Branston.
  - danielweber 13y ago
    Everyone loved the housing bubble. The bankers made the most off of it, but the rest of the mob went along because they had convinced themselves they would get rich, too, and were pushing it along as hard as they could. I still occasionally encounter people who think the problem with the housing bubble wasn't that it ever existed, but that it ended.
    - dingaling 13y ago
      > Everyone loved the housing bubble. Well, everyone other than people just trying to buy a house for their family. A house in which to live, not to flip-off in ten years time.
  - arethuza 13y ago
    As were the management of Enron, or Bernard Madoff, or Robert Maxwell....
rayiner 13y ago
I find it mind boggling that people start raving about the overly expansive criminal justice regime when a hacker does something, but turn around and demand jail time for Wall Street CEOs, none of whom provably did anything wrong. People act as if the fact that there was a global financial collapse is proof that someone must have been criminally culpable. But who should be prosecuted for the last dot com bubble bursting? Or the next one? Re: jail time, I think non-violent crimes should not get jail time period, whether you're a banker or a stoner or a malicious hacker.
- nextw33k 13y ago
  With that reasoning there is no need to pay these people excessive payments of millions. Since they are not culpable for bad choices (they were not keeping watch), how can they take credit for the good things? These people in my view were negligent at their jobs. They chose a career which contained an inherent level of responsibility to society which they didn't live up to. The justice people are seeking is social justice, not perhaps prison time but more repayment of their ill gotten bonuses.
  - derefr 13y ago
    The US economy is built on the principle that people get to enjoy the gains of productive ventures, but suffer none of the losses of failures. Imagine that these executives had been working instead as executive consultants, each with their own company contracted to the firm they managed. In failure, those one-man consultancies would get your huge and "just" debts piled onto them--and then simply file for bankruptcy. This would not take back any of the salary or bonuses that those consultancies had already paid out.
- 67726e 13y ago
  Engineers can be held liable if something they designed catastrophically malfunctions. Maybe people responsible for the economic well-being of, well, the whole damned world should too? People tend to think it's wrong that a corporation can play fast-and-loose with their money, and then fuck up royally get government bailouts and generally speaking keep on like nothing happened. I honestly don't know enough about these institutions and relevant financial laws to know what, if anything, could be done as punishment/retribution/revenge but then again I don't feel like anything was done. Therein lies the problem, a group of people can sink the economy through risky/reckless practices and skip out of it while the common folk lose their jobs/homes/savings and that just feels wrong. At the very least, it feels like a lack of rule of law.
jackgavigan 13y ago
"America doesn’t criminalize bad business decisions, even when they lead to business failure; if we did, Silicon Valley would be a penal colony." This is the crux of the problem. It's very difficult to send someone to jail when they haven't committed a crime, no matter how unpopular they are. I think most people would regard that as a good thing, personally. It's worth remembering also that the banks were regulated. Did any regulators lose their jobs? http://www.cato.org/publications/commentary/why-cant-we-fire-failed-regulators http://www.cato.org/publications/commentary/why-cant-we-fire... EDIT/Afterthought: I suppose we could bring back lynching.
- smacktoward 13y ago
  The problem with this line of thinking is that "bad business decisions" in most cases only hurt the business. But the banks have gotten so big, and so interconnected -- "too big to fail" (http://en.wikipedia.org/wiki/Too_big_to_fail http://en.wikipedia.org/wiki/Too_big_to_fail) -- that their bad business decisions hurt everybody. A business whose failure could jeopardize the entire global economy demands a different standard of responsibility for management than a photo-sharing website. When you're running something that critical, you're at least in part a de facto public servant, even if you're nominally a private businessperson. It's an awkward position for a CEO to be in, to be sure. But they could always get out of it by scaling down their businesses to a size where they're not a single point of failure for the economic health of billions of people anymore. Somehow I doubt they will be rushing to do that voluntarily, though.
  - jackgavigan 13y ago
    This is why we have regulators. It's the regulators and the people's elected representatives who allowed the big banks to grow "too big to fail". You can't expect banks to self-regulate. The competitive, zero-sum nature of the financial markets means that a company that voluntarily hamstrings itself will likely end up being eaten by those who don't. We need regulators to establish the rules and set the boundaries. The problem is that we have them but they failed to do their job. It's like sending a man with a rifle to protect a herd of goats from a leap of leopards. If the man decides to go to sleep and the leopards come along and eat some of the goats, who do you blame? Do you blame the leopard for being a leopard or do you blame the man for sleeping on duty?
adventured 13y ago
There have been no members of the US Government or the Federal Reserve prosecuted for providing the laws, financing and hyper liquidity that made it all possible. Don't hold your breath on that one either.
derekyle 13y ago
If anyone should be prosecuted, it's politicians like Barney Frank and Chris Dodd, http://www.youtube.com/watch?v=iW5qKYfqALE http://www.youtube.com/watch?v=iW5qKYfqALE Their policies encouraged banks to relax lending standards and lend to people that could not afford it. Bottom line, they presided over one of the largest collapses of wealth in American history with Fannie Mae and Freddie Mac.
- misiti3780 13y ago
  At least Dodd lost his job, although he immediately became a lobbyist for hollywood. but you are spot on - they are both horrible human beings who should not have jobs
known 13y ago
Fed monopoly/hegemony over printing our dollars is undesirable.
pjc50 13y ago
There has been some _actual_ fraud involved, most notably the "robo-signing" (steal a million homes at the stroke of a pen): http://www.reuters.com/article/2013/06/25/robosigning-sentencing-idUSL2N0F11S920130625 http://www.reuters.com/article/2013/06/25/robosigning-senten...
- jfasi 13y ago
  Firstly, but this led to a conviction. Justice at work. Secondly, would the crisis could have been prevented if this practice were not in place? Absolutely not. This behavior was a symptom rather than a disease.
  - pjc50 13y ago
    It would not have prevented the crisis, but it would have prevented a substantial amount of cost-shifting onto mortgagors.
jfasi 13y ago
I hate this view. The rationale seems quite reasonable up front: something bad happened, we should find out who's responsible for it and punish them. There's also an unspoken assumption that this punishment would be a deterrent to future catastrophes, either by making these people too afraid of the consequences to commit their crimes, or simply by removing them from their positions of power. This view of justice makes very good sense on the level of an individual. An individual who can be proven beyond a reasonable doubt to have committed a crime is considered responsible for their actions, and it is appropriate to punish them. If their punishment is incarceration, then locking them up for a time arguably makes society safer. Their fate would serve as an example to others of what happens when you commit a crime. The problem with this view is that the financial crisis was not the result of individual actions on an individual level. What transgressions met the standard of our justice system, namely the rigorous demonstration of concrete, individual crimes, were treated. This article itself says this: those (relatively few) individuals who were demonstrated to have committed actions that were against the law were investigated, tried, and sentenced. The financial crisis as a whole, however, was a consequence of the structure of a system. Risk was commoditized. Loans were gathered, sliced up, and sold as instruments. Incredible complexity was introduced: witness the explosion of demand for financial engineers specializing in derivatives pricing. Banks sold mortgages with the intention to sell them up the chain as components of complex securities, encouraging them to be lax with their lending standards. In a way everyone involved was to blame, from the homeowners who filed shoddy-to-fraudulent paperwork, to the loan officers who looked the other way and accepted it. The mistake this and other articles like it make is it attempts to aggregate this blame upward. After all, the thinking goes, it's a manager's responsibility to ensure the proper behavior of those who report to him, and that chain ends at the CEOs. Therefore, the view goes, the CEOs must be held accountable. Sometimes a more ephemeral, less informed view is at play. The reasoning is that these companies do what their leaders tell them to do, so naturally consequences of the company's actions are consequences of its leaders' actions. In addition, the CEO is a public figure. When we need a human being to personify a company, he's the first that comes to mind. This is where things break down. To be held responsible for a crime, you personally have to have done something illegal. Not "you should have known better." You have to have broken the law. These people were investigated and even brought to testify before Congress, and no actions were found that met the rigorous requirements to be called a crime. Perhaps it can be argued that they were morally culpable, but as far as the justice system is concerned, their hands are clean. Their actions could not be proven beyond a reasonable doubt to have directly brought about the financial crisis. Suppose they had been tried and given jail time, as this and other articles demand? In the absence of all other interventions, would that have made the system any more stable? Certainly not. The economic ingredients for another crisis would still be in place. Would their example have served to convince others to behave better? Certainly not. The message would not have been "don't cause financial crises," (whatever that means) but rather, "try not to be at the helm when things go badly." Their incarceration would have served no purpose beyond crowd pleasing. It's time to give it a rest. You will never see these people prosecuted because by our standards of justice there is nothing to prosecute. If you want to make the financial system more resilient against collapse, you ought to press for structural reform to prevent these unstable situations from occurring again. If you want mob justice, it not happening. Deal with it.
saalweachter 13y ago
Two words: fiduciary duty. Whenever a megacorporation decides to act like a total shitburger, we are told their executive team has no choice, they are compelled by law to act like total shitburgers if it maximizes shareholder value. Keep workers part time to avoid giving benefits? Fiduciary duty. Export jobs to countries with no environmental or labor protections? Fiduciary duty. Charge customers a daily overdraft fee when an undeclared fee for checking their balance from a foreign ATM puts them in the red? Fiduciary duty. Lobby to change laws so they can act like even bigger shitburgers, legally? Fiduciary duty. Don't judge them, we are told, they have no choice. They are not bad people, they are just bound by fiduciary duty to maximize shareholder value. You should feel sorry for them, really. And then a complex, perhaps admittedly fraudulent scheme (the mortgage crisis) comes along and kills giant megacorporations, wiping out shareholder value entirely. Any WAMU shareholders in the audience? What happened to this fiduciary duty? What happened to these terrible consequences which would arise if shareholders were not appeased? Shareholder value has been minimized ... and nothing happened. Wall Street wants it both ways. A bailout with bonuses. Reward with no risk. License to act like a shitburger. Fine, don't prosecute people for bad decisions. But don't pretend like you have no choice but to act like a shitburger, that doing so is anything but screwing the rest of us for personal gain.
- brymaster 13y ago
  Here's some interesting discussion on the 'fiduciary duty' mantra the finance types keep singing: > Are U.S companies legally obligated to maximize profits for shareholders? > Not directly, but often conditions surrounding corporations lead to this obligation http://skeptics.stackexchange.com/questions/8146/are-u-s-companies-legally-obligated-to-maximize-profits-for-shareholders http://skeptics.stackexchange.com/questions/8146/are-u-s-com... As long as we continue to not call them out on their bullshit, they'll keep singing.
- robomartin 13y ago
  Two more words: research facts Yes, there was/is blame to be placed at the feet of corporations. That is probably undeniable. However, it is important to understand root causes here. The truth is hard to stomach for anyone who pro-big-government. The single gating element or decision that opened the doors to what would become the financial meltdown of the century was the US government's decision that everyone should be able to buy a house. Facts and qualifications be damned. Congress wanted everyone to buy a home. So, they loosened all the controls and actually pushed Fannie Mae and Freddie Mac to facilitate lending. It was: Go! Go! Go! That, and that alone, enabled what followed. Without this gate being opened it would have been imposiible. --as in absolutley fucking no-way impossible-- for masses of bullshit mortgages to be issued and CDO's to follow. Blame executives all you want for playing within the framework given to them by legislators but, please, be sure to take to task the true monsters who got us here. BTW, this is not partisan. Both sides of the isle have blood on their hands on this one. Suggested reading: http://www.amazon.com/Big-Short-Inside-Doomsday-Machine/dp/0393338827 http://www.amazon.com/Big-Short-Inside-Doomsday-Machine/dp/0... EDIT: My guess as to why nobody has been prosecuted is that a lot of politicians would be exposed through these actions. And, of course, they want to be as far removed from that kind of exposure as possible. The truth is not what they are after. They want votes. None of this would gain them votes and, in fact, might land some of them on the street or in jail.
oleganza 13y ago
Ask yourself how did it happen that some people got some much power to affect economy around you. Now find a way to insure/protect yourself against that. You will probably find out that, for instance, central bank manipulations with currency are protected by police enforcement in forms of various laws and regulations anybody dealing with money needs to comply ("allowed to participate on the market"). Liberty Dollar founder was deprived of all his customers' silver and is being prosecuted. Bitcoin companies are all on the verge of being harassed etc. Or, if you want to create an alternative bank or fund, you'll find it's not so easy to do: people with armed forces will politely ask you to comply with tons of regulations. It's basically a one self-protecting cartel and the basis of it is access to "legal" violent power.
bridgeland 13y ago
Simple explanation: they broke no laws
damian2000 13y ago
Its sort of similar to the outcome here too - http://en.wikipedia.org/wiki/Libor_scandal http://en.wikipedia.org/wiki/Libor_scandal - a bunch of investigations, banks being fined, new regulations put in place, but noone has gone to prison.
- dnautics 13y ago
  The LIBOR scandal is rediculous. It's a private entity that can say whatever the hell it wants. The real scandal is that governments decided to put so much trust in a single private entity to "get things right". Or maybe there's a scandal that governments care at all. Why should a government care what the interest rates are?
alan_cx 13y ago
Government's job is to regulate and legislate. Within that frame work, all if fair. The regulation and legislation failed. Government failed. That's where fingers should be pointed. Same deal with tax avoidance.
- jonnathanson 13y ago
  Indeed, where has the Department of Justice been all these years, when the banks were becoming "too big to fail," and now (per Eric Holder's insinuation) "too big to jail?" Where were the antitrust suits? Where are they now? To a major extent, the bigness of these financial institutions is the issue -- the fact that they're so ingrained into our economy as to be deemed untouchable, save for infinitesimal borrowing rates and occasional cash transfusions. In many cases it's hard to draw clear distinctions between "government" and "finance industry," as some pretty connected foxes were guarding the henhouse before, during, and after the crisis. Government failed us here, big time, and continues to fail us. But let's not let the culprits off the hook, nonetheless. The reason our government gives this industry a pat on the back, a few trill, and an 'atta-boy every time it fucks up is because this industry has made a concerted effort to buy off the government. And it has.
  - rayiner 13y ago
    Antitrust enforcement was gutted under Reagan and never recovered.
  - fennecfoxen 13y ago
    The problem is that the banks never became "too big to fail" and they should have been left to fail, and then we wouldn't have this problem. But some politicians were all "oh no!!! we can't let these banks fail!!! the stock market would collapse and unemployment could spike over 10%." And then the stock market collapsed anyway and unemployment spiked over 10%. And now the banks are even bigger. :P
    - jonnathanson 13y ago
      As comfortable as this logic feels, the fallout would have been even worse had the banks been left to fail. That's basically what we did in the 1930s. Didn't turn out so well. Some sort of bailout, unfortunately, needed to happen to keep the world from going completely Mad Max. But the bailout should have come with conditions: new regulations, enforcement with actual teeth, and trust-busting breakups of institutions on the receiving end. None of that happened. For the record: prosecutions of top execs, while warranted in many cases, are little more than sideshows. They're basically conducted for appearances. They do nothing to stop the next CEOs from going right back to business as usual. What really matter are antitrust policies, regulations, and enforcement.
ddeck 13y ago
If no-one significant did anything illegal and yet the result was the financial crisis, then clearly the legal/regulatory framework was/is flawed. The most troubling issue is that there hasn't been any significant adjustments since then. Perhaps not that surprising given the amount of influence the financial industry have in policy making, but still. It's also distressing to see an individual like Larry Summers being nominated as the next Fed Chairman. It seems very little has been learned. For anyone interested in understanding the events that led to the crisis, I can't recommend highly enough: All the Devils Are Here[1]. Of the many books written on the subject, it provides a very objective and thorough account. [1] http://www.amazon.com/All-Devils-Are-Here-Financial/dp/1591843634 http://www.amazon.com/All-Devils-Are-Here-Financial/dp/15918...
pasbesoin 13y ago
For what I consider to be an informed opinion on the matter, I'll cite the head of the 80's Savings and Loan scandal investigation and prosecutions. He was interviewed on public radio the other year. This is someone with expert knowledge who has actually been through and on the inside of a similar, if smaller, situation. He pointed out that, in that case, they pursued investigations and prosecutions and were able to win settlements and judgments in circa 1000 instances including criminal prosecutions. As I recall, he described what has happened this time around and a real shortfall and travesty. One that was not necessary, had justice been more aggressively (or, at all) pursued. I'm not an expert. But this guy, not just through credentials but also experience and demonstrated results, is. And that's what he had to say on the matter. Sorry, but it's been long enough that I don't recall his name off the top of my head. If I have time, I'll look for it and perhaps for that interview, as well. Or maybe someone else has a name and/or reference handy.
- gruseom 13y ago
  That was probably William Black. His usual point is that the lack of prosecutions is a result of the investigatory system having being gutted. He says that in the S&L scandal, his agency made 10,000 criminal referrals to the DoJ, while in the recent (much larger) crisis they made 0. According to Black, the common argument that nothing can be prosecuted because it was all (perhaps regrettably) legal is totally wrong; rather, standard investigative procedures were simply not applied because there weren't the investigators to do it, and what you don't investigate you don't find.
  - pasbesoin 13y ago
    That name sounds familiar. I recall also his describing how they would "work up the chain". Where they had evidence of culpability at a lower level, they would use it to apply pressure to "flip" such employees against their management. I think the description you cite is well taken. I know someone who is fairly senior in the SEC. They have more or less confirmed what I've also read. The SEC is supposed to be self-funding. The revenue they take in (fees, etc.) has been far in excess of their budget. Instead of staffing up (woefully needed; occasionally promised -- most recently a couple of years ago; never delivered), Congress -- who sets their budget after incorporating that revenue into the general budget -- has treated them as a cash cow. People need to look beyond "regulation is good/bad" labels, to learn and understand what is actually going on -- the specific circumstances.
jyu 13y ago
There's a lot of backstory that can not be adequately covered in a blog post. If you're interested in reading further, I highly suggest watching "The Untouchables," a PBS Frontline documentary following Wall Street executives and the prosecutors during that time. It explores the roles and motives of different players, and pretty convincingly shows how the game is heavily tilted towards Wall Street executives. Video: http://www.pbs.org/wgbh/pages/frontline/untouchables/ http://www.pbs.org/wgbh/pages/frontline/untouchables/ Transcript: http://www.pbs.org/wgbh/pages/frontline/business-economy-financial-crisis/untouchables/transcript-37/ http://www.pbs.org/wgbh/pages/frontline/business-economy-fin...
JonFish85 13y ago
I feel like the problem is, there are no easy answers. The mortgage-backed securities did exactly what they were supposed to do: diversify risk so that the only thing that could bring down the ship was a system-wide failure. And until that happened, things were great. People were buying houses. This was great for politicians, great for the middle class, great for businesses. Politicians wanted this to continue, so they pushed for easier access to borrowing. Banks/Wall Street wanted this to continue, so they were lax about loaning standards. People wanted this to continue because home values were soaring, and they were able to "afford" nicer and nicer places. Digging into it further, mid-level people in the banks, the ones responsible for handing out these 0-down mortgages, were pushing mortgages out the door as fast as they could. The model kept showing home prices soaring, and this mid-level mortgage official wanted his bonus. The home-buyer wanted that $750k house on his $70k/yr salary, because if he could only hold onto it for 5 years, it'd be worth $1.5m. Politicians wanted this to continue because they were raking in taxes on it. And for years, this grew outrageously. Until suddenly the one thing that could bring the whole industry to its knees happened: a country-wide slowdown on buying houses. Suddenly home prices stagnated, mortgage rates rose and bam, everyone is fucked. Banks are stuck with loans that were given to people on the ragged edge of what they could "afford". People were stuck with mortgages that they could barely afford the interest on. Politicians were stuck with constituents who suddenly were shocked that they weren't able to afford the lifestyle they wanted. Who's at fault? A little bit of everyone. Banks loaned money to people who couldn't afford a bump in the road. Should they have told people "nope, you can't afford that house"? Maybe. But at the same time, should a person have taken on the responsibility of a house they couldn't afford? Politicians, who are in charge of setting the rules of the game--should they have told the banks not to make loans? After all, their constituents were demanding it. Why shouldn't they have access to a booming housing market? Should the government have stepped in to tell people what financial risks to take? It's a really, really tricky situation. And honestly, everyone is a bit to blame. Picking out a few CEOs to toss in jail seems arbitrary. What about the loan officer who wanted his bonus for a new pool? He's probably a middle-class person just like the majority of people in this. He wins because he pushed a mortgage, the client "wins" in the short term because he gets a crazy nice home. Do we prosecute all of the mid-level people at the banks too?
- 13y ago
kens 13y ago
It really seems messed up that Martha Stewart went to jail and no financial crisis CEOs did. Prosecutors seem to be focusing in the wrong direction. (I know it's not quite that simple. Strangely enough, Martha Stewart used to be a stock broker, so she should know insider trading laws. But still...)
skue 13y ago
It certainly didn't help that Eliot Spitzer's political career imploded months before the financial crisis hit. It's impossible to know what he might have done -- either as governor or in some investigatory/prosecutorial role after his term. But it's also hard to imagine him remaining on the sidelines on this issue if his own dumb hubris hadn't taken him out of the game. Edit: if any of you have seen Enron: The Smartest Guys in the Room, the same filmmaker also made a documentary to explore Spitzer's downfall with regard to the financial crisis: http://www.theguardian.com/world/2011/feb/27/eliot-spitzer-wall-street-fallen-angel http://www.theguardian.com/world/2011/feb/27/eliot-spitzer-w...
varelse 13y ago
In the western world, gain is privatized, and loss is socialized. Nothing changes unless tax rates or some other form of revenue emerges to back up that socialization. Oh wait, my money market account is earning ~0.15%. Silly me, problem solved.
codex 13y ago
The financial crisis was one big fuck-up, but that fuck-up was accidental and not on purpose. Generally, there is no criminal liability for an accident, because it was an accident. There is criminal neglect, but that doesn't come into play here: given a reasonable level of expertise, it was impossible to predict, and, after the fact, can be seen as a natural consequence of the structure of the world financial system. Who do you jail for accidentally, unpredictably creating a flaw in a worldwide system?
Howard_Roark 13y ago
"Who permitted them to do it? No particular man among the dozens in authority. No one cared to permit it or to stop it. No one was responsible. No one can be held to account. Such is the nature of all collective action." - Ayn Rand, The Fountainhead

147 points by gere 13y ago

Meanwhile, in China: http://www.businessinsider.com/chinese-white-collar-criminals-death-sentence-2013-7?op=1 http://www.businessinsider.com/chinese-white-collar-criminal...

markyc 13y ago
"About 4,000 people a year are executed annually in the country" I'm not even a native English speaker and that opening phrase screams sloppy journalism to me. I guess for some reason I expect a higher quality from established news outlets
- samsolomon 13y ago
  Although "Business" is in the title Business Insider is closer to a Buzzfeed than it is an Atlantic or a New York Times. It is interesting to see the sentences people got for their crimes. I agree all of those mentioned in the article are wrong, but a death sentence seems incredibly harsh.
jfasi 13y ago
Is China's justice system really what we want to aspire to?

daniel-cussen 13y ago

Not sure he was a CEO, but Bernard Madoff was prosecuted. http://en.wikipedia.org/wiki/Bernard_Madoff http://en.wikipedia.org/wiki/Bernard_Madoff

quarterto 13y ago
Ah, but his crimes were against Wall Street, not the proletariat^H^H^H^H^H^H^H^H^H^H^H general public.
- asgard1024 13y ago
  Though it's a counterpoint to the argument that U.S. doesn't prosecute business decisions.
  - konstruktor 13y ago
    Madoff ran a Ponzi scheme and was convicted for fraud.
    - asgard1024 13y ago
      There are economists, like Steve Keen, who argued that subprime mortgage crisis and financial crisis in general was a Ponzi scheme. And I would say it's pretty obvious to most people that it essentially was. Madoff could say, in his defense, "I don't know this was a Ponzi scheme, I was just incompetent". At that's similar to what these bankers are saying. We don't accept it as a defense, though; we just prosecute it. The point is, there is no strict line between incompetence and fraud. Every fraud can claim incompetence. The unfortunate truth is that the U.S. indeed prosecutes _obviously_ bad business decisions. Just not in the cases where the fish is big enough. (The same is actually true in my country, Czech Republic.)
    - fnordfnordfnord 13y ago
      Eventually...

JackFr 13y ago

He buries the lead -- its in the fifteenth paragraph: "America doesn’t criminalize bad business decisions, even when they lead to business failure"

paul_f 13y ago
The article makes the assumption that criminal activity led to the financial crisis. Rather than poor policy combined with risky behavior by some, and as the above poster said, bad business decisions.
- jaydub 13y ago
  Certainly should not be a criminal offense if bad biz decisions are made in good faith. But there ought to be severe, lasting civil consequences for grossly irresponsible risk taking in breach of fiduciary responsibilities. (More than an SEC settlement that just gets written down)
  - aetherson 13y ago
    Could you explain what you have in mind? $67 million doesn't sound like a slap on the wrist (it's to a person, not the company, mind), and I'm curious what kind of "lasting" consequences you think are appropriate for civil penalties if not fines.
    - jaydub 13y ago
      My response is probably more emotional than logical and I think you raise good points but let me try to respond. How much did he actually pay out himself in the end? Mozilo's worth ~$600M according to some quick googling. $67M represents ~10% of his net worth (some of which was gained illicitly). From a risk perspective this looks like a great deal! Cheat yourself up to a big fortune and if you get caught so what? You've made it! So I do think the fine should be on the same order of magnitude as the net worth of the individual to really send a message -- and it should not be tax deductible (if it is for individuals, I believe companies can). I also think there should be a more serve and general ban from the securities industry.

xradionut 13y ago

It's good to be a king: http://www.publicintegrity.org/2013/09/10/13326/ex-wall-street-chieftains-living-large-post-meltdown-world http://www.publicintegrity.org/2013/09/10/13326/ex-wall-stre...

gutnor 13y ago

It raises a good point that we cannot (and should not) prosecute people for the consequence of bad but legal business decision. However that also means that "self-regulation" is a get out of jail free card. Which I sort of understand, you would not want to cripple a growing sector with unnecessary constraint, I understand _once_ ( and you may argue, that it was not the first time for the Banking sector to keep only greed as regulation) So it is fine that nobody went to jail. But we should also acknowledge that this self-regulation has failed in a spectacular fashion. So spectacular that it has had no impact in the life of most bankers, except a delayed bonus for a year. And nothing has been done to change that in the last 5 years. To put that in perspective it took a decade for the start-up sector to recover from the .Net bubble. A lot of developer from those time have lost money, and struggled to recover their past salary level. The days of setting your own rules in a company just because you are a developer are also gone. Here is the City of London, nothing has changed for bankers. Edit: should -> should not

arethuza 13y ago
"nothing has changed for bankers" Well, Fred Goodwin lost his knightwood for the allmighty omnishambles at RBS - serious stuff! http://en.wikipedia.org/wiki/Fred_Goodwin http://en.wikipedia.org/wiki/Fred_Goodwin [Not long after he was kicked out of RBS I was crossing the road in George Streed Edinburgh and there was a chap sitting in a convertible Ferrari waiting for me to cross and I thought "he looks familiar" - 95% sure it was ex-Sir Fred the Shred]
- nextw33k 13y ago
  Technically you are correct, however he's still on £342,500 a year pension and £2.7million lump sum for his troubles.
coob 13y ago
Manipulating Libor was completely illegal, and whilst banks have been fined, where are the individual prosecutions?
- 13y ago

ig1 13y ago

Do you really want there to be a law on the books which means people can be prosecuted for making bad decisions, decisions which the people making them thought were perfectly reasonable and legal at the time ? The reason that CEOs haven't been prosecuted is that it's not clear there's any basis for which there to be a prosecution. There's no law criminalizing CEOs from making bad decisions, and it'd be incredibly stupid for there to be one.

gaius 13y ago
That is the crux of the matter. Before it all fell apart, Fred Goodwin for example was universally regarded as a shrewd and savvy businessman who transformed RBS from a sleepy regional bank into a global powerhouse. He was a titan of business like Jack Welch or Richard Branston.
- danielweber 13y ago
  Everyone loved the housing bubble. The bankers made the most off of it, but the rest of the mob went along because they had convinced themselves they would get rich, too, and were pushing it along as hard as they could. I still occasionally encounter people who think the problem with the housing bubble wasn't that it ever existed, but that it ended.
  - dingaling 13y ago
    > Everyone loved the housing bubble. Well, everyone other than people just trying to buy a house for their family. A house in which to live, not to flip-off in ten years time.
- arethuza 13y ago
  As were the management of Enron, or Bernard Madoff, or Robert Maxwell....

rayiner 13y ago

I find it mind boggling that people start raving about the overly expansive criminal justice regime when a hacker does something, but turn around and demand jail time for Wall Street CEOs, none of whom provably did anything wrong. People act as if the fact that there was a global financial collapse is proof that someone must have been criminally culpable. But who should be prosecuted for the last dot com bubble bursting? Or the next one? Re: jail time, I think non-violent crimes should not get jail time period, whether you're a banker or a stoner or a malicious hacker.

nextw33k 13y ago
With that reasoning there is no need to pay these people excessive payments of millions. Since they are not culpable for bad choices (they were not keeping watch), how can they take credit for the good things? These people in my view were negligent at their jobs. They chose a career which contained an inherent level of responsibility to society which they didn't live up to. The justice people are seeking is social justice, not perhaps prison time but more repayment of their ill gotten bonuses.
- derefr 13y ago
  The US economy is built on the principle that people get to enjoy the gains of productive ventures, but suffer none of the losses of failures. Imagine that these executives had been working instead as executive consultants, each with their own company contracted to the firm they managed. In failure, those one-man consultancies would get your huge and "just" debts piled onto them--and then simply file for bankruptcy. This would not take back any of the salary or bonuses that those consultancies had already paid out.
67726e 13y ago
Engineers can be held liable if something they designed catastrophically malfunctions. Maybe people responsible for the economic well-being of, well, the whole damned world should too? People tend to think it's wrong that a corporation can play fast-and-loose with their money, and then fuck up royally get government bailouts and generally speaking keep on like nothing happened. I honestly don't know enough about these institutions and relevant financial laws to know what, if anything, could be done as punishment/retribution/revenge but then again I don't feel like anything was done. Therein lies the problem, a group of people can sink the economy through risky/reckless practices and skip out of it while the common folk lose their jobs/homes/savings and that just feels wrong. At the very least, it feels like a lack of rule of law.

jackgavigan 13y ago

"America doesn’t criminalize bad business decisions, even when they lead to business failure; if we did, Silicon Valley would be a penal colony." This is the crux of the problem. It's very difficult to send someone to jail when they haven't committed a crime, no matter how unpopular they are. I think most people would regard that as a good thing, personally. It's worth remembering also that the banks were regulated. Did any regulators lose their jobs? http://www.cato.org/publications/commentary/why-cant-we-fire-failed-regulators http://www.cato.org/publications/commentary/why-cant-we-fire... EDIT/Afterthought: I suppose we could bring back lynching.

smacktoward 13y ago
The problem with this line of thinking is that "bad business decisions" in most cases only hurt the business. But the banks have gotten so big, and so interconnected -- "too big to fail" (http://en.wikipedia.org/wiki/Too_big_to_fail http://en.wikipedia.org/wiki/Too_big_to_fail) -- that their bad business decisions hurt everybody. A business whose failure could jeopardize the entire global economy demands a different standard of responsibility for management than a photo-sharing website. When you're running something that critical, you're at least in part a de facto public servant, even if you're nominally a private businessperson. It's an awkward position for a CEO to be in, to be sure. But they could always get out of it by scaling down their businesses to a size where they're not a single point of failure for the economic health of billions of people anymore. Somehow I doubt they will be rushing to do that voluntarily, though.
- jackgavigan 13y ago
  This is why we have regulators. It's the regulators and the people's elected representatives who allowed the big banks to grow "too big to fail". You can't expect banks to self-regulate. The competitive, zero-sum nature of the financial markets means that a company that voluntarily hamstrings itself will likely end up being eaten by those who don't. We need regulators to establish the rules and set the boundaries. The problem is that we have them but they failed to do their job. It's like sending a man with a rifle to protect a herd of goats from a leap of leopards. If the man decides to go to sleep and the leopards come along and eat some of the goats, who do you blame? Do you blame the leopard for being a leopard or do you blame the man for sleeping on duty?

adventured 13y ago

There have been no members of the US Government or the Federal Reserve prosecuted for providing the laws, financing and hyper liquidity that made it all possible. Don't hold your breath on that one either.

derekyle 13y ago

If anyone should be prosecuted, it's politicians like Barney Frank and Chris Dodd, http://www.youtube.com/watch?v=iW5qKYfqALE http://www.youtube.com/watch?v=iW5qKYfqALE Their policies encouraged banks to relax lending standards and lend to people that could not afford it. Bottom line, they presided over one of the largest collapses of wealth in American history with Fannie Mae and Freddie Mac.

misiti3780 13y ago
At least Dodd lost his job, although he immediately became a lobbyist for hollywood. but you are spot on - they are both horrible human beings who should not have jobs

known 13y ago

Fed monopoly/hegemony over printing our dollars is undesirable.

pjc50 13y ago

There has been some _actual_ fraud involved, most notably the "robo-signing" (steal a million homes at the stroke of a pen): http://www.reuters.com/article/2013/06/25/robosigning-sentencing-idUSL2N0F11S920130625 http://www.reuters.com/article/2013/06/25/robosigning-senten...

jfasi 13y ago
Firstly, but this led to a conviction. Justice at work. Secondly, would the crisis could have been prevented if this practice were not in place? Absolutely not. This behavior was a symptom rather than a disease.
- pjc50 13y ago
  It would not have prevented the crisis, but it would have prevented a substantial amount of cost-shifting onto mortgagors.

jfasi 13y ago

I hate this view. The rationale seems quite reasonable up front: something bad happened, we should find out who's responsible for it and punish them. There's also an unspoken assumption that this punishment would be a deterrent to future catastrophes, either by making these people too afraid of the consequences to commit their crimes, or simply by removing them from their positions of power. This view of justice makes very good sense on the level of an individual. An individual who can be proven beyond a reasonable doubt to have committed a crime is considered responsible for their actions, and it is appropriate to punish them. If their punishment is incarceration, then locking them up for a time arguably makes society safer. Their fate would serve as an example to others of what happens when you commit a crime. The problem with this view is that the financial crisis was not the result of individual actions on an individual level. What transgressions met the standard of our justice system, namely the rigorous demonstration of concrete, individual crimes, were treated. This article itself says this: those (relatively few) individuals who were demonstrated to have committed actions that were against the law were investigated, tried, and sentenced. The financial crisis as a whole, however, was a consequence of the structure of a system. Risk was commoditized. Loans were gathered, sliced up, and sold as instruments. Incredible complexity was introduced: witness the explosion of demand for financial engineers specializing in derivatives pricing. Banks sold mortgages with the intention to sell them up the chain as components of complex securities, encouraging them to be lax with their lending standards. In a way everyone involved was to blame, from the homeowners who filed shoddy-to-fraudulent paperwork, to the loan officers who looked the other way and accepted it. The mistake this and other articles like it make is it attempts to aggregate this blame upward. After all, the thinking goes, it's a manager's responsibility to ensure the proper behavior of those who report to him, and that chain ends at the CEOs. Therefore, the view goes, the CEOs must be held accountable. Sometimes a more ephemeral, less informed view is at play. The reasoning is that these companies do what their leaders tell them to do, so naturally consequences of the company's actions are consequences of its leaders' actions. In addition, the CEO is a public figure. When we need a human being to personify a company, he's the first that comes to mind. This is where things break down. To be held responsible for a crime, you personally have to have done something illegal. Not "you should have known better." You have to have broken the law. These people were investigated and even brought to testify before Congress, and no actions were found that met the rigorous requirements to be called a crime. Perhaps it can be argued that they were morally culpable, but as far as the justice system is concerned, their hands are clean. Their actions could not be proven beyond a reasonable doubt to have directly brought about the financial crisis. Suppose they had been tried and given jail time, as this and other articles demand? In the absence of all other interventions, would that have made the system any more stable? Certainly not. The economic ingredients for another crisis would still be in place. Would their example have served to convince others to behave better? Certainly not. The message would not have been "don't cause financial crises," (whatever that means) but rather, "try not to be at the helm when things go badly." Their incarceration would have served no purpose beyond crowd pleasing. It's time to give it a rest. You will never see these people prosecuted because by our standards of justice there is nothing to prosecute. If you want to make the financial system more resilient against collapse, you ought to press for structural reform to prevent these unstable situations from occurring again. If you want mob justice, it not happening. Deal with it.

saalweachter 13y ago

Two words: fiduciary duty. Whenever a megacorporation decides to act like a total shitburger, we are told their executive team has no choice, they are compelled by law to act like total shitburgers if it maximizes shareholder value. Keep workers part time to avoid giving benefits? Fiduciary duty. Export jobs to countries with no environmental or labor protections? Fiduciary duty. Charge customers a daily overdraft fee when an undeclared fee for checking their balance from a foreign ATM puts them in the red? Fiduciary duty. Lobby to change laws so they can act like even bigger shitburgers, legally? Fiduciary duty. Don't judge them, we are told, they have no choice. They are not bad people, they are just bound by fiduciary duty to maximize shareholder value. You should feel sorry for them, really. And then a complex, perhaps admittedly fraudulent scheme (the mortgage crisis) comes along and kills giant megacorporations, wiping out shareholder value entirely. Any WAMU shareholders in the audience? What happened to this fiduciary duty? What happened to these terrible consequences which would arise if shareholders were not appeased? Shareholder value has been minimized ... and nothing happened. Wall Street wants it both ways. A bailout with bonuses. Reward with no risk. License to act like a shitburger. Fine, don't prosecute people for bad decisions. But don't pretend like you have no choice but to act like a shitburger, that doing so is anything but screwing the rest of us for personal gain.

brymaster 13y ago
Here's some interesting discussion on the 'fiduciary duty' mantra the finance types keep singing: > Are U.S companies legally obligated to maximize profits for shareholders? > Not directly, but often conditions surrounding corporations lead to this obligation http://skeptics.stackexchange.com/questions/8146/are-u-s-companies-legally-obligated-to-maximize-profits-for-shareholders http://skeptics.stackexchange.com/questions/8146/are-u-s-com... As long as we continue to not call them out on their bullshit, they'll keep singing.
robomartin 13y ago
Two more words: research facts Yes, there was/is blame to be placed at the feet of corporations. That is probably undeniable. However, it is important to understand root causes here. The truth is hard to stomach for anyone who pro-big-government. The single gating element or decision that opened the doors to what would become the financial meltdown of the century was the US government's decision that everyone should be able to buy a house. Facts and qualifications be damned. Congress wanted everyone to buy a home. So, they loosened all the controls and actually pushed Fannie Mae and Freddie Mac to facilitate lending. It was: Go! Go! Go! That, and that alone, enabled what followed. Without this gate being opened it would have been imposiible. --as in absolutley fucking no-way impossible-- for masses of bullshit mortgages to be issued and CDO's to follow. Blame executives all you want for playing within the framework given to them by legislators but, please, be sure to take to task the true monsters who got us here. BTW, this is not partisan. Both sides of the isle have blood on their hands on this one. Suggested reading: http://www.amazon.com/Big-Short-Inside-Doomsday-Machine/dp/0393338827 http://www.amazon.com/Big-Short-Inside-Doomsday-Machine/dp/0... EDIT: My guess as to why nobody has been prosecuted is that a lot of politicians would be exposed through these actions. And, of course, they want to be as far removed from that kind of exposure as possible. The truth is not what they are after. They want votes. None of this would gain them votes and, in fact, might land some of them on the street or in jail.

oleganza 13y ago

Ask yourself how did it happen that some people got some much power to affect economy around you. Now find a way to insure/protect yourself against that. You will probably find out that, for instance, central bank manipulations with currency are protected by police enforcement in forms of various laws and regulations anybody dealing with money needs to comply ("allowed to participate on the market"). Liberty Dollar founder was deprived of all his customers' silver and is being prosecuted. Bitcoin companies are all on the verge of being harassed etc. Or, if you want to create an alternative bank or fund, you'll find it's not so easy to do: people with armed forces will politely ask you to comply with tons of regulations. It's basically a one self-protecting cartel and the basis of it is access to "legal" violent power.

bridgeland 13y ago

Simple explanation: they broke no laws

damian2000 13y ago

Its sort of similar to the outcome here too - http://en.wikipedia.org/wiki/Libor_scandal http://en.wikipedia.org/wiki/Libor_scandal - a bunch of investigations, banks being fined, new regulations put in place, but noone has gone to prison.

dnautics 13y ago
The LIBOR scandal is rediculous. It's a private entity that can say whatever the hell it wants. The real scandal is that governments decided to put so much trust in a single private entity to "get things right". Or maybe there's a scandal that governments care at all. Why should a government care what the interest rates are?

alan_cx 13y ago

Government's job is to regulate and legislate. Within that frame work, all if fair. The regulation and legislation failed. Government failed. That's where fingers should be pointed. Same deal with tax avoidance.

jonnathanson 13y ago
Indeed, where has the Department of Justice been all these years, when the banks were becoming "too big to fail," and now (per Eric Holder's insinuation) "too big to jail?" Where were the antitrust suits? Where are they now? To a major extent, the bigness of these financial institutions is the issue -- the fact that they're so ingrained into our economy as to be deemed untouchable, save for infinitesimal borrowing rates and occasional cash transfusions. In many cases it's hard to draw clear distinctions between "government" and "finance industry," as some pretty connected foxes were guarding the henhouse before, during, and after the crisis. Government failed us here, big time, and continues to fail us. But let's not let the culprits off the hook, nonetheless. The reason our government gives this industry a pat on the back, a few trill, and an 'atta-boy every time it fucks up is because this industry has made a concerted effort to buy off the government. And it has.
- rayiner 13y ago
  Antitrust enforcement was gutted under Reagan and never recovered.
- fennecfoxen 13y ago
  The problem is that the banks never became "too big to fail" and they should have been left to fail, and then we wouldn't have this problem. But some politicians were all "oh no!!! we can't let these banks fail!!! the stock market would collapse and unemployment could spike over 10%." And then the stock market collapsed anyway and unemployment spiked over 10%. And now the banks are even bigger. :P
  - jonnathanson 13y ago
    As comfortable as this logic feels, the fallout would have been even worse had the banks been left to fail. That's basically what we did in the 1930s. Didn't turn out so well. Some sort of bailout, unfortunately, needed to happen to keep the world from going completely Mad Max. But the bailout should have come with conditions: new regulations, enforcement with actual teeth, and trust-busting breakups of institutions on the receiving end. None of that happened. For the record: prosecutions of top execs, while warranted in many cases, are little more than sideshows. They're basically conducted for appearances. They do nothing to stop the next CEOs from going right back to business as usual. What really matter are antitrust policies, regulations, and enforcement.

ddeck 13y ago

If no-one significant did anything illegal and yet the result was the financial crisis, then clearly the legal/regulatory framework was/is flawed. The most troubling issue is that there hasn't been any significant adjustments since then. Perhaps not that surprising given the amount of influence the financial industry have in policy making, but still. It's also distressing to see an individual like Larry Summers being nominated as the next Fed Chairman. It seems very little has been learned. For anyone interested in understanding the events that led to the crisis, I can't recommend highly enough: All the Devils Are Here[1]. Of the many books written on the subject, it provides a very objective and thorough account. [1] http://www.amazon.com/All-Devils-Are-Here-Financial/dp/1591843634 http://www.amazon.com/All-Devils-Are-Here-Financial/dp/15918...

pasbesoin 13y ago

For what I consider to be an informed opinion on the matter, I'll cite the head of the 80's Savings and Loan scandal investigation and prosecutions. He was interviewed on public radio the other year. This is someone with expert knowledge who has actually been through and on the inside of a similar, if smaller, situation. He pointed out that, in that case, they pursued investigations and prosecutions and were able to win settlements and judgments in circa 1000 instances including criminal prosecutions. As I recall, he described what has happened this time around and a real shortfall and travesty. One that was not necessary, had justice been more aggressively (or, at all) pursued. I'm not an expert. But this guy, not just through credentials but also experience and demonstrated results, is. And that's what he had to say on the matter. Sorry, but it's been long enough that I don't recall his name off the top of my head. If I have time, I'll look for it and perhaps for that interview, as well. Or maybe someone else has a name and/or reference handy.

gruseom 13y ago
That was probably William Black. His usual point is that the lack of prosecutions is a result of the investigatory system having being gutted. He says that in the S&L scandal, his agency made 10,000 criminal referrals to the DoJ, while in the recent (much larger) crisis they made 0. According to Black, the common argument that nothing can be prosecuted because it was all (perhaps regrettably) legal is totally wrong; rather, standard investigative procedures were simply not applied because there weren't the investigators to do it, and what you don't investigate you don't find.
- pasbesoin 13y ago
  That name sounds familiar. I recall also his describing how they would "work up the chain". Where they had evidence of culpability at a lower level, they would use it to apply pressure to "flip" such employees against their management. I think the description you cite is well taken. I know someone who is fairly senior in the SEC. They have more or less confirmed what I've also read. The SEC is supposed to be self-funding. The revenue they take in (fees, etc.) has been far in excess of their budget. Instead of staffing up (woefully needed; occasionally promised -- most recently a couple of years ago; never delivered), Congress -- who sets their budget after incorporating that revenue into the general budget -- has treated them as a cash cow. People need to look beyond "regulation is good/bad" labels, to learn and understand what is actually going on -- the specific circumstances.

jyu 13y ago

There's a lot of backstory that can not be adequately covered in a blog post. If you're interested in reading further, I highly suggest watching "The Untouchables," a PBS Frontline documentary following Wall Street executives and the prosecutors during that time. It explores the roles and motives of different players, and pretty convincingly shows how the game is heavily tilted towards Wall Street executives. Video: http://www.pbs.org/wgbh/pages/frontline/untouchables/ http://www.pbs.org/wgbh/pages/frontline/untouchables/ Transcript: http://www.pbs.org/wgbh/pages/frontline/business-economy-financial-crisis/untouchables/transcript-37/ http://www.pbs.org/wgbh/pages/frontline/business-economy-fin...

JonFish85 13y ago

I feel like the problem is, there are no easy answers. The mortgage-backed securities did exactly what they were supposed to do: diversify risk so that the only thing that could bring down the ship was a system-wide failure. And until that happened, things were great. People were buying houses. This was great for politicians, great for the middle class, great for businesses. Politicians wanted this to continue, so they pushed for easier access to borrowing. Banks/Wall Street wanted this to continue, so they were lax about loaning standards. People wanted this to continue because home values were soaring, and they were able to "afford" nicer and nicer places. Digging into it further, mid-level people in the banks, the ones responsible for handing out these 0-down mortgages, were pushing mortgages out the door as fast as they could. The model kept showing home prices soaring, and this mid-level mortgage official wanted his bonus. The home-buyer wanted that $750k house on his $70k/yr salary, because if he could only hold onto it for 5 years, it'd be worth $1.5m. Politicians wanted this to continue because they were raking in taxes on it. And for years, this grew outrageously. Until suddenly the one thing that could bring the whole industry to its knees happened: a country-wide slowdown on buying houses. Suddenly home prices stagnated, mortgage rates rose and bam, everyone is fucked. Banks are stuck with loans that were given to people on the ragged edge of what they could "afford". People were stuck with mortgages that they could barely afford the interest on. Politicians were stuck with constituents who suddenly were shocked that they weren't able to afford the lifestyle they wanted. Who's at fault? A little bit of everyone. Banks loaned money to people who couldn't afford a bump in the road. Should they have told people "nope, you can't afford that house"? Maybe. But at the same time, should a person have taken on the responsibility of a house they couldn't afford? Politicians, who are in charge of setting the rules of the game--should they have told the banks not to make loans? After all, their constituents were demanding it. Why shouldn't they have access to a booming housing market? Should the government have stepped in to tell people what financial risks to take? It's a really, really tricky situation. And honestly, everyone is a bit to blame. Picking out a few CEOs to toss in jail seems arbitrary. What about the loan officer who wanted his bonus for a new pool? He's probably a middle-class person just like the majority of people in this. He wins because he pushed a mortgage, the client "wins" in the short term because he gets a crazy nice home. Do we prosecute all of the mid-level people at the banks too?

13y ago

kens 13y ago

It really seems messed up that Martha Stewart went to jail and no financial crisis CEOs did. Prosecutors seem to be focusing in the wrong direction. (I know it's not quite that simple. Strangely enough, Martha Stewart used to be a stock broker, so she should know insider trading laws. But still...)

skue 13y ago

It certainly didn't help that Eliot Spitzer's political career imploded months before the financial crisis hit. It's impossible to know what he might have done -- either as governor or in some investigatory/prosecutorial role after his term. But it's also hard to imagine him remaining on the sidelines on this issue if his own dumb hubris hadn't taken him out of the game. Edit: if any of you have seen Enron: The Smartest Guys in the Room, the same filmmaker also made a documentary to explore Spitzer's downfall with regard to the financial crisis: http://www.theguardian.com/world/2011/feb/27/eliot-spitzer-wall-street-fallen-angel http://www.theguardian.com/world/2011/feb/27/eliot-spitzer-w...

varelse 13y ago

In the western world, gain is privatized, and loss is socialized. Nothing changes unless tax rates or some other form of revenue emerges to back up that socialization. Oh wait, my money market account is earning ~0.15%. Silly me, problem solved.

codex 13y ago

The financial crisis was one big fuck-up, but that fuck-up was accidental and not on purpose. Generally, there is no criminal liability for an accident, because it was an accident. There is criminal neglect, but that doesn't come into play here: given a reasonable level of expertise, it was impossible to predict, and, after the fact, can be seen as a natural consequence of the structure of the world financial system. Who do you jail for accidentally, unpredictably creating a flaw in a worldwide system?

Howard_Roark 13y ago

"Who permitted them to do it? No particular man among the dozens in authority. No one cared to permit it or to stop it. No one was responsible. No one can be held to account. Such is the nature of all collective action." - Ayn Rand, The Fountainhead