That second link is horrible. The IRS agent watched a documentary staring the guy then investigated him because:
"Being the special agent that I am, I was wondering, how does a guy train for this because most people have to work from nine to five and it's very difficult to train for this part-time."
Then they got an attractive women with a wire to find out he got two liar loans. Jesus.
A typical settlement after four years of litigation may read (e.g., New Century Financial Corp., the subprime lending mavens):
Each of the defendants also agreed to be barred for five years from serving as anbarberofficer and director of a public company.
Also, fascinating or horrifying,
The object of undergraduate business education is to educate people, not to give them a lot of functional business stuff."
That's what you get when poachers turn gamekeepers -- a lot less poachers caught. The Obama strategy for dealing with the economic crisis has also been, even more so than the Bush administration, to keep up appearances rather than get to the heart of the problem. Prop up the system, pump it full of money and hope that's enough to satisfy "the markets", that oh so convenient impersonal force of history that can't be reasoned with. Prosecuting bankers doesn't fit with that.
What still surprises me in all this is that despite all the anger people feel towards bankers and the financial industry the worst thing that has happened to any of them so far is that Fred the Shred got some of the windows of his (empty) house broken.
Housekeeping note: it would be nice if links to NYT articles and such went to the single page edition.
The structural dependence of the state on capital--not just a clever-sounding phrase!
IT's a bit misleading because the SEC has charged quite a few people, but they agreed to pay massive fines and penalties in order to settle the charges, rather than going to court. eg: Angelo Mozilo.
(To be fair, I think the current situation is rather different than the classic model of structural dependence--it's a much more personal, and much more literal "don't fuck with us or we'll destroy the economy" than the canonical anticipated-taxation-reduce-investment idea.)
5. Yes, but that's a sign of something wrong in itself. If I break into somebody's house and nick their telly, then when my collar gets felt I can't say to the CPS officer, "Oh, go on, here's some money" and walk away from it. How come they can? (OK, that was a rhetorical question.)
Oh, I can link about this all day, because Salmon, Simon Johnson, Yves Smith, and Mike Konczal are on it all the time:
Felix Salmon on the "Volcker Rule, Levin Report, and Goldman-Sachs, quoting Jeremy Grantham:
Proprietary trading by banks has become by degrees over recent years an egregious conflict of interest with their clients. Most if not all banks that prop trade now gather information from their institutional clients and exploit it. In complete contrast, 30 years ago, Goldman Sachs, for example, would never, ever have traded against its clients.
How is such a thing possible? Because G-S is an arm of the state. "Corruption" has become constitutive of the state, in scare quotes because a state that is overtly of, by, and for the kleptocrats has normalized corruption to the degree that the pre-existing "ideal" state is incommensurable with the state as-it-is. Any real attempt to "reform" the state or finance will destroy both.
Elizabeth Warren may get recess appointment. Naked Capitalism. Nobody else wants the job, supposedly because Warren has a loyal base in opposition to Obama/Geithner/Bernanke, but more likely because they know that any head of the CFPB will be fighting the administration more than the banks.
The consequences of impeaching Obama are easily imaginable and not too frightening. Biden, or even Boehner takes over and we carry on, however badly.
What happens after the death of Goldman-Sachs is inconceivable and terrifying.
Sovereignty? Legitimacy? I am not yet sure what this says.
7: Really? You don't think a $22 + $45 = $67 Million fine would be a sufficient penalty for burglary?
Although apparently Bank of America will pay a good portion of the bill...
The problem is that it is very difficult to show that many of these people were deliberately criminal and fraudulent, rather than just irresponsible assholes. This is because many of these people were in fact just irresponsible, and not smart enough to understand what they were really doing. It's pretty clear to me that Mozilo seriously thought that he was helping deserving people own a home.
re: 10.1
Er, no. Next.
[Reviving the short answers to easy questions meme]
10: You know what? On reflection, I don't really think that's the reason. If the prosecutors really wanted to find something, I'd bet they could. It's not like these people didn't conspire to defraud, intentional or not.
re: 13
No.
The key point is the one that chris has already made above; that there are, or ought to be, criminal offences for which a fine is not an appropriate punishment, whether or not the fine is large or not.
10
The problem is that it is very difficult to show that many of these people were deliberately criminal and fraudulent, rather than just irresponsible assholes. This is because many of these people were in fact just irresponsible, and not smart enough to understand what they were really doing. It's pretty clear to me that Mozilo seriously thought that he was helping deserving people own a home.
IANAL but I think you can be guilty of a crime without being deliberately criminal. Lay and Skilling (the Enron chiefs) may have been mostly just irresponsible but they were convicted (ok technically Lay wasn't convicted because he died before sentencing) anyway.
The NYT article's focus on Mozilo may be a bit misplaced as by at least one account the likes of Roland Arnall (of Ameriquest) were worse (although Arnall himself is difficult to prosecute having died in 2008).
And the rating agencies (Moody's, S&P, Fitch) did stuff that seems more egregious to me than what Arthur Anderson did (in the Enron case). The government obtained a criminal conviction against Anderson which put them out of business (although the conviction was later overturned).
In any case you aren't going to obtain criminal convictions without criminal investigations and it is my understanding that most of the potential cases aren't even being investigated. For whatever reason the Obama administration isn't interested.
THE Edda has it that during Thor's visit to the giants he is challenged to lift a certain gray cat. "Our young men think it nothing but play." Thor puts forth his whole strength, but can at most bend the creature's back and lift one foot. On leaving, however, the mortified hero is told the secret of his failure. "The cat - ah! we were terror-stricken when we saw one paw off the floor; for that is the Midgard serpent which, tail in mouth, girds and keeps up the created world."
How often to-day the prosecutor who tries to lay by the heels some notorious public enemy is baffled by a mysterious resistance! The thews of justice become as water; her sword turns to lath. Though the machinery of the law is strained askew, the evil-doer remains erect, smiling, unscathed. At the end, the mortified champion of the law may be given to understand that, like Thor, he was contending with the established order; that he had unwittingly laid hold on a pillar of society, and was therefore pitting himself against the reigning organization in local finance and politics.
Written in 1907. Everything old is new again.
The only punishment is to attack Davos that time of year in order to protect the civilians from the heavy financial artillery that is deployed against all of us each year.
14: I have a series of trades I'd like to make with you, then...
Or, less snarkily, what is it that makes an arbitrarily large fine a necessarily inadequate punishment?
15: Yeah, on reflection I agree with you.
Shearer is right. These people should be in jail. Threatening to destroy the economy is an act of terror, no? I have to go into an apocalyptic rage now.
Shearer is right. These people should be in jail. Threatening to destroy the economy is an act of terror, no? They're like passive aggressive terrorists. I have to go into an apocalyptic rage now.
Go w the second version. My phone is sometimes weird with commenting.
10
Really? You don't think a $22 + $45 = $67 Million fine would be a sufficient penalty for burglary
The cases aren't comparable as even a million dollar fine (assuming it was paid) for a $1000 burglary would be a thousand times the gain which seems like an adequate deterrent. Mozilo (et al) aren't paying fines that are a thousand times their gains.
As a point of reference Bernard Ebbers is serving a 25 year sentence for his role at WorldCom. If I recall correctly the trial testimony showed Ebbers implicitly encouraged (but did not directly order or even have detailed knowledge of) the accounting irregularities at issue. And Ebbers borrowed against (instead of selling) his WorldCom stock and was personally bankrupted by the collapse.
The point is to hail the people responsible INTO COURT and let justice be seen to be done.
The cases aren't comparable as even a million dollar fine (assuming it was paid) for a $1000 burglary would be a thousand times the gain which seems like an adequate deterrent. Mozilo (et al) aren't paying fines that are a thousand times their gains.
... and let's not forget that in the only two file-sharing copyright infringement cases that went to trial & sentencing (that I'm aware of), the juries came up with damages of $1.5m (for 24 songs, ~$62.5k per) and $675k (for 31 songs, ~$22k per) against individual defendants. Assuming the "gains" in question are 99-cent songs, that's a 20,000-60,000x deterrent multiplier.
The administration is, of course, actively pursuing IP-infringement investigations.
24: Yes, I know. I was just objecting to the notion that in principle there's no fine large enough.
Of course, Mozilo doesn't have nearly enough money to pay a sufficiently large fine, so jail time it should be, either that or several billion years of non-financial-sector wage garnishment...
Hmm. I would go so far as to say that given the systemic consequences of their criminality, no monetary fine would be sufficient. They should be imprisoned. It's a qualitative difference, and sends a very different message, if deterrance is what we're going for. But i dont think that's all we should be going for - am i correct in assuming that our justice system is meant to be punitive? Because these are people who should be punished. Their actions have caused literally incalculable harm. If these assholes dont deserve incarceration, then who does? We'd have to empty the prisons of all but murderers and rapists just to be consistent.
Throwing them in jail while bailing out the banks would have handled that moral hazard problem, too. I am not saying i support the bailout, since i know just enough to know i dont know very much, but: the current situation is not working out v well. And personally i really, really resent the whole "we're going to hold your economy hostage" thing.
(Hi Benquo! We (appear to) completely disagree.)
28: That's what I'm curious about - you don't think there's any amount of punitive damages that would be equivalent to a day in jail?
Frankly I do think many (maybe most?) people in jail shouldn't be there. But we seem to have some misconceptions about how bad alternative forms of punishment are relative to imprisonment...
The point is to hail the people responsible INTO COURT
"hale", please. You'll upset nosflow.
In other words, I am generally skeptical of most punishment, and when you have to punish, I am skeptical of imprisonment as a method. I also think that it's easy to overestimate how much of the recent economic events were caused by bad apples, as opposed to the ordinary functioning of the incentives we've set up. Lots of people were complicit, but that's always the case, and by its nature we're not going to easily deter motivated ignorance.
32: No, freeze them and cut them up into little ice cubes, then toss them into court. Pour encourager les autres.
31. I think the point that DQ and I and, I think James are sticking to is that firstly, imprisonment implies social disgrace (especially to people like that) more than a fine. This is about the community ritually spitting them out of their mouth, which a fine doesn't achieve.
I don't care if they're fined to their utter ruin, in contravention of Magna Carta. It's the wrong sort of sanction.
32. Sorry, I was typing that while trying to pay attention to a phone conference at the same time.
There are enormous practical and legal differences between cases seeking damages and those seeking jail time for major white collar control fraud cases. Most notably, as long as you settle, individual defendants are almost always indemnified by their former employers. Mozillo is still very rich, and will probably stay rich until he dies. The notion that fines and particularly civil settlements with the SEC or plaintiffs lawyers can replace criminal prosecution is ridiculous.
I feel like I should have a better understanding of why the DOJ hasn't brought more of these cases, but I don't. They're somewhat harder to win than Shearer intimates, and the Skilling case at the Supreme Court got rid of the "honest services" legal theory that was favored until recently. The mortgage industry frauds (at least at the level of the banks and CEOs of the major lenders) were also much more subtle than Enron/Tyco/Worldcomm, where folks were basically just making up financial numbers out of thin air and/or brazenly looting their companies. Civil plaintiffs lawyers have had a harder time nailing culprits. And many of the Enron/dot com bust cases went south for the Government, so maybe prosecutors got their hands burned. But it still looks like a total failure of will -- capital controlling government feels like as good an explanation as any.
The thing is, this is a class issue. Everything you just said (in 31 and 33) could apply to almost every other non-violent criminal, and probably a few of the violent ones as well, only the banksters (a term i love) werent, as far as we know, born into a crushing cycle of fraudulent behavior. Most people dont get to buy their way out of prison. They shouldnt be able to either. And you know what? With great power DOES come great responsibility. If you accept the idea of imprisonment at all (which, granted, it seems like you have some misgivings there, but that is a different conversation), then these are people who should be in prison.
I am actually with chris in 35: the problem with a fine, especially in settlement, is that it simply involves losing a lot of money, which is what these people do on a bad day at the office anyway. Prison involves shame and suffering.
Or there's always the pillory (last used in a case of insider trading in 1814).
Part of what's going on (and this is general impression, I'd have to poke around for backup) is that this kind of fraud prosecution is very labor-intensive, and the SEC and the Justice Department are very low on resources these days. This seems clearly to be a policy decision (originating under Bush, not changed under Obama), to make it harder for them to go after white collar crime, but once that decision's been made, it gets very difficult to change course and start aggressive enforcement.
If these assholes dont deserve incarceration
I'm sure this will get condemned, but the fitting response to this level of crime was demonstrated in Fallujah. A distant, theoretical threat of fines and jail aren't getting the deterrence done.
And what everyone said about fines not counting as punishment. You'd have to literally impoverish the defendants for a fine to be a genuine infliction of suffering; prison time is qualitatively different.
And i would favor a spartan-type casting out onto a barren, cold mountain infested with wolves, or whatever it was they used to do.
the banksters (a term i love)
In middle English usage, this would imply a woman banker, cf. Spinster, feminine form of Spinner.
44: Why would you wish such horrible punishment on cute, cuddly wolves?
39. Good idea! If it was good enough for Jack Aubrey, it's good enough for this shower.
I oppose incarceration for financial and other non-violent* crimes. The United States already imprisons too many people, too expensively, too long.
* Blah blah Zizek blah blah.
the pillory (last used in a case of insider trading in 1814).
Unless you count Allen Stanford.
45: Baxter=Baker, Brewster=Brewer. The prevalence of the feminine forms as family names is interesting, and makes me wonder if anyone's researched what it means in terms of female-owned/managed businesses in the period when family names were forming.
Hmm. We could ship them out to, like, the Arctic, too. Or a desert. But now I'm quite attached to the pillory idea, so maybe it could be the pillory first, exiled to barren desolation second. I would be happy with that, and no incarceration expense! Let's get on this, people.
A distant, theoretical threat of fines and jail aren't getting the deterrence done.
Right. You take the amount of money these guys were raking in, discount for the tiny chance of being penalized in the future, and any rational actor with a modest appetite for risk and a complete lack of scruples will do the crime.
I also think that it's easy to overestimate how much of the recent economic events were caused by bad apples, as opposed to the ordinary functioning of the incentives we've set up.
Benquo, the whole point of prison in a case like this - as opposed to inadequate fines - is to give bad apples the right incentives.
...to give bad apples the right incentives.
That's worked super-awesome with the drug war. And terrorism. And murder.
50. Almost all Scottish too, which adds an interesting twist. According to the pedia thing the term "spinster" for a "woman past marrying" was Scottish in origin as well.
43: And what everyone said about fines not counting as punishment.
Yes, they become just another probabilistic factor in the ROI calculation.
53: Good fucking comparison since the social factors in those cases are so comparable to massively wealthy financiers.
If it was good enough for Jack Aubrey, it's good enough for this shower./i>
The Aubrey books presumably nicked that plot element from the real history of the model for Aubrey, Thomas "Sea Wolf" Cochrane.
I oppose incarceration for financial and other non-violent* crimes.
* Blah blah Zizek blah blah.
I am entirely in favour of imprisonment for Zizek.
The Aubrey books presumably nicked that plot element from the real history of the model for Aubrey, Thomas "Sea Wolf" Cochrane.
I imagine so, the later books track Cochrane's career fairly closely.
53: it's worked really well for murder, which is massively less common now than at pretty well any other time in history.
53: Those examples differ in fairly important ways. Drugs: addictive (many of them). Terrorism: not really motivated by personal gain. Murder: usually impulsive (or drug related, right?), and the result of, like, a million other things.
Financial crime is one of the few crimes where you can actually put a number on what you stand to gain. And if the price of being caught is too high, there are other ways to try and make money. There aren't really any other ways to get your fix, or stick it the great satan, or kill that person right there in front of you who represents a threat of some sort.
38, 57: Which social factors are the ones that make incarceration appropriate and proportionate? That rich people are annoying?
50: Baxter=Baker, Brewster=Brewer. The prevalence of the feminine forms as family names is interesting
Gangster? Fraudster? Hamster? Master? Chorister?
But we can all agree that Martha Stewart was history's greatest financial monster and thank God they got her.
And Barry Bonds is the black Martha Stewart.
Also, I'm not wrong in thinking that punishment is supposed to be commensurate to the harm done, right? Because that alone kind of makes the case.
64: Barry Bonds provides an invaluable service by giving younger sportswriters opportunities to (i) feel superior to their older competitors' hidebound moralism and (ii) demonstrate their Runyonesque cynicism. Ironically, his value in this respect would only be increased if he were imprisoned.
63. You know a lot of people with the family name of Gangster? Or do you play 'Happy Families' with a doctored deck?
Barry Bonds is the black Martha Stewart
Who is the black Sandra Lee?
63: I don't know -- my guess is that most of those aren't etymologically connected to the feminine ending. I'm sure that's the case for master and hamster-- the others, I dunno. Gangster particularly really does sound like it was a feminine form way back sometime, but I couldn't tell you anything about it.
62: "With great power comes great responsibility." See also the lesser known "With great privilege," etc. I think Tiny Tim stealing a loaf of bread for dinner is less of a crime (though still a crime) then Thomas Crowne stealing a loaf of bread because he's bored. I don't think that's something that can easily be worked into a justice system, but, you know. Sometimes it's pretty clear. I'm also under the impression that this is why we havehad judges issue sentences based on their own discretion, historically.
After posing the question in 68, I now really, really want to see Cornel West make a tablescape.
62: No, they completely change the effectiveness of the deterrence (or threat thereof). Like the hit-and-run driver near Vail(?), one of the Colorado resorts, where they reduced the charge from a felony to a misdemeanor because of the implications it had for his work as a broker. I want money to be its own reward--and no more. This is of course a hopelessly flawed and losing position.
Truly, because some should not be imprisoned, none should be imprisoned.
I suspect gangster and fraudster are relatively recent coinages, which may not conform to the rules of Middle Scots.
A quick google says "Gangster" is a fairly new word, the first cite I saw was 1896. Probably got the 'ster' ending purely out of euphony: saying 'ganger' the 'gang' is less emphasized.
72: I see a little marzipan Larry Summers, a much larger, heroic Cornel West made of marble and a tiny, adoring buttercream Bill Maher.
La majestueuse égalité des lois interdit aux riches comme aux pauvres de coucher sous les ponts, de mendier dans la rue et de voler du pain.
Y'all need to re-read the opening paragraphs of the linked story, and take it seriously. I am not necessarily saying Geithner was/is right, though I tend toward Geithner's view, but what if prosecution of financial wrongdoing would bring the whole world economy crashing down.
Control fraud is what they do, and control fraud is sustaining the global economy.
Control fraud occurs when a trusted person in a high responsible position in a company, corporation or state uses their powers to subvert the company and to engage in extensive fraud for personal gain....Wiki
Obama, but I don't need to focus on him, or any individuals. "Inverted democracy." Scott Walker. We are somehow in conditions where control fraud is the only way for the system to function.
Those who seek to discipline or reform the system are actually sustaining its delusionary legitimacy.
Celui qui n'a pas vécu au dix-huitième siècle avant la Révolution ne connaît pas la douceur de vivre et ne peut imaginer ce qu'il peut y avoir de bonheur dans la vie.
52: People have plenty of incentive not to play slot machines, but they do it anyway. No amount of long-after-the-fact punishment is going to make silly people wise up.
60: Murder has the disadvantage of being a discrete act that it's hard to pretend you're not doing. The sorts of financial crimes we're talking about are qualitatively quite different.
a tiny, adoring buttercream Bill Maher
Ha!
Bob, sentence fragments are one thing, but you've been warned about "y'all" before.
83: To be fair, I think Maher isn't all that much more adoring w/r/t C. West than most other guests, but West behaves as if he is.
People have plenty of incentive not to play slot machines, but they do it anyway
Yes, because it's addictive.
OT, via Metafilter: The Zoopreme Court.
Laws written in terms of individual action and culpability are really not adequate for dealing with people who design and implement systems, in which agency is distributed.
The core problem for the financial catastrophe was indeed spinelessness at the rating agencies. Mozillo's personal rather than employer-indemnified portion of his fine amounts to about 10% of his 5-year compensation, so 6 months' pay.
I'm with Flippanter on opposing incarceration for non-violent crimes.
I don't know how much Martha Steward deserved to be punished, but I tend to think it would have been a greater punishment for her to be condemned to a lifetime of living as a middle-class person, rather than a few years of jail followed by a return to her old lifestyle.
86: True. Maybe a better example would be how many people drive super close to the car in front of them. People do all sorts of things that are really bad ideas in the long run, if they can get away with it in the short term.
I doubt many of the principal culprits thought they were doing anything wrong. People have a remarkable ability not to see something, if their pay depends on not seeing it.
This is exactly the same reason financial regulation is a better solution than committing to no future bailouts: real-time intervention works, long-term punishment doesn't.
88.1: What do you believe is a commensurate punishment for stealing 50 billion dollars?
90: maybe prison, universal humiliation, and having your kid kill himself because of the shame you've brought upon your family?
91: The son didn't seem very ashamed, from what I read; he seemed, presumably understandably, if far from sympathetically, depressed and weakened.
92: I thought the son who killed himself was plausibly innocent, at which point he's sympathetic. Am I confused?
I don't think I've said this explicitly before, but Mara's dad has spent significant time behind bars for failure to pay child support. While I agree that he should be indeed be paying what he owes, I can't see how keeping him out of the job pool and putting a felony on his record is going to help him do better in terms of bringing in and paying out money down the line. I'm not trying to draw a parallel between him and the Monsters of Finance, but it was definitely the first thing that sprang to mind for me.
Madoff lives about 20 miles away from me.
Surely we want to fine the crap out of and punish the bad guys? I keep hearing that the government needs money.
In the entirely theoretical debate about the best punishment the justice system should administer, I would accept impoverishment and a lifetime spent cleaning bathrooms while wearing orange jumpsuits.
As it is more possible to be implemented, I would be curious to hear the moral case against the solution proposed in 41.
I doubt many of the principal culprits thought they were doing anything wrong.
I read this screenwriting book once. It made the point that usually the best and most believable villains don't see themselves as villains; they're the heroes of their own story. What you said still applies to, like, the vast majority of people we think deserve punishment. The banksters still aren't special.
And I agree that regulation is what's necessary (though I am pessimistic that it would be successful), but there is a social need to publicly punish people who hurt so many people and are so goddamn cavalier about it. It's not necessarily about incentives and deterrence, so much as sending a very clear message that this is not ok. Again, like with torture. Now that's considered morally acceptable? What? This is sort of a half-baked version of the broken windows theory, but I think that has some merit. There have to be standards, dammit.
Now I'm imagining a group of ex-Special Forces or something who've all been screwed and lost their homes or whatever, maybe a best friend killed himself or something, and then they slowly and methodically take revenge on the top executives of major financial companies in very theatrical ways. One by one. The public cheers! They document the hunt online. Etc. etc.
Hollywood: call me!
Wasn't that the plot of Captain Planet and the Planeteers? I may be remembering incorrectly.
re: 100
I'd buy that book/DVD.
Also, donaquixote and chris y have been doing sterling work above. Rich fucks should be doubly punished; fucking made an example of. That is all.
I think the planeteers just put the bad guys in jail after cleaning up the oil spill or whatever, and then that poor guy who had the power of "Heart" made everyone feel better? I don't think it was particularly coherent, but it definitely didn't involve blood. I'm imagining some blood, more of a V for Vendetta vibe.
100. If I win the lottery, I'm so financing that.
Martha Stewart wasn't guilty of much, she was a symbolic target.
I strongly believe that bad implementation is a much more serious problem for the US justice system than bad intention, with the exception of harsh penalties for small-time drug crimes.
The people caught by any of the helpful, constitutionally-compliant suggestions above would not be the ones responsible for the housing bubble. Most of those responsible broke no laws. Mozilo's fine was for petty greed, for insider trading, rather than for creating a trainwreck system.
Currently, giving the CFPB real teeth as well as putting someone besides Mary Schapiro in charge of the SEC would be useful steps for enforcing the existing rules usefully. But the existing rules are not enough, and it is not at all clear how to improve them.
The last time I was in federal court, a few weeks ago, the case before my case was as follows: the Government was arguing about sentencing for a woman who had been convicted on a low-level drug dealing offense and then deported to Mexico, at which point custody of her kid was transferred to the father. She had reentered the country to attend a custody hearing for her 3 year old son in San Diego, where she was apprehended. The argument was about whether this qualified for a mandatory 2 year prison term or whether 8 months would suffice (followed, of course, by another deportation to Mexico). I feel that the energies of this Assistant US Attorney could easily have been better spent pouring over Angelo Mozillo's tax returns, but maybe that's just me.
re: 103
Small ginger 'tached men abseiling in a window. Bankster looks up shocked from where he's been masturbating over a picture of Detroit ...
'What....?'
'The Spirit of Easterhouse says hello ...'
[BANG]
Most of those responsible broke no laws.
This is not surprising since they write the laws.
106 was kind of confusingl written. She'd served a sentence of a few years for the drug crime in the US, and then was deported to Mexico. This hearing was about the amount of additional time she'd do for having illegally reentered the country (to attend her kid's custody hearing) after having been deported previously.
106: oh, hey, I was feeling too chipper today, thanks for fixing that.
100: I don't find see entertainment value in the spectacle of uniformed men murdering paunchy, bespectacled civilians, but it's not like the history of the twentieth century contains many examples of that sort of thing, if that's what you're into I'm notoriously soft-hearted.
re: 111
Indeed. He has a couple of prole wish-fulfillment novels, but not quite of the form that donaquixote is imagining.
But the existing rules are not enough, and it is not at all clear how to improve them.
I remember reading something a while ago about how Europe (maybe?) has a principles-based regulatory system, as opposed to a statutory one, or something. I have no idea if this is true, but the idea was to be able to nail people like this to the fucking wall rather than watch them wiggle away through some loophole or argue that they hadn't broken any laws, only because they managed to invent a new kind of crime that the legislators hadn't thought of yet. I am in favor of this. (In fact, I believe the FDA sometimes does similar stuff? I dunno. "Good Manufacturing Practices" is sometimes intentionally vague.)
Also, I am now thinking that ex-Special Forces is too cliche / boring. Let's make the heroes normal people who have to find creative ways to get to the fuckers. This is shaping up to be a real distraction.
someone besides Mary Schapiro in charge of the SEC
Preach it brother. Nothing says "waving the white flag of surrender" quite like "putting the head of FINRA in charge of the SEC."
re: 112
Yes, because this is exactly like that. The poor super-rich are JUST like the Jews/kulaks/whoever.
106, 109: Jesus, that's heartbreaking.
re: 114.last
You might like:
http://chinamieville.net/post/4406165249/rejected-pitch
which Martin Wisse also linked to a few days ago.
106, 109: It's important that prosecutors demonstrate that no one, no matter how sympathetic, is above the law.
Yeah, 106, 109 is...I mean. Can the judge look at this and be like, "oh, this is clearly a miscarriage of justice. Time served"?
106, 109: I hate shit like that. I typed and then deleted stuff about Mara's case, but yeah, that's awful.
120: Nope! But the judge did give the lower, 8 month sentence (which the Government was arguing strenuously against).
Scrap Iron Man!
I am thinking now of that speech from Fight Club - "We are the people who serve your food. Clean your houses. Watch you while you sleep." Etc.
That's actually a pitch, isn't it? V for Vendetta meets Fight Club because of the financial crisis.
From shiftless layabout to Hollywood hack in 3.2 seconds. Beat that.
The poor super-rich are JUST like the Jews/kulaks/whoever.
Isn't that the point of murdering them?
re: 124
The idea is to have a bit of fun with the idea that powerful malevolent fucks who live lives of luxury and decadence beyond our wildest dreams while simultaneously fucking with the lives of millions (or hundreds of millions) might actually experience some sort of comeuppance. It's fun because it will _never fucking happen_. But you know, if you want to exercise yourself about it, astride a wee moral pony, feel free.
118: brilliant. God, I love Mieville. It's not fair that's he's also super hot.
I have to say, Yglesias's response to the article linked in the OP got it exactly mostly right.
...But as they say right up at the beginning of the piece, the key sentiment underlying the whole thing is that the Obama administration felt it was important to restabilize the global financial system. That meant, at the margin, shying away from anxiety-producing fraud prosecutions. And faced with a logistically difficult task, that kind of pressure at the margin seems to have made a huge difference. There simply was no appetite for the kind of intensive work that would have been necessary.
...I think I've said this before, but I think the country would be in a better place if the passage of TARP has been immediately followed by Nancy Pelosi punching a bank CEO in the face on live television then letting everyone who voted "yes" give him a nice hard kick while he writhed in agony on the House floor. That would have been a useful way of distinguishing between banks and bank executives.
write the laws
There are no effective proposals for laws limiting very steep leverage. Regulating retail banking more would protect individual savings, but move the destabilizing behavior as well as enormous amounts of money to the less-regulated bond and commercial paper markets.
Europe
http://www.bloomberg.com/apps/quote?ticker=GIGB10YR:IND&n=y
Britain is usually held up as an example of a place where this works well.
http://en.wikipedia.org/wiki/Northern_Rock
Shows limits.
Nobody knows how to limit destabilizing steep leverage without causing interest rates paid by borrows to skyrocket and rates paid to lenders to crash, as far as I can tell. There aren't even plausible proposals.
Point Blank and A clockwork Orange are both good starting points for revenge fantasies. Hollywood is great at revenge films, so I expect that considerable resources will go to making the movie you'd like.
Michael Clayton was a pretty good urbane treatment of the theme.
127: Actually, I rather like living in a world where there are sexy left-wing SF authors out there. I'm married, and dull, but a girl's got to have dreams.
11.14: I think that's a fair description. But have the Europeans done notably better than we have?
Canada, by contrast, has done a lot better, so we know it's at least possible to do better.
I'm married, and dull, but a girl's got to have dreams.
HELLO THERE.
Canada is a net oil exporter. Abu Dhabi's and Norway's banks are OK also.
Actually, I rather like living in a world where there are sexy left-wing SF authors out there
So who would be the current generation of sexy left-wing folk musicians?
128: Yglesias seems to view the lack of punishment as solely a political problem, and doesn't seem to consider that it may have actual, damaging consequences.
It sounds like "Complicity 2: The Complicitinessening" if you ask me. The first one went after, IIRC, Judge Pickles, Adnan Kashoggi, Jonathan Aitken and Kelvin Mackenzie (not under their real names of course).
Not that that's a bad thing, of course.
"Leverage" has a similar attitude to Malefactors of Great Wealth but the good guys just con them out of vast amounts of money, rather than slotting them.
130: yeah, "it's not fair" was not intended as a factual statement; I really just meant to be squeeing over his awesomeness, but I blame the heteronormative patriarchy in whose waters none of us can swim without getting wet, &c.
134: Haven't seen Bragg since the mid-90s, but as of then the old generation was still doing just fine in my book.
"Leverage" has a similar attitude to Malefactors of Great Wealth but the good guys just con them out of vast amounts of money, rather than slotting them.
That's fun, too. I've only read about Leverage on the KungfuMonkey blog, though. Not seen an episode. IIRC, it's on one of the higher numbered freeview channels in the UK. 5USA, or something?
Haven't seen Bragg since the mid-90s, but as of then the old generation was still doing just fine in my book.
I mostly wanted an excuse to post the video (previously linked here) which I thought might appeal to some people.
139: used to be, yes. It's not as good as the blog makes it sound; it's a great concept with neat plots but the cast aren't up to much.
(Actually, as between Bragg and Mieville, while Mieville is dreamy, Bragg is much more my sort of thing. Skinny, gawky men with big features. Mmm.)
(But I digress. Back to politics, and I'll stop drivelling on about celebrities I find appealing.)
Skinny, gawky men with big features fixtures.
Fixed that for you.
I haven't seen much of "Leverage", but IICR it's tone is more light-hearted rompish, which, for me at least, doesn't lend itself very well to primitive and brutal wish fulfillment of the punitive sort.
It's not as good as the blog makes it sound; it's a great concept with neat plots but the cast aren't up to much.
How funny, I would say the opposite.
The cast is fun but the plots and scripts are often too unbelievable or over-the-top for my taste (and, yes, I know that the villains crimes are based on real stories).
re: 145
You want more of a Jason-Statham-kicking-people-in-the-nads sort of thing? I'd go for that.
I'd like to believe that the success of Leverage indicates a healthy turn in the national psyche in the was that the popularity of 24 indicated something deeply unhealthy.
But that's probably just wishful thinking.
I also approve of its success because I have a soft spot for Timothy Hutton since he produced that Nero Wolf TV series.
145 is true; "light-hearted" is the right word for it. It's kind of like a more sophisticated and slightly left-wing A-Team with similarly bloodless violence.
Maybe what you want is something more like Daniel Suarez (one of his books opens rather entertainingly with an investment banker being carved into sashimi by a robot motorbike).
Yes. Blood. There should be blood, and damage to reproductive organs, and possibly more blood. Because movies are the only place that's ok.
(I do not have a problem with admitting to blood lust in a fictional setting. In real life it's just more bad on top of bad -- that pick of Allen Stanford is pretty upsetting, for instance. (I don't imagine the pillory to be pleasant, but it's controlled, and limited.))
Let's make the heroes normal people who have to find creative ways to get to the fuckers.
OK, we do this as a web comic. There are four lead characters:
1. Elderly church lady, who was right wing until her husband had a run in with the hospital accountants a few months ago, and she had a Damascene conversion. Supertalent: getting people to do what she wants when they don't want to;
2. 40ish single parent with whiny teenage son and harassing MRA type ex. Supertalent: fixing broken stuff and finding cheap alternatives;
3. Overweight office drone (male) with no life - that is, does things and sees people, but doesn't like them much. Supertalent: internet searches;
4. Unemployed school leaver (female), nihilist. Supertalents: runs very fast for short distances until her nicotine ruined lungs pull her up, ability to imagine really weird ways of doing things.
They meet by chance when they witness some unspeakable human tragedy precipated by the crisis and end up in the same cafe after the cops let them go. After a while they start talking...
134: Something about Bragg in that video reminds me uncomfortably of a less-squishy David Mitchell.
152.3 is quite close to home, even down to the supertalent.
re: 153
At the album launch gig by the Young Knives last week their singer was joking about how people kept mistaking him for David Mitchell.
http://www.youtube.com/watch?v=KLZfTEz07qA
I notice someone making the same quip on the youtube vid.
154 - Ttam, I imagine you as a kind of Jason Statham figure with special deadly martial arts skills. Let's not kill off my totally not gay imaginary life quite so quickly.
re: 156
I can quite handily kick people in the head, I can even make a fairly decent stab at some of the more spinny/athletic looking moves. I just look sort of schlubby and overweight while doing it. Like a balding and not very good Scottish Sammo Hung.
I just look sort of schlubby and overweight while doing it.
Think of it as stealth. No one expects the schlubby Scot to kick them in the head.
I, myself, look fresh-faced and cheerful, which confuses opposing counsel as I tear their lungs out.
I could do everything the guy does here, for example:
http://www.youtube.com/watch?v=crS919hsv3w&feature=related
But I couldn't get much air on the final jumping version so it would look a bit pathetic.
159: I simply cannot be intimidated while he's wearing a spandex onesie with purple flames up the side. This in France, right? That's why he's wearing that? It's not compulsory?
Like being a schlubby Scot, it's stealthy. If a guy walks up to you in a flaming purple unitard, you don't worry about getting kicked in the head, you begin giggling uncontrollably. At which point kicking you in the head is trivially easy.
Like being a schlubby Scot
Aren't Scots known for drunkenly beating the shit out of anyone for any reason? Also, didn't they export that tendency to much of, say, Appalachia? The South? Am I just parroting that New Yorker pop science guy who's name I'm forgetting at the moment?
Where am I?
Who are you people?
re: 160
It's compulsory in international competitions, yeah. Which isn't a flattering look on people of a heavier disposition. Some people wear them even for ordinary training, but I've never worn one.
It's compulsory in international competitions, yeah.
I believe the gay men of the world just found a new spectator sport.
The purple flames can't possibly be compulsory. Come to think, you should probably have a unitard made for competition in a nice tartan.
165: Well, yes. But you don't get the costume fun with MMA.
Oh man. MMA would make so much more money if they'd only embrace their natural fan base. Can you imagine? MMA but with figure skating outfits?
I'm with Flippanter on opposing incarceration for non-violent crimes.
Hell, I oppose incarceration as we know it today for most if not all violent crimes, but that doesn't mean that one couldn't have fines take the form of public, criminal sanctions, with accompanied by the state's announcing to all and sundry "this person violated the law and is being punished", rather than accepting a fine so as not to appear in court or be convicted at all.
165, 167: I would just like to note that Shinya Aoki's last fight was against Lyle "Fancy Pants" Beerbohm.
My God. It's like all of the fights should take place in a giant closet.
Lyle would like to thank his mom for making his fancy pants.
170: My buddy who watches MMA with me assures me that the opening sequence of The Ultimate Fighter looks exactly like the intros to the offerings from Hot House Video. I think they actually do play (and not even very subtly) to that demographic.
126: Sorry to be such a killjoy.
re: 166
Heh, a lot of the UK team members have a black and silver flag.
http://www.youtube.com/watch?v=vOaw6d4S-9Q
[the judge with his back to the camera is me]
There are a lot of people like the one in second linked article, and mortgage brokers and underwriters who thought they could get away with it and everyone else was doing it and it didn't look like anyone would be harmed.
They're the ones you can easily make a case against, since they conspired to defraud banks and investors. Should they all be locked up, years after the fact?
On the other hand, what are the financey people guilty of? Not kicking the tires hard enough, basically. (I recall reading that Mozilo was shocked to discover, fairly late in the game, that nearly everyone with pick-a-payment neg-am loans was making only the minimum payment.) Bad modeling assumptions. (Bad in hindsight!) Assuming mortgages would perform about as well as they had in the past. Assuming Greece, Ireland, and Iceland were as wealthy as they looked on paper.
Most of them swallowed their own snake oil, and lost a lot of their own money in the crash.
Very little of what caused the financial crisis was criminal conduct at the highest levels. Maybe it is a scandal that some people are rich while others are poor. But that has very little to do with the conduct of a few individuals, and a lot to do with the policy preferences of the public.
35, 174: Fair points both, and I am now convinced that in practice there are things you can do with direct punishment that you can't do with fines. No particular reason it has to be that way (cf. 168), but that's how it is right now.
38: I agree that it's terribly unfair that some people have few options other than crime. I agree that bankers etc. had the choice not to get involved (or to work quietly within the system to try to make things less bad, which does happen from time to time). I still think that their behavior is better described as bad at their job than as criminal.
On the other hand, what are the financey people guilty of? Not kicking the tires hard enough, basically.
In fact, Mozilo and people like him got fantastically wealthy by setting up systems designed to make loans to people who couldn't pay that money back. And predatory lending is against the law.
Low level loan officers didn't make up the scam, and if they fought it, they got fired. Millions of consumers didn't suddenly take it into their heads to defraud banks, or to take out loans they couldn't pay back.
And even if we assume that Mozilo had no idea what he was doing to make all that money, one cannot ensure guiltlessness by maintaining ignorance.
It is true that guys like Mozilo can see themselves as guiltless in a society like ours, but that's why it's important that guys like Mozilo do real time in prison. We don't want to be the kind of society where guys like Mozilo get off as easily as those guys, in fact, did.
I recall reading that Mozilo was shocked to discover, fairly late in the game, that nearly everyone with pick-a-payment neg-am loans was making only the minimum payment.
Boy do I know that feeling!
Related, and possibly of interest, especially the readings listed by O'Donnell in comment 3. The Kutz book has been on my 'to read' list for a long time. Well, to read as soon as an unlicensed copy shows up on the interwebs.
Banquo, we know that's the excuse that they make publicly, that they didn't know. But we don't know that's the truth -- that's what a criminal investigation is for. Honestly, it strikes me as rather naive to assert, with certainty, that they just happened to make a mistake that made them fantastically wealthy.
Oh, and hey, luckily the FBI has been working hard to build a case against the owners of online poker sites, because gambling is criminal, and god knows we can't have that. I mean, unless it's the state lottery or something. Now those are some investigative man-hours well spent!
Lest this be read just as me being pro vice: the point is that when the FBI / justice department wants to go after someone, they do it. They're not doing it here.
Bob has it absolutely right on this thread.
Oh, and hey, luckily the FBI has been working hard to build a case against the owners of online poker sites, because gambling is criminal
Having just read this (interesting) book, it sounds like there's significant organized crime presence behind (some) online gambling sites. So, there may be multiple reasons for pursuing those investigations.
I will add, however, that the book presents the FBI as generally completely clueless in pursuing online crime.
I'm not surprised, since our government has given the industry every incentive to develop ways of processing funds that strictly speaking ought not be processed--in other words, to become experts in money laundering. [And of course, Las Vegas, and gambling generally, has a long history w.r.t organized crime.]
Banquo, we know that's the excuse that they make publicly, that they didn't know. But we don't know that's the truth
Of course we fucking know. These were all people with loads of experience in the industry. They knew damn well that wages were stagnant while housing was going up like 17 percent a year. Interest rates were at the lowest since WWII while half of Countrywide's loans were ARMs. I mean, my god, they were actually calling products shit like "liar loans". During those years Mozilo was literally selling hundreds of millions of dollars in stock and driving around in gold colored Rolls Royces. It boggles the mind that anyone could think this wasn't criminal.
There's always a story you can tell after the fact to explain why something went wrong. It's easy to predict things in hindsight, but it's considerably harder to make predictions in advance.
Of course there were some people saying there was a housing bubble as early as 2004. But house prices kept rising, so eventually people figured it was safe to ignore the naysayers. Sometimes a trend just happens to be true, even if you have no idea why. Cf. Moore's Law.
Similarly, there were plenty of credit hawks who were suspicious of doing low-doc loans. But initially these loans performed well enough to be apparently profitable. So the lenders that made them (like Countrywide and WaMu) grew, while the companies that passed them up didn't. I think it was reasonable at the time to suspect that old credit restrictions were either (a) an unfair burden on people with unconventional circumstances, who would be responsible borrowers if given the chance, or (b) becoming less important as credit data improved.
Mozilo and others did a whole lot of damage, and I do think they are morally culpable for insufficiently thinking through their actions. I think they should be shamed and excluded from polite society. I kind of wish that the Dick-Fuld-got-punched-in-the-face story was true.
But being a bad person isn't against the law. Doing an immorally bad job isn't against the law. Destroying billions of dollars in shareholder value by negligence isn't a criminal offense, I don't think. Nor is precipitating a recession.
Maybe that needs to change. Maybe a modern financial industry with limited liability just doesn't work. But it's unjust to punish people for things that weren't forbidden at the time.
I don't think the next Mozilo will think "That could be me in jail!" and stop doing whatever he's doing. Instead, he will think, "This time is different!" And he will mean it. Before the crisis hits, it always seems like things will go on this way forever.
Also:
Interest rates were at the lowest since WWII while half of Countrywide's loans were ARMs.
Interest rates have in fact dropped subsequently, by quite a bit. Which means that ARMs turned out to be a good deal! Which just shows how hard it is to predict the future.
There's always a story you can tell after the fact to explain why something went wrong. It's easy to predict things in hindsight, but it's considerably harder to make predictions in advance.
I thought that houses were overpriced in 1997. This was a pretty costly mistake for me because I ended up buying a house in 2004.
And what everyone said about fines not counting as punishment. You'd have to literally impoverish the defendants for a fine to be a genuine infliction of suffering; prison time is qualitatively different."
I think some sort of real (and permanent) poverty would be a good punishment
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I put this here for lack of a more appropriate thread:
I should really read Tim Burke more often.
This is very good, on the problem with the "Win the Future" motto.
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37
I feel like I should have a better understanding of why the DOJ hasn't brought more of these cases, but I don't. They're somewhat harder to win than Shearer intimates, and the Skilling case at the Supreme Court got rid of the "honest services" legal theory that was favored until recently. The mortgage industry frauds (at least at the level of the banks and CEOs of the major lenders) were also much more subtle than Enron/Tyco/Worldcomm, where folks were basically just making up financial numbers out of thin air and/or brazenly looting their companies. Civil plaintiffs lawyers have had a harder time nailing culprits. And many of the Enron/dot com bust cases went south for the Government, so maybe prosecutors got their hands burned. But it still looks like a total failure of will -- capital controlling government feels like as good an explanation as any.
They haven't brought the cases because they were told not to (implicitly if not directly). The government is obviously making no real effort to develop cases. And it is not that hard to win cases. I sure there are plenty of people as guilty as Bernard Ebbers and he is serving 25 years. Skilling's latest appeal was denied despite the Supreme Court decision (which if I recall correctly limited the scope of honest services fraud but didn't get rid of it). The Bush adminstration didn't win every case (it is harder to win cases when the defendents can afford good lawyers but I don't think this means you should never prosecute rich people) but it did put a fair number of big shots in jail. The Obama adminstration isn't even trying.
40
Part of what's going on (and this is general impression, I'd have to poke around for backup) is that this kind of fraud prosecution is very labor-intensive, and the SEC and the Justice Department are very low on resources these days. This seems clearly to be a policy decision (originating under Bush, not changed under Obama), to make it harder for them to go after white collar crime, but once that decision's been made, it gets very difficult to change course and start aggressive enforcement.
I think this basically nonsense, there aren't enough resources to prosecute everybody who is guilty (there never are) but there are certainly enough to make examples of a few particularly egregious cases. The adminstration is doing worse than Bush did and that is hard to do by accident.
43
And what everyone said about fines not counting as punishment. You'd have to literally impoverish the defendants for a fine to be a genuine infliction of suffering; prison time is qualitatively different.
Fines count for something. But civil fines don't count as much as fines from a criminal conviction which in turn don't count as much as jail time.
48
I oppose incarceration for financial and other non-violent* crimes ...
I don't see the case for letting the likes of Madoff off.
Btw what's the definition of a non-violent crime?
62
Which social factors are the ones that make incarceration appropriate and proportionate? ...
That the offenses in question are serious. You don't believe financial crimes are ever serious?
87
The core problem for the financial catastrophe was indeed spinelessness at the rating agencies. ...
So maybe they should be put out of business as Arthur Anderson was.
I don't think the next Mozilo will think "That could be me in jail!" and stop doing whatever he's doing. Instead, he will think, "This time is different!" And he will mean it. Before the crisis hits, it always seems like things will go on this way forever.
No, he won't. He'll be thinking, "I can't believe no one's pulled this scam before, I'm going to make mad fucking bank on this shit."
Whatever the previous record for most consecutive JBS comments I agreed with was, and I'm not sure it was even two, it has been comfortably exceeded here.
89
I doubt many of the principal culprits thought they were doing anything wrong. People have a remarkable ability not to see something, if their pay depends on not seeing it.
I think sending Skilling and Ebbers to jail motivated other CEO's to make sure their accounting was defensible.
105
The people caught by any of the helpful, constitutionally-compliant suggestions above would not be the ones responsible for the housing bubble. Most of those responsible broke no laws. Mozilo's fine was for petty greed, for insider trading, rather than for creating a trainwreck system.
And they got Al Capone for tax evasion. So what? And I am certainly not convinced that no laws were broken. Also as I have noted the adminstration doesn't seem interested in finding out (by authorizing criminal investigations).
105
... But the existing rules are not enough, and it is not at all clear how to improve them.
I think the problems are more political (in terms of being able to impose better rules) than that it is actually difficult to imagine better rules.
129
Nobody knows how to limit destabilizing steep leverage without causing interest rates paid by borrows to skyrocket and rates paid to lenders to crash, as far as I can tell. There aren't even plausible proposals.
This is I believe nonsense (unless you consider say .5% increase in interest rates paid skyrocketing and a say .5% decrease in interest rates received crashing).
131
Canada, by contrast, has done a lot better, so we know it's at least possible to do better.
Reportedly by limiting competition keeping their bankers lazy (and conservative).
176
On the other hand, what are the financey people guilty of? Not kicking the tires hard enough, basically. (I recall reading that Mozilo was shocked to discover, fairly late in the game, that nearly everyone with pick-a-payment neg-am loans was making only the minimum payment.) Bad modeling assumptions. (Bad in hindsight!) Assuming mortgages would perform about as well as they had in the past. Assuming Greece, Ireland, and Iceland were as wealthy as they looked on paper.
I believe some of these people could be convicted of serious crimes as was Bernard Ebbers (for basically willful blindness).
Very little of what caused the financial crisis was criminal conduct at the highest levels. ...
You can argue about the causes (there were many) but there was a lot of criminal conduct and I don't believe it was confined to low level people. Just because "everybody" is doing something doesn't mean it isn't criminal if someone cares to make a case.
I agree. The real cause of the financial crisis was that It is legal to make a lot of money in finance, so that is where all the hard working sociopaths work.
188
But being a bad person isn't against the law. Doing an immorally bad job isn't against the law. Destroying billions of dollars in shareholder value by negligence isn't a criminal offense, I don't think. Nor is precipitating a recession.
How about giving corrupt appraisals? IANAL but I think that is a crime as it should be. And that is basically what the rating agencies did. Even if you believe the initial misratings were an honest error they continued misrating well past the point that honest error is plausible.
How about giving corrupt appraisals? IANAL but I think that is a crime as it should be.
And what about inducement to give corrupt appraisals? Seems like there was plenty of that going on.
207: The legal theory that the ratings agencies have offered is that their ratings are a form of speech, and therefore protected under the First Amendment.
Unfortunately that legal theory ís protected as free speech. But it should be a crime to state stupidities when they are as harmful as this.
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Could lawyers or (anyone else really) who might know of someone with expertise in the ADA as it applies to reasonable accommodations in higher education, please e-mail me at teh address above. Thanks, BG
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210
The legal theory that the ratings agencies have offered is that their ratings are a form of speech, and therefore protected under the First Amendment.
The First Amendment does not protect fraud (telling people lies in order to get them to give you money). The ratings agencies may or may not (IANAL) be covered by existing anti-fraud laws but they could be covered.
Well, wait, there's a thought. Do any of the lawyers or other knowledgeable people have any thoughts about class action suits against the ratings agencies? Discovery alone would be super fun.
There's always a story you can tell after the fact to explain why something went wrong. It's easy to predict things in hindsight, but it's considerably harder to make predictions in advance.
Fine, I'll let everyone in on my super secret method for spotting this kind of thing. It worked for the tech boom too. If people are working off of principles that are obviously not grounded in the real world than that shit is going to end in tears. `You just can't fucking have housing going up at that rate relative to wages. People with 50k in income had multiple properties and 10x their income in real estate debt and we're supposed act like this was hard to see coming? Maybe we should blame the math teachers.
All the same people acted like I was a nay saying asshole when I worked in telecom during the tech boom. Fine you idiots, transfer your whole 401k into the company stock when the company's not profitable and the PE ratio is three digits. Let me know how that turns out.
Of course there were some people saying there was a housing bubble as early as 2004. But house prices kept rising, so eventually people figured it was safe to ignore the naysayers. Sometimes a trend just happens to be true, even if you have no idea why.
Are you trying to give me a stroke? Of course prices were going up. Their practices were providing the money driving all that speculation. Neg. amort loans, liar loans, loans at 125 percent of appraised value, etc.
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BART-area peeps, I'm having tea and cake and dal and an open house today til 5. Should have invited non-FB unfoggeders before, but if your'e at loose ends, we're near the North Bcrk Bart.
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207: Did anyone from the ratings agencies get super-rich over this? My impression was that those people got perfectly ordinary finance-level pay, not the millions investment bankers or traders or CEOs got. Was that an incorrect impression?
My objection is to the claim that there are plenty of people who:
A) got super-rich
B) by doing something that was a major contribution to the crisis
C) that was an actual crime.
I can think of cases of AB, BC, and AC, but not many clear cases of ABC. I would need ABC to make vengeance/punishment a credible and just response to what happened.
I'm not claiming in any absolute sense that there is no case of ABC. It wouldn't shock me if there were a few. I'm just arguing that the facts publicly available are perfectly adequately explained by incompetence at the highest levels, without conscious, deliberate, criminal malice.
217: Here's an idea, anyone doing C should be prosecuted.
But, I see you asking, what about the people doing AC and BC? See, that's where the set theory comes in. If you go after set C you also get sets AC and sets BC.
And if you get enough of the cases of AC and BC, I'm sure you'll get some cases of ABC as well. I certainly to see no reason to think that the sets AB, AC, and BC are well-populated, but that set ABC is empty. That makes no fucking sense.
The rating agencies are for-profit institutions that had financial incentives to give favorable ratings to shitty products. No one needs to get a 9-figure payday to be worthy of a criminal investigation.
215: Those people who bought company stock in their 401ks, would you say that they were foolish but not evil? It's quite possible to be smart and sophisticated in a technical sense and lack the kind of wisdom that you have. It's possible to have a superficially successful career in finance that way, if one happens to be foolish in a lucky direction. This is a real social problem, and I'm not sure how to fix it, though there are some ideas out there.
218: I am not right now arguing against prosecuting everyone in set C. Though I do think that many of those people (e.g. people who lied on their mortgage app, then defaulted and lost their homes) have already lost a lot (no pun intended).
I was responding to the desire for revenge against the fat cats as fat cats - at least, that's how I understood some peeps here, e.g. donaquixote. Hence trait A. Sorry I was unclear, and sorry if I misread dq.
My hunch is that the intersection of A and C tends to be a different sort of person than the intersection of B and C. Madoff is a classic AC, who got (or rather, stayed) super-rich by outright lying, but didn't cause much damage outside of his direct investors because he had no motive to screw up the system.
Mozilo is a good example of BC. He caused a lot of damage by trying to make a difference in the world, which is only a good thing when you're pointed in the right direction.
If there's an ABC, I suspect that it's an accidental intersection of those two types. But that's just a hunch.
Thing is, C is a very large set, and prosecutorial resources are limited. If you thought you had a good case against someone who is ABC, then by all means, though everything you got at them. Otherwise, it is probably best to focus on BC, to deter people from bring down the economy in the future.
We can just make group AB the object of public scorn.
Benquo, if your only point is that the market collapse itself was not the product of a criminal conspiracy, then fine, agreed, though even in that case the criminal negligence goes far beyond "not kicking the tires hard enough." If you are making some broader claim that there aren't a substantial sections of the financial industry that knowingly engaged in fraud and made the collapse even worse as a result, then I would have to ask what Rock of Naiveté you've been living under. Lehman Brothers has been charged with just such actions, and investigations by journalists have uncovered cases that have not yet produced charges. See, for instance, the case of Magnetar (texty, talky), though that case is being investigated by the government at this point. Imagine what would they find if they devoted more resources to new investigations. You really think "nothing" or "not much"?
Benquo, do you know Mozilo, personallz? If not, then you seem to be basing your view on his public presentation, when he has every incentive to paint himself as a hapless dupe. Do you also believe that someday OJ will find the real killers?
I think this is one of those times it's appropriate to link to D^2's masterpiece, "The D-Squared Digest One Minute MBA - Avoiding Projects Pursued By Morons 101." Remember, the keys here are: 1, Good ideas do not need lots of lies told about them in order to gain public acceptance; 2, Fibbers' forecasts are worthless; and 3, The Vital Importance of Audit.
217
Did anyone from the ratings agencies get super-rich over this? My impression was that those people got perfectly ordinary finance-level pay, not the millions investment bankers or traders or CEOs got. Was that an incorrect impression?
Depends your definition of super-rich. Raymond W. McDaniel (CEO of Moody's) seems to have done pretty well. But maybe you think $9 million a year is perfectly ordinary. And of course Warren Buffett owns a big chunk of Moody's stock.
Uhh, guillotines? Lots of guillotines.
As far as "criminal" goes, well, what's the point of a revolution if you got to respect last year's law? Gee-whiz, next you'll be respecting property rights or sumpin.
I'm completely serious, tho having fun.
Carry on.
217
My objection is to the claim that there are plenty of people who:
A) got super-rich
B) by doing something that was a major contribution to the crisis
C) that was an actual crime.
I can think of cases of AB, BC, and AC, but not many clear cases of ABC. I would need ABC to make vengeance/punishment a credible and just response to what happened.
Why require A, B and C? Prosecuting people who got super-rich from criminal activity (A & B) seems like a good idea to me even if they didn't contribute to the financial crisis. As does prosecuting people whose criminal activity was extremely harmful (B & C) even if they didn't personally get super-rich.
217
I'm not claiming in any absolute sense that there is no case of ABC. It wouldn't shock me if there were a few. I'm just arguing that the facts publicly available are perfectly adequately explained by incompetence at the highest levels, without conscious, deliberate, criminal malice.
As I said before there was plenty of criminal activity (like fraudulent mortgage applications) and there is no reason to believe it was limited to low level actors. But you won't find it if you don't look.
This is what you get from listening to Shearer and whoever Benquo is. Is it criminal? That has not worked well in the mortgage/foreclosure crisis, as tens of thousands lose their homes and bankers get rich. Or credit cards.
Class war is not legalistic at all.
Rich people are bad. Hurt them. Next.
They will always, always win more complicated legal, ethical, or political arguments. By playing their game you are complicit in their oppression, and seeking reward.
220
I am not right now arguing against prosecuting everyone in set C. Though I do think that many of those people (e.g. people who lied on their mortgage app, then defaulted and lost their homes) have already lost a lot (no pun intended).
Like the subjects of this post (not that I have any evidence that they committed any crime).
These owners will probably just walk away. I doubt they have any assets. They never put any money into the deal, they pulled out $333,000 in cash, and they got to live in Turtle Ridge for 3 years. Not a bad deal -- for them.
220
I was responding to the desire for revenge against the fat cats as fat cats - at least, that's how I understood some peeps here, e.g. donaquixote. Hence trait A. Sorry I was unclear, and sorry if I misread dq.
I have nothing against rich people but I think the laws should apply to them also.
220
Mozilo is a good example of BC. He caused a lot of damage by trying to make a difference in the world, which is only a good thing when you're pointed in the right direction.
Huh? Mozilo made a lot of money.
231: I have nothing against rich people but I think the laws should apply to them also.
Well put and an admirable sentiment. Pretty much what I was trying to say way up in 73: I want money to be its own reward--and no more. But it ignores the essential nature of money and power and hence 73(cont'd.): This is of course a hopelessly flawed and losing position. However, I don't mean to be completely cynical and nihilistic about this; I think it is possible to keep it in check enough that it does not distort your society. But a lot of hard work is required just to stay even.
And if it was not obvious upthread, I think Martha Stewart was a piker compared to the big crooks. However, it is usually instructive to take a closer look when one of the elect actually gets nailed--you get some glimpses into the wheels within wheels (often political like Sptizer and Siegelman) or when they've gone a bit too far (like the Enron guys).
I want money to be its own reward--and no more.
What about the fast cars? Fast Self-actualizing, independent girls women? Houses on Cribs? Entourages of toadying yes-men in matching velour sweatsuits?
"To cruise the most exclusive clubs, driven by your lackeys, and to hear the adulation of your women."
I actually do have something against rich people.
Bear in mind that I haven't read the thread to speak of; I've gathered on a very quick skim that the sentiment expressed is meant to say that people shouldn't be jailed simply for being rich, which, of course not.
"To cruise the most exclusive clubs, driven by your lackeys, and to hear the adulation of your women."
"Crom Hef laughs at your god! Laughs from his mountain Playboy Mansion!"
221: I agree.
222: I believe the first, not the second. Sorry I was unclear. Or if I was arguing against a strawman and wasting everyone's time.
223: I don't know Mozilo or anyone at that high a level personally. I do know a few mid level people in the industry who understood what was going on and tried to prevent the catastrophe, and were of course not listened to. None of them was a profile in courage, but they did make an honest effort to stop what they felt (correctly) were terrible mistakes being made. Pretty much all of them came away with the impression that the higher-ups were not listening out of genuine incomprehension, and that if you met the villains of the financial crisis, you would be more than anything else disappointed that there is so little there there. It's unreasonable for an anonymous person on the internet to ask for your trust, but that's where I'm coming from.
232 Whoops, I should have said Mozilo was AB.
I actually hadn't really been thinking about the ratings agencies in particular. I wasn't focusing on them since they weren't really principal actors. But yes of course, if the head of Moody's was directly involved with or knowingly encouraged the shoddy ratings process that went on, he is at least an AB. I suspect that Moody's covered itself with sufficient disclaimers to avoid being outright criminal, but I do not know this for a fact.
And yes this sort of thing does make me angry too, but I don't see an obvious object for my anger. AFAICT a lot of people did their jobs poorly, not just a few.
Prosecution would mostly catch the mid-level people who weren't so careful. That probably does have some social value, but it's not going to fix the underlying problem, which is human greed and short-sightedness and foolishness. People aren't going to decide to be more prudent out of prudence.
I will shut up for now. I have been convinced on a few points and have stuff to think about on others.
(I agree with 231. I jokingly advocate the pillory to compensate for the fact that it so clearly does not: put one guy in the stocks, and maybe the rest will take you seriously...)
the higher-ups were not listening out of genuine incomprehension
So dumb, not evil. Hard to reconcile with the widely reported IBGYBG sentiment. I'd be interested in a more detailed explanation of their response to warnings.
It is utterly ridiculous to think that the higher-ups at financial institutions are just bumbling morons who luck into hundreds of millions of dollars.
Let's put it this way-- is there something Mozilo could have done that would have made him more money, personally? What a coincidence that his empty-headed dumbassery just happened to make him fabulously wealthy.
If one of your friends had come up with a shitty mortgage product that would have generated a nice payday for his moronic bosses, I wonder if they would have found the capacity to understand him.
I do engage in some self-examination of my feelings on this front, because I occasionally find myself indulging in dq-esque fantasies of extra-legal retribution. Maybe it is just my Inner Failed Oligarch lashing out, but I actually have a bit more of a veldt-y explanation involving my/our highly-tuned, emotionally-charged cheater detectors. Laws broken, or laws not broken; we all were taken. And in a way that had massive economic, political and societal consequences. Sure there are elements of petty spite and envy mixed in--we're humans after all.
Pretty much all of them came away with the impression that the higher-ups were not listening out of genuine incomprehension, and that if you met the villains of the financial crisis, you would be more than anything else disappointed that there is so little there there.
I've done some work on the evil side (well, mostly the evil side. Sometimes companies really do get sued when they haven't done anything wrong. But usually the evil side) of civil securities fraud defense, and Upton Sinclair got it right: "'It is difficult to get a man to understand something when his salary depends on his not understanding it." Someone who's choosing to fail to pay attention to warnings that might give him a responsibility to do something that would interfere with his own moneymaking is culpable even if they've successfully managed to maintain a genuine incomprehension of what's going on.
On the other hand, while this isn't a moral reason to let people get away with anything, it's often a practical reason that it's very difficult to criminally convict someone. It's really, really hard to prove beyond a reasonable doubt that someone knew the relevant facts if they were making a concerted effort at the time to appear ignorant of them. This isn't an excuse for not trying, but without smoking-gun communications (which there were in Enron), or Madoff-class straightforward fraud, I'm surprised anyone ever gets convicted of financial crime.
I am leaning heavily on the difference between cleverness (e.g. understanding which way the wind is blowing) and wisdom (e.g. looking at the long term fundamentals). If you find this distinction implausible, you will find my opinion implausible.
245: I think you're giving people who've carefully cultivated the ignorance necessary (or at least an appearance of the ignorance necessary) to protect themselves from liability credit for innocently being too dumb to understand even if they tried.
239
... Pretty much all of them came away with the impression that the higher-ups were not listening out of genuine incomprehension ...
If they weren't listening to warnings about financial risk out of stupidity then it is likely they were also ignoring warnings about legal risk. So to the extent that your theory that these people were just empty suits is true it should be possible to find some crime that they blundered into and can be convicted for. On the other hand if they were actually knowingly and intelligently rapacious they may have protected themselves better.
244, 245, 246: Everyone hates neuroscience, but I am reminded of its occasional reminders that the world would be very different if humans were as good at assessing risks as we think we are.
265: That's possible, and something I will have to think about some more. I do think they are morally culpable eiher way, even if their only fault was to fail to become wise in a profession where lack of wisdom can hurt a lot of people.
246: it's not even just about liability. People in the upper circles of these institutions are playing politics for a living; they're good at taking credit for good things and avoiding blame for bad things.
People in the upper circles of these institutions are playing politics for a living; they're good at taking credit for good things and avoiding blame for bad things.
"If something goes wrong at the plant, blame the guy who can't speak English."
239
Whoops, I should have said Mozilo was AB.
I am not willing to stipulate that Mozilo committed no crimes. You have an environment of widespread criminality and a guy who wasn't overly scrupulous it doesn't seem unreasonable to suspect that he may have crossed the line. He did sell hundreds of millions of dollars of stock before the bottom fell out. Even a prudent man might risk an insider trading charge to preserve his fortune. But maybe Mozilo is clean (in terms of criminal conduct) there are still numerous other potential targets. According to at least one account Countrywide was a follower not a leader in the race to the bottom.
I think a few subpoenas could be usefully delivered to Benquo's friends in 239. If it really did all stop with them, and didn't go any higher, then they've got some explaining to do.
But this is silly. Had it really stopped with the flunkies or at the mid-level - if there were no instructions from above to engage in this sort of thing - then the higher-ups were defrauded too and firings and prosecutions would be the order of the day. Fraud occurred not because it was permitted, but because it was required as a condition of employment.
As gswift points out in 187, these were called "liar loans." It's like when the CIA code-named an Iraqi informant "Curveball," then professed to be shocked - shocked! - that everything he said turned out to be bullshit.
239
I actually hadn't really been thinking about the ratings agencies in particular. I wasn't focusing on them since they weren't really principal actors. ...
I don't know what you mean about principal actors. I have (tentatively) concluded they were the root of the problem. You have a trusted authority willing to in effect certify that coins that were just 90% (or later 80%, 50% or 20%) gold were actually 100% pure gold naturally the financial system starting churning out these coins.
239: He did sell hundreds of millions of dollars of stock before the bottom fell out. Even a prudent man might risk an insider trading charge to preserve his fortune.
But why did he sell? What was the inside information?
We seem to have agreed to accept as evidence only things that come directly from Mozilo, so that limits our conversation a bit. But keep in mind that Mozilo does not deny having engaged in illegal insider trading (per his agreement with the SEC). Absent such a denial, can we agree that his behavior suggests that he had a damn good idea of what was going on?
239
... But yes of course, if the head of Moody's was directly involved with or knowingly encouraged the shoddy ratings process that went on, he is at least an AB. I suspect that Moody's covered itself with sufficient disclaimers to avoid being outright criminal, but I do not know this for a fact.
It isn't just a matter of outright criminality the rating agencies don't appear to have been reformed at all. They still have a legally privileged position and they are still paid by the issuer with all the bad incentives that involves.
Moral hazard is for little people.
I have (tentatively) concluded they were the root of the problem. You have a trusted authority willing to in effect certify that coins that were just 90% (or later 80%, 50% or 20%) gold were actually 100% pure gold naturally the financial system starting churning out these coins.
This is roughly my sense as well -- not that they were necessarily the only root of the problem, but they were an essential part of it.
258 gets it right.
As for the various fat cats not technically committing crimes, this was in general because they had been assured time and again by in-house lawyers that acts which seemed like they should be crimes were technically not crimes. Or they wrote the laws, as mentioned above. I would say that knowingly harming others in order to enrich yourself could be prosecuted.
255
But why did he sell? What was the inside information?
The charge would be, he had nonpublic information about the true state of Countrywide's business and future prospects and he traded on it by unloading his stock before the bottom fell out.
Joseph Nacchio (Qwest) was convicted on a similar theory and is currently in prison .
259
As for the various fat cats not technically committing crimes, ...
That's just an excuse for the adminstration's unwillingness to prosecute and a quite implausible one.
... this was in general because they had been assured time and again by in-house lawyers that acts which seemed like they should be crimes were technically not crimes. ...
This is not (in general) a legal defense. And I think it likely that they ignored (or were careful not to obtain) prudent legal advice for same reasons they ignored prudent financial advice.
244
... It's really, really hard to prove beyond a reasonable doubt that someone knew the relevant facts if they were making a concerted effort at the time to appear ignorant of them. ...
The jury instructions in the Ebbers' case were upheld on appeal and Ebbers is serving 25 years.
The judge also instructed jurors that they could find Ebbers guilty if they believed he suspected a crime was being committed but intentionally looked the other way.
Ratings are a place where I clearly need some education. The organization I work for has puttered along at BBB- (investment grade, but just barely) since sometime early in the financial swoon. On its face not necessarily debatable, some tough times. However, I would say that we are massively more likely to be able to service our debt obligations than was the case for some of the mortgage securities that I understand were rated in the 'A's. Or am I comparing apples and oranges? (And I can't see how the mortgage stuff could be included and still have the rates of default for different grades shown in the tables at the end of this Wikipedia article.)
263: Basically the problem is that many of the MBS products and derivatives (e.g. the "safe" tranches of subprime) require a lot of sophisticated modeling assumptions. Even if the model predicts a probability of loss of .01% or something, the predicton may change a lot if you make small changes in your assumptions, e.g. the correlation between the performance of individual mortgages.
Since many of these MBS were constructed to maximize the quality of the rating relative to the actual risk involved, unsurprisingly they performed worse than their risk class.
Generally whole companies aren't financially engineered to game the system to the same extent, so the ratings are a little closer to reality.
239
Prosecution would mostly catch the mid-level people who weren't so careful. That probably does have some social value, but it's not going to fix the underlying problem, which is human greed and short-sightedness and foolishness. People aren't going to decide to be more prudent out of prudence.
People aren't that foolish. If you make it obviously dangerous to them to behave badly they will prudently behave better. Laws don't accomplish too much if they aren't enforced. The laws against financial chicanery could be enforced but for reasons that are obscure to me the Obama administration has apparently made a policy decision not to enforce them.
263
... However, I would say that we are massively more likely to be able to service our debt obligations than was the case for some of the mortgage securities that I understand were rated in the 'A's. Or am I comparing apples and oranges? ...
Apparently the ratings agencies are rather belatedly claiming that the ratings for mortgage products were not intended to have the same meaning as their other ratings. However AAA rated mortgage securities still had (and have as nothing has changed) the same legally priviledged position as other AAA debt.
264
Since many of these MBS were constructed to maximize the quality of the rating relative to the actual risk involved, unsurprisingly they performed worse than their risk class.
Honest ratings would have taken this effect into account. But the rating agencies weren't interested in providing honest ratings as these would have been harder to sell. Actually they would have been impossible to sell in many cases as it wouldn't have worthwhile to construct many of the complicated mortgage backed bonds if they were going to be honestly rated.
255: Qwest is an interesting case of telco immunity.
A) got super-rich
B) by doing something that was a major contribution to the crisis
C) that was an actual crime.
Pricing assets or securities too high or too low is B.
Selling assets you don't actually own, collecting the price, and then failing to deliver the asset is C.
Similar to selling, you can use assets as collateral for a short term loan (like a pawn shop), but if you
do not actually have the assets you claim, also C.
See Charles Antonucci of Park Avenue Bank.
252: I didn't know that, and that does seem clearly criminal. Do you recall what the timing of the selling was?
You are also probably right that the dynamic was very different at "follower" vs "leader" institutions.
253: To be clear: they did get a chance to make their case to the execs. Stopped or delayed a couple of really atrocious deals but didn't substantively change the direction.
As you suggest, the relevant authorities have of course taken an interest. I don't know whether anything will come of it.
254: You're right that the system wouldn't have worked without the ratings.
I was focusing on the people who leaned on these ratings instead of doing their jobs, took credit for the extra yield, then stuck someone else with the downside risk. I am sure that some of these people thought they were hot shit finding genuine alpha, and others just sold their souls.
But now it seems quite plausible to me that the raters also had a moral obligation to be good custodians of the ratings, knew what they were doing, and could have done otherwise.
But why did he sell? What was the inside information?
I would have thought that by that stage he could have mounted a credible defence that he had no inside information but that anybody of moderate intelligence could see that the economy was becoming unstable and that liquidity was a consummation devoutly to be wished. Like the thousands of people who sold out of the South Sea Company between June and August, 1720*.
*There was actually plenty of fraud involved in the South Sea Bubble, and very serious people did time for it, besides being rejected by polite society**.
** For the benefit of DQ, the pedia thing tells me, "A resolution was proposed in parliament that bankers be tied up in sacks filled with snakes and tipped into the murky Thames." Sounds good to me. How murky is the Hudson?
I'd like to think he finally read Dead Right.
There should have been an "OT" there.
Also OT: What is going on?
I would be fine if Angelo Mozillo was given the treatment bankrupt debtors got in medieval france: for the rest of his life, he has to wear a green cap and anyone who encounters him has license to throw a stone at him.
I like the green cap idea. Maybe make it a propeller beanie.
Also OT: What is going on?
It's like this: Greenspan cares a lot, a whole lot, about rich people not paying taxes. But above all else, even that, he cares about Capital getting its money. Lately even Very Serious People have started talking about sovereign defaults--just in dinky little places like Greece and Ireland and Portugal so far, yes, but still. And a sovereign default is not just a hit on the balance sheet, it's an attack on the social order itself. Unlike with a business's own balance sheet, where declaring bankruptcy is just another cost-benefit calculation, states (ie the public fisc) must never be allowed to even consider defaulting.
Has this been linked yet?
Bill Black: Fiat Justitia Ruat Caelum (Let Justice be Done, Though the Heavens Fall)
On topic and excellent.
269
I didn't know that, and that does seem clearly criminal. Do you recall what the timing of the selling was?
See here for more.
... Mozilo also agreed to $45 million in disgorgement of ill-gotten gains to settle the SEC's disclosure violation and insider trading charges against him, ...
and
The SEC's complaint further alleged that Mozilo engaged in insider trading in the securities of Countrywide by establishing four 10b5-1 sales plans in October, November, and December 2006 while he was aware of material, non-public information concerning Countrywide's increasing credit risk and the risk regarding the poor expected performance of Countrywide-originated loans.
Insider trading can be a criminal as well as a civil offense. But perhaps Mozilo's "friends of Angelo" program proved a wise investment.
In June 2008 Conde Nast Portfolio reported that several influential lawmakers and politicians, including Senate Banking Committee Chairman Christopher Dodd, Senate Budget Committee Chairman Kent Conrad, and Fannie Mae former CEO Jim Johnson, received favorable mortgage financing from Countrywide by virtue of being "Friends of Angelo."[13][14]
276. Quod erat demonstrandum, if we're going to be all Latin about it.
OTOH, Black may be on the side of the angels here, but he sort of admits that not all his regulatory colleagues are too. Shearer's Quis custodiet ipsos custodes (Latin!) upthread still seems pretty much to the point.
273
I would be fine if Angelo Mozillo was given the treatment bankrupt debtors got in medieval france: for the rest of his life, he has to wear a green cap and anyone who encounters him has license to throw a stone at him.
I doubt you would wish this treatment on all bankrupts. And note Mozilo is not personally bankrupt but remains (I believe) a rich man. So this is just the sort of generalized animus towards rich people that allows bad actors among them to claim that all attempts to hold them accountable are just class prejudice.
273: As a matter of future pollcy, though, it would be satisfying if the heads of major financial institutions had to personally guarantee their institutions' liabilities. It would probably be too procyclical an incentive to improve things much, though. And of course we would have to have some kind of grace period for people who took the reins of companies secretly on the brink of collapse.
It's good to see that S&P rules our world. "Stocks sharply lower after Standard & Poor's lowers outlook on US debt."
282: I swear to God, investors are morons. What does S&P know about the US economy that you don't? Nothing.
But there is a lot of money whose managers are legally obliged to invest in AAA funds.
nonsense (unless you consider say .5% increase in interest rates paid skyrocketing and a say .5% decrease in interest rates received crashing).
Which proposed regulations, I'd be interested in reading them? Most lending is not done by banks, but via bond and commercial paper markets, the shadow banking system. This attempt:
http://www.newyorkfed.org/markets/cpff_faq.html
does not exclude heavily leveraged buyers.
But there is a lot of money whose managers are legally obliged to invest in AAA funds.
nonsense (unless you consider say .5% increase in interest rates paid skyrocketing and a say .5% decrease in interest rates received crashing).
Which proposed regulations, I'd be interested in reading them? Most lending is not done by banks, but via bond and commercial paper markets, the shadow banking system. This attempt:
http://www.newyorkfed.org/markets/cpff_faq.html
does not exclude heavily leveraged buyers.
280
As a matter of future pollcy, though, it would be satisfying if the heads of major financial institutions had to personally guarantee their institutions' liabilities. ...
I don't think this would affect Mozilo either as he managed to sell Countrywide to Bank of America so Bank of America is now responsible for Countrywide's liabilities. For example :
Mozilo, 71, also agreed to pay $45 million in "ill-gotten gains" to former Countrywide Financial Corp. shareholders, who lost billions when the company's stock price plunged as defaults on home loans surged. But Bank of America Corp., which bought Countrywide in 2008, and Countrywide's insurers will pay that amount under terms of Mozilo's employment contract.
285
But there is a lot of money whose managers are legally obliged to invest in AAA funds
These legal requirements are of course nonsensical now that the rating agencies have demonstrated that a AAA rating is meaningless.
Which proposed regulations, I'd be interested in reading them? Most lending is not done by banks ...
I was primarily thinking of banks. Banks like leverage because (when things go well) it increases their return on capital. For example if a bank has $1 billion in capital, $9 billion in deposits and makes $10 billion in loans at a margin (between interest paid and received after all expenses) of 1% then it will earn $100 million or 10% on its capital. Increase the leverage to by increasing deposits to $19 billion and loans to $20 billion then given the same margin it will earn $200 million or 20% on its capital but will have less margin for error. But the same return on capital could be achieved at the original leverage by increasing the margin on loans to 2%. I believe if you work through the results with realistic numbers the increased margin on loans required to compensate for plausible restrictions on leverage is not crippling. As I understand things this is why Canada fared better, they don't allow their banks to operate as close to the edge.
