(documented with emails.) Note there was a civil case (https://www.theguardian.com/business/2013/aug/01/fabulous-fa...) and a low-level fall-guy in his 20s, and conveniently French, did face civil charges.
Note, non-connected, poor people go to jail for $500 thefts. Lets be honest about what happened here.
(Mind you I had no MNPI as I hadn’t worked there for 6 years.)
If your job was to sell these things to people as a professional service, and you set things up so that a supposedly impartial ratings agency would give a high rating to something you know is shit? Absolutely. It’s not the same thing though is it?
The real reason for the lack of convictions is that there just weren't many cases of big bad wall street bankers defrauding ordinary people. That's typically what results in criminal convictions because 1) the law is far more protective of unsophisticated individuals than of institutional investors and 2) prosecutors have a much easier time winning cases and also benefitting politically from pursuing cases with relatable victims. And the reason why people wanted bankers to go to jail is because they thought wall street bankers did bad things to ordinary people. In reality though, the best cases against Wall Street folks are ones where the victims are also institutional investors (which is often included within the broader definition of Wall Street). The traders at Goldman Sachs outsmarting the traders at AIG just doesn't make for a particularly good fraud case, the same way Enron defrauding individual investors including their employees. And from the public's perspective, they are all part of the same class of people. And where ordinary people were directly involved, they were the ones defrauding lenders (and by extension, Wall Street and so on) by lying on their loan applications.
Plenty of pension funds lost plenty of money
It's like if you were telling your car salesman that if he doesn't own a couple of Toyota Yaris himself, you wouldn't trust him to buy a Toyota Yaris from his dealership. He's a dealer, what he thinks of the car personally isn't the question.
They were taking toxic waste, putting it into cleanly packaged securities, and selling them to pension funds and others who then lost over a $1B: https://www.reuters.com/article/us-goldmansachs-abacus-factb...
(Plaintiffs claim over $13B in losses: https://www.investorlawyers.com/blog/investors-continue-go-g...)
https://www.ft.com/content/4798ae22-f552-11e2-b4f8-00144feab...
Internally it was a joke they were selling this garbage:
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Former Goldman Sachs trader Fabrice Tourre said he “deeply” regretted an email in which he joked about selling subprime mortgage bonds “to widows and orphans” following a grilling from lawyers for the US Securities and Exchange Commission."
EDIT: In Goldman's case (from the URL citation):
Goldman Sachs - SEC charged the firm with defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages as the U.S. housing market was beginning to falter. (4/16/10)
Goldman Settled Charges - Firm agreed to pay record penalty in $550 million settlement and reform its business practices. (7/15/10)
Fabrice Tourre (mentioned above) Found Liable - A jury found former Goldman Sachs Vice President Fabrice Tourre liable for fraud relating to his role in a synthetic collateralized debt obligation tied to subprime residential mortgages. (8/1/13)
A U.S. judge ordered former Goldman Sachs Group Inc trader Fabrice Tourre to pay more than $825,000 after a jury found him liable for defrauding investors in a subprime mortgage product that failed during the financial crisis.
https://themreport.com/daily-dose/12-08-2020/the-role-of-len...
At the same time, convicting a low level work in his 20s as the ring leader (https://www.theguardian.com/business/2013/aug/01/fabulous-fa...) is disingenuous.
You can delegate authority, not responsibility.
This fundamental rule of hierarchical organizations is why CEO's need to be held accountable. CEO's are responsible for creating the environment, culture and rules that allow such activities to take place. Failure within an organization on a CEO's watch is that CEO's fault. That's why CEO's deserve high compensation - because the difficulty and risk are so high. If there's no CEO penalty for failing (or worse, breaking the law), than all companies in society suffer.
My entire argument was that someone somewhere along the chain was indeed responsible and it doesnt have to be the CEO. Youre arguing that the CEO cannot be completely responsible, which totally sidesteps the 14 other layers of people responsible and also conveniently ignores the other 14 layers that could be held responsible, investigated, and prosecuted.
Fine, the CEO cant be responsible -- is absolutely no one responsible at all within the organization? If so, how did tens of billions of dollars of profits pour in? How can no one be responsible and yet the companies be so profitable?
Probably has something to do with the upper-crust NY culture where those at the SEC, NY Times, SD-DoJ, and Walls Street are all friends. It is also not surprising that the two individuals on whom most issues were hung were a French trader with a deep french accent and an Egyption desk head at a Swiss bank.
https://www.usatoday.com/story/money/business/2013/08/01/gol...
... like Kareem Serageldin. Who went to prison.
He was literally the ONLY single person who did.
> Mortgage originators that emphasized profit-fueled quantity over loan quality, which resulted in the misreporting of key financial information in 48% of loans securitized by nongovernment agencies;
If 48% of your company's financial transactions were fraudulent, would you expect the CEO to bear responsibility for that? At that point, I'd expect to see a RICO case, or something come out of it.
Meanwhile, that number likely means that the borrowers lied on those same applications. That’s where the fraud actually occurred. And would be easy to prove.
> The Racketeer Influenced and Corrupt Organizations (RICO) Act is a United States federal law that provides for extended criminal penalties and a civil cause of action for acts performed as part of an ongoing criminal organization. The RICO Act focuses specifically on racketeering and allows the leaders of a syndicate to be tried for the crimes they ordered others to do or assisted them in doing, closing a perceived loophole. For example, before RICO, a person who instructed someone else to murder could be exempt from prosecution because they did not personally commit the crime.[1]
https://en.wikipedia.org/wiki/Racketeer_Influenced_and_Corru...
Quite the opposite you’ll find all manner of examples of the CEO’s enabling things like anti-fraud and risk management teams.
The issue was the implicit organizational pressures between those parts of the companies and the lending/revenue arms.
Making a new class of law that makes those implicit conflicts a criminal responsibility of company CEOs seems extremely fraught, but more importantly those laws didn’t exist at the time.
For it to be RICO, no you do not need to prove that. You need to prove more. You'd need to prove that the "Wall Street CEO" told someone to commit mortgage fraud, and then used the proceeds of that mortgage fraud to take control of an enterprise (which would presumably have to exclude the company of which he is CEO).
(https://www.law.cornell.edu/uscode/text/18/1962, for reference)
More importantly, there's a specific sequence of connections between the original predicate acts of racketeering and the control of the enterprise that has to be established for it to happen. 18 USC §1962 has the gory details, but I just don't see how the CEO can possibly be guilty of RICO.
As Ken White says, it's never RICO: https://www.popehat.com/2016/06/14/lawsplainer-its-not-rico-...
We created RICO to convict the Mafia. Not sure why we can't create a new type of crime to hold financial companies responsible for massive fraud.
I mean - we already have Securities Fraud - for which bank CEOs should be held accountable. I'm not sure how they escaped from that.
Here's a sampling of books and blogs to comprehend what led to the Great Financial Crisis.
* Griftopia by Matt Taibbi
* https://www.rollingstone.com/politics/politics-news/the-9-bi...
https://www.thisamericanlife.org/355/the-giant-pool-of-money (text transcript: https://www.thisamericanlife.org/355/transcript )
https://www.thebalance.com/what-caused-the-subprime-mortgage...
https://www.reuters.com/article/us-how-aig-fell-apart/how-ai...
https://finecoiitg.wordpress.com/2018/08/16/credit-default-s...
There's nuance in explaining systematic failure, but not one that most people couldn't grasp if well written in a few paragraphs.
A lot of 'small bad decisions' at the loan level encouraged by an aggressive culture, a failure in ratings, and CEO's to mild to look too intently into the VP Retail Banking's mortgage profits ... and the whole thing can go sideways.
But it'd be nice if the experts gave us more detail when the talked about it.
It is simply Too Big To Describe, to paraphrase the favorite mantra of the era.
I've noted certain articles and books in another comment above. Those should help get up to speeed.
It is not in the interest of the financial industry to support advocacy for strong regulation against itself.
https://idioms.thefreedictionary.com/He+who+pays+the+piper+c....
John Kenneth Galbraith's The Great Crash: 1929 gives interesting insights into prosecution and hearings following the Wall Street Crash which precipited the Great Depression and previous illegal and self-serving behaviours. I cannot recommend the book highly enough: it's short, highly readable, quite informative, and exquisitely researched.
https://www.worldcat.org/title/great-crash-1929/oclc/1222806...
When there's a collective acquiescence to large-scale fraud, who gets thrown in the clink? The bigger question should be how did the sytem evolve to the point where all of this was made possible?
"We can't jail them all" does not imply "therefore jail none of them".
Precedents matter. The precedent that was set is "widespread fraud is fine; if enough people are in on it, nobody can be jailed". Is that really the precedent we want?
These people gambled with the economy, lost trillions of dollars and destroyed the lives and savings of millions of people… and then got bailed out by the federal government. Who cares whether they committed specific crimes? The issue is the "heads we win, tails you lose" system, in which if you're wealthy enough you can break the world economy and get rewarded for it.
So what instead? - just arrest people based on public sentiment? Or rewrite the laws later, ex post facto-ly?
I'll take the rule of law, despite the failure case of regulatory capture, over just punishing people because they're unpopular, any day.
I have some opinions about who should have gone to jail (I'd start with the ratings agencies), but that doesn't rabble-rouse quite as well as 'Burn Down Greedy Goldman Sachs!'
I could give a long list of examples and detailed analyses, but my secondary point is that a culture of corruption is enabled partly through talking things to death in abstruse legalistic terms, until everyone is so tired that they become demoralized and lose any motivation to do anything about it.
The US Constitution (not the only operative document, but an important one given the financial industry's very deep roots here) contemplates judicial powers to examine questions of both law and equity. Law is complex and if you have the resources you can hire legal specialists to problematize and pull apart just about any legal assertion. In many respects, a dense thicket of petty legalism surrounds a moral vacuum at the heart of society in which substantive questions about fairness and decency as eschewed as too political for judicial engagement; if you'll forgive my stretching a metaphor, much of our 'shining city on a hill' is just elaborate topiary growing atop crumbling foundations.