There Oughta Be A Law!

[xthread]

In another venue, someone argued 'the people who caused the mortgage meltdown be in jail?!'

I don't know if any of you, dear readers, happen to hold that view, but, if you do, would you be so kind as to tell me, in general terms, who you think ought to be in jail, and in specific terms, what you think they should be in jail for?

Let me note two important things at the outset: remember that lying to people is usually only against the law if you're doing so to cheat them out of money (which is why Bernie Madoff is in jail), and it's unconstitutional to make laws that make something retroactively illegal.

Got your moral outrage ready? Go!

Comments

[xthread.livejournal.com]

Yeah, but we keep coming back to 'what's a lot?'
The numbers that Judith is pulling up suggest that fraud was less of a problem even than I think it was, which surprises me - her data is suggesting that fraud rates were on the order of 1 in a thousand. At rates that low, I'm not sure we'd even know if everyone responsible had gone to jail, because it's so few cases.

[feyandstrange.livejournal.com]

I would have to set "a lot" as some percentage of the bank's customers, for instance.

And I haven't seen the other data yet (and am likely too stupid to comprehend properly) but I know a lot of those mortgages are still being sifted for possible fraud, so the numbers are still coming in. For instance, anyone now trying to get out of an underwater mortgage is advised to consider having the mortgage examined for improper lending. (Not all of those will be improper in the fraud sense, it's easy to misplace a signature sheet in those huge stacks of papers. But anything wrong makes it easier to get out of the mortgage.)

I also think there was some higher-level fraud going on among the mortgage repackagers as well? Or was that all just dodgy and not actually illegal? (Am still a little boggled that anyone thought it was a good idea to *invest* in packages of high-risk mortgages financing 100% of a buy, but WTF.)

[xthread.livejournal.com]

Rafts and rafts of dodgy. The very occasionally actually illegal, but almost exclusively an extremely careful parsing of 'what are we required by law to disclose?' There are a bunch of known cases of a buyer pushing specific groups of mortgages together into the same collateralized bond so that they could short against the bond, but that's legal so long as you tell everyone that you're doing it and so long as you don't disguise your own interest in the holdings.

There is at least one significant case where a firm directed Goldman to assemble a very specific set of securities together into a synthetic fund and then offer that bundle for sale without revealing that the firm had directed what mortgages were going to be bundled together, and those people are having some very uncomfortable conversations with the New York State financial crimes folks right now. But that sort of thing was.. unusually egregious.

[kest]

I thought that part of the problem with the packages was that it was very hard to tell that they were full of high-risk mortgatges, because they were so well mixed in with other stuff. Like if you make a soup and put a bit of dodgy meat in it, and it tastes fine, and someone else who is an expert tastes it and says 'oh yes, this is really high quality soup!' and then everyone gets sick after.

[xthread.livejournal.com]

Not so much - groupthink had a lot more impact - 'Everyone else has made a lot of money doing this, so it must be safe. If I don't do it, I will miss out on all that money I could be making, so I must do it, even if it is risky.' Oh, and I would dearly love to find the relevant US Trade Representatives who went around helping foreigners think that AIG was fully backed by the US Gov't and beat them repeatedly with a stick. But they didn't do anything illegal, just really, really stupid.

[kest]

cite, please, on who thought what was 'risky'. I am definitely under the impression that the ratings agencies stamping everything A-OK without really looking at it (possibly deliberately) was a big part of the problem. And if you're talking about putting the dodgy meat in in the first place, well, housing prices always go up, right? (I'm down with not illegal, just really stupid - if you'll remember my first comment, I only think that the stupidity *should* have been illegal, not that it was.)