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]

The point is that the rules apply, and it shouldn't matter if you're a financial elite, and it shouldn't matter if some of your products aren't crap. Even if you're producing 100% good deals, it shouldn't matter, your ass should still be in a sling (though granted in that case, probably nobody notices that you broke the rules).

But there weren't rules against the things that people did that broke the system.
I don't dispute that rule-breakers exist who have not been prosecuted for breaking rules. But the rules that people broke, by and large, and the people who broke them, have little or nothing to do with the problem we're talking about. If we apply the Sarbox test you suggested, the loans you're angry about were perfectly reasonable.

The point is that these deals were constructed while completely ignoring decades of well established precedent, because the requirements of precedent were inconvenient. Partly as a consequence of this, some percentage of the deals went bad. But all the deals so constructed were fraudulent and illegal.

Please clarify what you mean by 'all the deals' - Are you arguing that any sub-prime mortgage anywhere is illegal? That a no-income-no-down-payment loan is illegal?

It doesn't matter what the outcome was in a particular case. Lots of people played fast and loose with the rules, and there need to be serious penalties for them (or, better, for their bosses who instructed them to do so. Legal discovery is a powerful tool.)

Do you think their bosses told them to break rules? Or did they just go where the money was?

[a-steep-hill.livejournal.com]

You seem to be missing my point. I'm not talking about issues with loan origination at all at this point (that's an issue, but not the point of the last couple of posts). I'm talking about all the malfeasance that happened around the transfer and bundling of the loans into derivatives of various sorts. In MSM terms, robosigning, though that's just the tip of the iceberg. Forged alonges, misuse of MERS, etc.

There was tremendous pressure to do these deals at an accelerated rate during the boom. As a result corners were cut to the point that the square became a circle. This behavior appears to have been very widespread, and the result is that mortgages were by and large never legally conveyed to the derivative vehicles that carried them. The fact that half the mortgages were crap is secondary to the fact that, good mortgage or not, if the conveyance was not done legally then the mortgage-backed security was never actually backed by a mortgage. Thus, fraud against investors and violation of real estate law to the detriment of homeowners.

The people who actually committed these acts were, for the most part, wage slaves. But they acted on orders - yes, I do believe their bosses told them to do these things, because following the rules would have taken too long and slowed down the system. If the fraud were being prosecuted as such, it would not take long for this pattern to come to light. But it's not going to happen, because the overriding imperative of this administration is to return to business as usual (however slimy, illegal, or unsustainable that might be) as quickly as possible. Actually prosecuting the bad actors would slow that down, and cast a pall on the system as the depth and widespread nature of the misbehavior became apparent.

[xthread.livejournal.com]

You're right, I was missing your point - you're, fundamentally, flaming people like Countrywide much more than you're flaming people like, say, Lehman, which I'd missed.

Except that Mr Mozilo, the relevant executive, has received the largest SEC fine ever ($67.5 Million), and been permanently barred from being an officer or board member of a public company. Which may not be the same as 'imprisoned for life,' but does seem rather a far cry from 'slap on the wrist,' nu?

Actually prosecuting the bad actors would slow that down, and cast a pall on the system as the depth and widespread nature of the misbehavior became apparent

Well, prosecuting the bad actors would cast a pall on the system as everybody who wasn't violating the law got swept up into discovery as well. There's an awful lot of baby in that bathwater.

[a-steep-hill.livejournal.com]

I think that the Lehman's and AIG's also have plenty to answer for, that just wasn't my point in this thread.

I don't know if Mr. Mozilo's penalty really amounts to much. What was his net worth? What's left after the fine? If he's still more than middle-class, the fine wasn't nearly large enough.

And all the major banks have extensive problems with their mortgage paper trails. So Mozilo may have been made the fall guy, but there are folks at BofA, Wells Fargo, Citibank, etc who need to go through the same ringer.

Well, prosecuting the bad actors would cast a pall on the system as everybody who wasn't violating the law got swept up into discovery as well. There's an awful lot of baby in that bathwater.

Maybe so, but I think they would find lots and lots of rotten bathwater. But even if they didn't, we have a choice: prosecute the banksters, or keep paying Danegeld. Whatever the damage, it's going to be cheaper to clean up the rot now than to keep sweeping it under the rug.

[xthread.livejournal.com]

I don't know if Mr. Mozilo's penalty really amounts to much. What was his net worth? What's left after the fine? If he's still more than middle-class, the fine wasn't nearly large enough.

Um, being permanently barred from employment is peanuts? Do you really mean that?

So Mozilo may have been made the fall guy, but there are folks at BofA, Wells Fargo, Citibank, etc who need to go through the same ringer.

BofA's mortgage trail is Countrywide's. And the reason that Mozilo went down was because he was the founder of Countrywide. Y'know, the people who brought us subprime mortgage securitization in the first place?

Maybe so, but I think they would find lots and lots of rotten bathwater. But even if they didn't, we have a choice: prosecute the banksters, or keep paying Danegeld. Whatever the damage, it's going to be cheaper to clean up the rot now than to keep sweeping it under the rug.

So, what's your test? How would you be able to tell if the banksters were being prosecuted?
(I'm going to assume that you don't actually mean 'I would be willing to entirely crash the US economy to root out any fraud in the financial system')