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

[kat1031.livejournal.com]

Those who were and are involved in instances of fraud (robo-signers, brokers who mis-stated incomes/assets and appraisers who inflated values of homes, plus all those above them in the chain who specified that it should be done) should be prosecuted for fraud.

I'm not sure if there's a criminal case for breach of fiduciary duty at the federal level, but if there is, I wouldn't be adverse to seeing some trials for that.

[xthread.livejournal.com]

On the first case sold, and State AGs have been pursuing such cases.. Paradoxically, while there are enough of them to give State Prosecutors fits because of too much case load, my understanding is that they weren't a large enough part of the overall market volume to move the market.

Do you think that those are a substantial fraction of all loans approved in the last decade? (I'm particularly interested if the answer to that question is 'yes,' by the way)

WRT breach of fiduciary duty... that's a very hard case to make. There's plenty of stupid to go around, but if we start locking people up for stupid, well, that's going to be a difficult world to live in. Certainly anybody who said 'there's a lot of dodgy loans in this portfolio, we should paper over that and sell them anyway,' has a solid bullseye on their forehead for civil fraud and quite probably criminal, but everything I've read anywhere points out that there was a lot more buyer-side throwing caution to the wind than there was seller-side skullduggery. The sellers were disclosing 'this is a high-risk product' and the buyers were then cheerfully buying, on the theory that 'hey, the market can't crash everywhere at once at the same time, the mortgages are insured by the Fed and the bonds are insured by AIG, somebody will have money we can recover from.'

[kat1031.livejournal.com]

I don't have any solid facts, but based on my experience with what happened in Vegas, I'd say that the proportion of loans in which there was fraud is not insignificant. It's obviously not "all" and it's likely not even "most", but I know that I was lied to by a broker, and I do believe that they artificially inflated the value of my house at one point. Fortunately, I'm informed and I do know that adjustable-rate mortgages are based on LIBOR and that LIBOR (especially during the downward end of the boom was moving around A LOT, which made getting an ARM stupid because it was going to adjust up rapidly and by a large number).

I was nearly yelled at by a notary because I wanted to read the documents I was signing. (I was told that they'd sent over a copy for review yesterday. I replied that yes, they did, but that document wasn't the document I was actually signing today and I was going to read anything I was being legally bound to and if they wanted this transaction complete, she was going to sit there, shut up and let me read.)

Yes, all anecdotal, but I'm inclined to believe that things like that weren't rare and they also weren't the worst.

Re: fiduciary duty, yeah, it's always really hard to prove. It's amazing to me that more people haven't been fired over this. I would bet that if I made a decision in my job that effed my company over to the extent that some of these decisions did to financial companies, my services would no longer be required.

[xthread.livejournal.com]

They weren't rare in any of the parts of the country where housing was holding up the economy.. Vegas was particularly one of those (along with Phoenix, Southern California, and the South Florida)..

More in a minute, I'm still chewing on the rest of the followup.

[kest]

Kat, remind me, would you, how you got in here? Was it my fault, or is this just another instance of it being too small a world?

[kat1031.livejournal.com]

I think it was your fault.

[kest]

oh, ok. that's ok then. next time you're in town we should drag Mr. xthread out for a drink or something.