There Oughta Be A Law!

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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

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So if one company does something dumb it's a crime, but if they all do it together with predictable and obviously forseeable bad consequences, it's OK?

When the law says 'must be reasonable and customary,' well, yes, we're sorta stuck, unless we decide we're ok with post facto law-making.

Holding a reserve against bad times is a basic element of fiscal responsibility. The fact that all the financial elites decided as a group that this was not necessary doesn't change this.

Indeed. And what happened was not 'no one held a reserve against bad times.' What happened was 'everyone simultaneously held too little reserve, because they had progressively backed into it, because it hadn't blown up yet and appeared to be working.' The only ways to prevent that are either to never do anything we haven't always done, or to have an effective system that creates a counter-vailing control mechanism. We used to think that Federal Banking regulators were the way to create that control mechanism, but I'm not convinced - it looks to me like responsive democracies make regulatory agencies not just vulnerable to capture but practically subject to it. Which means we need different ways to balance the feedback system.

Basically, the argument that criminal negligence was NOT involved boils down to:
1) Our models said it was OK. Everyone elses' models did too. So we did it, even though it defies logic and common sense.
2) Well, obviously our models were bad. But we all acting according to our models which we thought were good. Even though they were obviously founded on fiction. So because everyone is guilty, no one is.

You're leaving out the element of time. No one woke up on August 8th, 2007 and said 'I think I'll push the world financial system off a cliff.' They didn't even set out in 2000 to create a housing bubble by lowering US interest rates. What did happen was that a lot of decisions were made in a row, by entirely unrelated people, many of whom weren't communicating with each other, which added together made the system much more synchronized and much more fragile. And if we spend our time trying to find out 'Who decided to push the financial system off the cliff?' and bring them to justice, instead of spending our time addressing the fact that we have a regulatory system that can't work, we're going to have financial crises more frequently (approaching historical levels) rather than less.