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

[electricpaladin.livejournal.com]

I think what a lot of people are reacting to is the blatant immortality of some American business practices. We've made a system where people do whatever it takes to get ahead, regardless of what happens to anyone else. It doesn't seem that our financial leaders feel any obligation to their community, their country, or even their own employees.

It's hard to get into this topic without tripping up on some of the basic problems with capitalism - and pointing out the problems with capitalism is (*gasp!*) communism, so a lot of people shy away from it and end up sounding merely outraged.

As for myself, I don't think they should be in jail now. You're right - it's unconstitutional to make something retroactively illegal. The business practices they indulged in were legal at the time, so they're off the hook. However, I do believe that the mortgage meltdown should cause us to re-examine some of our basic assumptions about how we distribute resources in this country.

[dr-memory.livejournal.com]

Anyone and everyone involved in the "Office of Special Plans" debacle, up to and including Dick Cheney.

I'm really not overly fussed about precisely what charge, although "high treason" has a nice ring to it.

[davidlevine]

Everyone involved in approving loans for people who were not actually able to pay them -- as defined by generally accepted standards and practices in force at the time -- should be jailed.

I also think a case could be made for jailing those who reduced the standards to the point that the standards could be met by people whom common sense would indicate they couldn't possibly pay (on grounds of failing to fulfill fiduciary obligations to the bank).

[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.

Oops, you triggered a lawyer....

[judith-s.livejournal.com]

1. There is a world of difference between something that is illegal (e.g. mortgage fraud, as practiced by many lenders and brokers) and something that is prosecuted. It appears that while it certainly was illegal to write many of those mortgage contracts, none or very few of the folks involved have been prosecuted. This oversight, if we can call it that, is what many of us would like changed.

2. There was very clear fraud in the bundling of mortgages, some of which is being litigated now under civil laws. Again, fraud is illegal, but this does not mean that it is prosecuted. It should be.

3. If you want the specific statutes violated, you know you can always ask me. :)

4. The fraud in the foreclosure industry has been exposed quite thoroughly as well. Signing legal documents fraudulently is quite illegal. And yet, I don't see large prosecutions there either.

5. Also, while we're at it, I believe we should prosecute the Office of the Comptroller of the Currency, but that was is much harder (it requires proving willful disregard, which is quite tricky). If you need more on that, read Watters v. Wachovia Bank (Supreme Court, 2007).

admittedly off topic...

[allessindra.livejournal.com]

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.

well, they can start making room for the stupid-in-this-particular-way-on-the-side-of-the-lending by releasing all the (IMO) foolishly imprisoned 'victimless crime' committers (mostly zero tolerance mandatory sentenced drug 'dealers').

If we're going to lock up stupid, let's lock up the ones who were stupid at other people, thus harming the entire frekking economy, as opposed to those who were arguably mostly stupid just to themselves.

[rowyn]

No, really, there shouldn't be a law. Laws and prisons have their place, but the fact is that most problems in this world are not best solved by throwing people in prisons.

[dixiemouse.livejournal.com]

While there was certainly a good amount of fraud that went on (as previously covered)... there was also a certain number of people that bought more than they could afford on the "interest only" type loans, thinking they would just take care of it "later".

Now, are these types of loans shady? Yes. But if you are going to be greedy or personally negligent, then is it someone else's responsibility?

The problem with tossing people in jail it that there are at least two different groups that were affected, and in one group you would be jailing people that may not be as responsible.

[feyandstrange.livejournal.com]

I suspect that a lot of "predatory lending" occurred, much of which was gray or actually illegal (an awful lot of those mortgages are being retconned now because a team of lawyers goes through them and finds illegalities or proves that there's a possibility of defrauding or predatory intent). That's probably not a jail time offense, I forget now; fines vs the institution as a whole?

IIRC there was a lot of dodgy business practice, and some of that was so actively harmful (S&Ls basing their whole inventory on crappy mortgage debt sort of things) that it should be regulated to keep harm from happening to the innocent customers (e.g. the victims of predatory lending or who just happened to have savings accounts at Bank of Stupidly Uncapitalized Junk MOrtgages, not the investors). Basel 3 and all that, oh god I'm in no condition to discuss this right now arrrrgh.

[blue-estro.livejournal.com]

Setting aside legality and rational, etc, I think folks who want those responsible jailed aren't getting it for other reasons.

Jailing folks is *expensive*. Fine the fuckers. :}

[gravitrue.livejournal.com]

I don't think there are good answers out there about why Lehman was allowed to crash (with naked shorts contributing, no less; were any of those prosecuted?) and no-one else. I suspect there never will be any investigation into this. I have no theories or suspicions, but it would not surprise me in the least if there was illegal collusion and perhaps big payoffs involved at CEO and Treasury Secretary levels.

[feyandstrange.livejournal.com]

Another thing: didn't we arrest a bunch of people already? Or are people forgetting those Bear Sterns perp walks?

[bemused-leftist.livejournal.com]

Well, jail is a strawman here.

[apostle-of-eris.livejournal.com]

There were oceans of outright FRAUD.
If the laws already on the books were actually enforced, several financial districts would have been depopulated.
Since several excellent books on the details are available, I'll leave your Googling to you.

[corpsefairy.livejournal.com]

FWIW, I don't know if this is what you intended, but the way you framed this really sounds as if you're saying, "I know all about what happened and how it works, but I'm not going to tell you. Now, defend yourself!"

It's kinda condescending.

[a-steep-hill.livejournal.com]

I saw this and didn't have time to post an elaborate response. But fortunately someone did my work for me.

At least some of the bigwigs at some of the major dealer/trader banks/departments (which are rightly distinguished from boring old commercial banks) can almost certainly be prosecuted under Sarbanes-Oxley.

Note that the law requires the CEO and CFO (at least) to certify their knowledge of the bank's position and the soundness of its risk practices. Ignorance is no defense: if you didn't know, and you said you did, you're guilty. If you failed to certify, you're guilty.

To this I would also add: criminal prosecution of large chunks of the mortgage origination and securitization industries. The abuse of well-established real estate law (i.e. blowing it off completely) in the securitization and transfer of mortgages is well established and quite widespread, if you read past the MSM version of the situation (a few isolated incidents, my ass). If the (again, well established) laws are taken at all seriously, then quite a few individuals are guilty of selling things as mortgage-backed securities which were nothing of the sort: the transfer of the note was not done according to the law, and so it is invalid, and so the MBS is in fact just an empty piece of paper. So there should be some good opportunities for prosecution there.

There is probably also some opportunity to be found by looking for violations of fiduciary responsibility. I am not an expert on the concept, but selling a client a bunch of securities while simultaneously betting against those same securities (i.e. selling short) seems like it would be a violation of fiduciary responsibility. Perhaps not (in which case, we need to update the definition), but hey, we've got plenty to work with in the first two categories.

All this would be expensive and time consuming, and certainly be a net money loser for the DOJ and everyone else involved - I have no pretense that the fines and clawbacks would be even close to covering the cost of prosecution. But that's not the point. The point is to remind these "masters of the universe" that they are not above the law.

Except that they are. As recent events have made apparent. Welcome to the Plutocratic States of America. Your servant's livery will be delivered shortly.