[suprgeek]

So the company that was one of lead bad actors in a global crisis that wiped out lots of little folks gets -

No execs (or anybody else) go to Jail

Continues to do business as usual

Pays a small fraction of its profits in fines (but gets to keep the multi-billions of tax-payer money under various govt. programs)

Admits to no wrong doing

Basically a speeding-ticket that gets dismissed when you pony up the cash after being caught drunk driving with dead body stuck on your fender.

[rayiner]

My dad was heavily invested in NASDAQ-listed stocks and lost half his 401k in the 2000 crash. Who on Sand Hill Road should be in prison right now?

[duncanawoods]

The 2000 IPO process was pretty much a pump and dump for both the VCs and IBs. There were legal consequences for bad investment advice and misuse of shareholder money.

According to wikipedia, Citi and Merrill were both fined for this. I don't know who was held legally accountable for misusing shareholder money but there was the worldcom fraud which ended in jail sentences.

[will_brown]

I think most investors w defrauded by Goldman would believe "mid level" individuals like Fabrice Tourre. He was convicted of fraud by the SEC, for selling toxic mortgages to clients that he and a major fund were secretly betting against, costing his clients $1B in loses.

It's quite tacky to name individuals who "should be in prison" without the benefit of all the facts that Gov investigators have. But it's safe to say if a "mid level" guy like Tourre was found guilty, that he was just an actor (w/knowledge) but there must be others more responsible for the fraud.

[Zigurd]

Everyone on Wall Street who wrote insurance-like contacts without insurance-like capital to back thenmshould be prosecuted for selling insurance outside the appropriate regulatory framework.

[tn13]

And interestingly almost all politicians of all hue and color and with capacity to do something seem to be siding with them.

[oceanstone]

Bernie Sanders wants to break up the banks that took bailout money, creating smaller banks that are no longer "too big to fail." What are people's thoughts on this proposal?

[decisiveness]

The type of separation he's talking about would limit the ability of banks to affiliate with each other in a risky manor, as they had leading up to the crisis.

In an attempt to accomplish this, Elizabeth Warren has drafted a reasonable, 21st century take [1] on Glass-Steagall, which Senator Sanders supports.

[1] http://www.warren.senate.gov/files/documents/21stCenturyGlas...

[isnullorempty]

But an investment bank alone can still be too big to fail, it's about the contagion effect caused by the banks being deeply intertwined with each other.

[manuelflara]

I think the key issue is that, if an investment bank fails and takes all of its investors money with it, well that's kind of like a startup failing. Investors know the risk. But right now, if a bank fails due to its bad investments, it can take the money / deposits / savings of many, many people that did not take any risks with their money.

[Lazare]

> But right now, if a bank fails due to its bad investments, it can take the money / deposits / savings of many, many people that did not take any risks with their money.

This is not something which occurred during the GFC. We saw:

1) A significant number of pure retail banks making bad home loans, failing, and losing their depositors money. (Eg, Countrywide.)

2) A small number of pure investment banks (or in one famous case, an insurance company) getting on the wrong side of volatile markets or making exotic bets that went bad, and losing their investors money. (Eg, Lehman.)

3) A number of diversified banks which got into trouble on one side or the other, but were able to weather the storm without significant losses. (Eg, Citi.)

What we did NOT see is any large banks which got into trouble on the investment side, and lost money on the deposit side.

[isnullorempty]

That's assuming investment banks and retail banks aren't connected by being counter-party to each other on all number of contracts. You saw when Lehman failed it almost took out the financial system and banks, insurance companies etc all had to be bailed out.

[rayiner]

In an industry-wide crash, as was the case in 2008, it doesn't really matter whether a dozen smaller banks fail or a few bigger ones do. And on the flip-side, big banks are a lot more efficient than small ones, for the same reason Wal-Mart and Amazon are more efficient than mom-and-pop stores. Everyone loves to hate Amazon, but who wants to go back to the days before same-day drone delivery? Similarly, who wants to go back to the mortgage rates that existed before big banks and securitization?

[imgabe]

If there's a dozen\* small banks it seems less likely that they would all fail at the same time than if there's only three humongous banks. Diversity and all that. Hence, we could limp along with 6/12 small banks rather than being screwed and having no financial system if all 3 major banks go belly up.

\* Specific numbers obviously made up for illustrative purposes only.

[yummyfajitas]

That's true if bank failures are uncorrelated, which is so far from reality as to be an irrelevant assumption.

If this were true, then the US banks should have weathered the financial crisis far better than Canada's (highly consolidated). That's the complete opposite of reality.

[toomuchtodo]

> And on the flip-side, big banks are a lot more efficient than small ones, for the same reason Wal-Mart and Amazon are more efficient than mom-and-pop stores.

I don't care much for efficiency when it allows for the penalty-free violation of the law. Efficiency isn't the end all, be all metric.

[tn13]

I am always opposed to government interfering into private businesses and I don't like think "I will break up big banks" attitude.

I would support a legislation that says no bailout money to any private company ever. If something is too big too fail the investors would shy away from investing into it.

[isnullorempty]

I don't think this is the correct approach, it's not the size of the company that is the problem. In fact large companies (not monopolies) can produce/offer services/products that smaller companies can't due to the scale (i.e. mobile banking). What should happen is the employees or execs responsible should have gone to jail for life for the destruction they caused providing a deterrent effect, and also much stronger regulation policed by a truly independent regulator with the teeth to act.

[simonh]

In China people can be sent to jail for 'causing destruction' but in western countries you have to have been proven, beyond reasonable doubt, to have broken a law.

Most of the activities the banks were carrying out that contributed to the crash were well known long before the crash, and were not illegal and they weren't being called out for it. In fact many politicians and the public were keen for broader availability of cheap loans. So yes, we need better regulation of financial institutions, but there were many causes of the financial crisis and blame lies in many places and many lessons learned, but you can't apply laws retroactively or arbitrarily.

[forgetsusername]

>What are people's thoughts on this proposal?

Have fun competing in the global financial business with massive institutions from other countries.

[lhopki01]

Is it necessarily a bad thing to have a smaller finance sector? The talent won't really do nothing but would go to other sectors. "Winning" finance just means that you're more exposed to the financial crashes. IE compare how Germany fared during the financial crisis compared to the UK.

Edit: removed a unintended global

[x5n1]

The fair and free market with level or shall I say leveled playing fields everybody.

[saiya-jin]

1) government encourages by all means available to them (=plenty) cheap, affordable loans to everybody, reasonable or not.

2) banks jump on the wagon, just as any other business would do having similar chance in their field

3) plenty of folks are plain math-stupid, lending as much as they can and trying even more for outright stupid reasons (ie TV, cars etc.) on top of other loans they already have, usually for housing

4) SHTF, since economy is never stable and we have cycles and whatnot

5) blame the banks, who cares about Clinton's administration allowing and pushing for this in first place. easy part.

the topic is of course more complex, ie derivative trading is/was in some cases pure evil, but that's another topic.

Btw, correct me if I am wrong, but wasn't the money just lended and now it's (being) paid back, maybe even with interest?

[RobertoG]

I don't get it.

How government encouraging something free a business of their responsibility of lending money following good business practices?

How is derivatives another topic? Is not this the real problem?

The money could be paid back, but, as in any investment we should take into account the opportunity cost of that investment. Instead of helping people they are saving banks. Is not there a very strong moral hazard?

Instead of saving big private entities because their fall would crash the world, what if we follow the fashion and start implementing micro-services?

[whatok]

It doesn't free a business of responsibility but if political pressure is put on regulators to treat companies differently depending on whether they played ball, it amounts to about the same thing.

[RobertoG]

Do you have any example of that happening?

Even if this is the case, if my business is a bank, how can I forget about risk assessment just because I could get treated differently by regulators? Is it not my duty to think in what will happen in the next recession? would not be the best action to initiate legal complains? do you know of any legal action initiated by banks because of that?

It seems to me that the simplest explanation is greed.

Somehow, after all we have seen, we try to exculpate the business and throw the guilt in the government. It's a little tiresome.

[saiya-jin]

I'll try to cover both of your posts - government stimulates lending by lowering interest rates for example. This was caused by general initiative of that government to get cheap loans to people, and it was effective. I am not aware of any more direct pressure to the lenders, which doesn't mean there wasn't some.

Derivates being another topic - just to topic of people getting loans beyond their means, overall it's the same crysis topic, and I think we agree that there is no good justification from banks for this part.

Why banks were saved - apart from dirty business of bribery and lobbying which is sad daily part of political existence, there is part about something along: john doe has some money in the bank, this bank goes bust, and he loses it all. There is a chance of getting some % of it in future in settlements, but nothing guaranteed. In that situation, no politician would willingly go there if they can avoid it. It's too easy to start pointing on them, and everybody takes it badly if they lose money because of somebody else's mistake.

What happened in the banks - bonuses, based only on last year's performance. Source of a good deal of evil roaming banking (and trading too). It means many pushing for short-term gains, not caring about broader or longer effects. People are clever, they want to maximize their own gain within boundaries set, and these things are set like this. Nobody works in banking for the passion for the job, everybody is in for the money involved, and an occasional feel of some power/influence (however pathetic this is, some people are wired like that).

[tamana]

Goldman Sachs risk assessment division assessed risks to them very accurately.

[jevgeni]

Could you elaborate on the multi-billion gov't subsidies to GS?

[Ntrails]

"Oh Shit. Banks are in trouble. Lets offer them emergency capital so they can make it through the year.

GS uses the capital to buy government bonds with governments own money to make literally riskless profit."

I have zero sources for this, so if I'm wrong please say

[jevgeni]

I think you mean the TARP/TALF programs.[1] They were loans with very specific conditions and costs. Meaning banks had to pay interest on those loans to the U.S. government, which was definitely above the U.S. government interest rates. As far as I remember, Goldman was one of the first Wall Street banks to pay those loans back (including interest). The programs ended up being profitable to the Treasury and by implication, the American tax payer. See the linked website for more details.

The reason some banks started using the money from those programs to buy up government debt, is to make their books more solid, or in other words, make the money market believe that they won't go bankrupt any time soon and start lending them money again. For example, if I have $5000 and bet all of it on horse races, and then immediately ask you to loan me $100 more, you'd be sceptical. If, on the other hand, I bet $2500 on horse racing, put the other $2500 in a deposit box, and ask you to loan me $100 for cab fare, the deal would seem a bit more solid, right?

There is another argument, that international banks profited hugely from the AIG bailout, and that the bankers were unprofessional for not foreseeing a possible AIG collapse. That is only partially true. Yes, the bailout money allowed AIG to honour its contracts with the banks.

But AIG was an insurance company and the things it sold to banks (Credit Default Swaps) were insurance against selected companies going bust. For example, if I loan Apple 50 billion dollars, I want to insure the whole deal for the very slim chance Apple goes bust. In 2008 a lot of companies started to go bust, hence AIG had to pay out a lot. So much, in fact, that it would go bankrupt.

If I change the words, and say that American machinery manufacturers insured their factories against possible fires with insurance company A, but due some freak accident all the factories started burning, so the government had to step in and bail out company A, so they could pay out the insurance policies. Doesn't seem so preposterous, does it?

___

[1] - https://www.treasury.gov/initiatives/financial-stability/TAR...

[HCIdivision17]

I really like your explanation, and especially the final analogy. Sets the tone that we should be concerned with figuring out why all those factories are burning down. That shouldn't happen naturally. But you would generally not get in the way of the fire trucks putting the fired out: urgent and immediate help is needed, even if it's costly. Besides, the bill gets sent to the company in the end.

[gadders]

What about the government people that encouraged "Ninja" loans to people who couldn't afford to repay them?

[wavefunction]

Nobody forced anyone to make any loans, and I will note that the folks working in the finance industry are supposed to be finance professionals well-versed in risk assessment and a strong inclination to make smart investments. Or they're supposed to be.

[forgetsusername]

>Basically a speeding-ticket that gets dismissed when you pony up the cash after being caught drunk driving with dead body stuck on your fender.

If only they would have put you on the case instead of Federal investigators, I'm sure all of these alleged crimes would have been proven to a legal standard, I suppose?

Business as usual? The banking sector has shed hundreds of thousands of jobs, paid billions in fines, faces increased scrutiny and the executives have been pilloried without crimes being proven.

I wish I could go back in time to 2001 when Hacker News was calling for the heads of VC firms and tech-stock CEOs for perpetuating a fraud on the people and causing a financial crash. But that didn't really happen; instead many people when to work for them.