After seeing how few senior financial industry people went to prison for their work that directly caused the 2007-2009 economic crisis, I'm highly skeptical that justice will actually be served.
I'd love to hear which specific person did which specific thing that you believe "directly caused the 2007-2009 economic crisis."
Identifying a "direct cause" of the 2007-2009 financial crisis, with certainty exceeding 90-95% (the "reasonable doubt" threshold) would be worthy of a Nobel Memorial Prize, in my estimation.
a) the people who paid off the bond rating agencies to rate mortgage-backed securities full of junk mortgages as AAA.
b) the senior executives at institutions like bear stearns who signed off on creating the mortgage backed securities and their known composition of shit mortgages.
c) the senior executives at the rating agencies who knowingly rated shit bonds as AAA.
d) senior executives at institutions like Countrywide which pumped the shit mortgages into the market.
no, at a more fundamental level before the ratings agencies ever saw them, the composition of the mortgage-backed securities and their tranches. The number of no-documentation/no-income mortgages that were rolled together into securitized products by the clients of the ratings agencies.
For all of those you would need definitive proof that those decisions were made with criminal intent to commit fraud. That is a very high evidentiary standard to clear, which is why these cases are so hard to prosecute.
Even the Enron case, which was a pretty clear case of fraud, took the government 5 years to build a case and win in court.
So, while all of those things you mention do indeed sound bad, they are incredibly difficult to prove in a criminal trial.
While I don't disagree with your points, it boils down to a defense by the persons accused of "We, titans of industry of finance, were so clueless, inept and incompetent that this unexpected thing happened. We definitely weren't intentionally trying to defraud anyone!". Doesn't exactly sound like a ringing endorsement for people whose yearly salaries are >$500,000.
Making profits unethically doesn't necessarily mean it's fraud. The two things are very different.
I can knowingly sell you a crappy car, and if you sign an agreement that you bought and accepted the good in its current state, that's that. Yes, I acted unethically, but I didn't defraud you.
First, that's not the defense. The defense is that the 2007-2009 recession was a "black swan" event resulting from a confluence of factors that nobody expected. To date, I'm not aware of any economic work that points, with 95%+ certainty, to a specific cause of the recession.
Second, a successful prosecution requires proof beyond a reasonable doubt that a specific person performed each element of specific crimes. Defendants do not need to even present a defense--and in fact sometimes do not, relying entirely on poking holes in the government's case.
Both b and d are most definitely not illegal -- deceptive yes, but not illegal.
If I sell you a crappy asset (imagine a company almost going bankrupt) for $10m and you don't do proper due diligence on said asset, then you have no right of complaining afterwards. No one is going to do your homework.
If I am your client, you have fiduciary responsibility to warn me - I am paying you commission to do due diligence.
If you know it is a crappy product, and don;t warn me, it is at the very least a SEC violation, punishable. Could also be viewed as fraud, and pursued as a crime.
Nobody "paid off the rating agencies". Or, more accurately: everyone did. It was standard practice for the rating agencies to be paid by those being rated.
Now that's obviously not a terribly smart idea. But there's simply no way to blame any single individual when none of them had the power to the system by themselves. I mean: quite obviously the companies being rated would have loved for others to bear the costs for it.
There are organizations, financial institutions, executives, investors, businesses, etc. that did not deserve jail, but did deserve to lose financially.
Instead, some lost their sort and others were shielded with $100,000,000,000s of taxpayer money.
The kinds of people that supported this flagrant graft are despicable. Probably not jailable (I mean most politicians and even the president supported bailing out asset holders), but more despicable than Zuckerberg or most of the scapegoats you see in the news.
Of everyone involved, I would love to see the rating agencies and their corporate officers get charged with fraud for rating the bundles of crappy mortgages AAA.
It's a rough estimate to help you grok the concept, and is widely taught in law school. It is best viewed in comparison to another standard like "preponderance of the evidence" or "more likely than not" (51%)
Are you advocating that the US government should just charge people with crimes that haven't been investigated and they have perhaps no evidence for, just to see if a jury will convict them?
That can be easily refuted by saying “do you really think that all big bank executives didn’t know what was going on and decided to ride the money wave”?
Knowing that one or more people of a group have done something doesn't necessarily lead to knowing which ones, or having proof of them doing that thing. (much less proof of knowing, which is what you are saying).
“Where there is smoke there is fire” is not a doctrine of criminal law. Also, by that token, who should we have prosecuted for the 2000 tech-related crash?
the dotcom 1.0 crash had a lot of irrational exuberance, where VC money was raised and pissed away for ideas that wouldn't work at the time (beenz, flooz, pets.com, webvan, etc). Then there was the outright fraud like Enron and Worldcom.
Eric Holder, the attorney general at the time, did not prosecute bankers for the 2008 recession. The attorney general did prosecute people responsible for the issues in the dot com crash.
How is that comparable? Holder even stated, "I am concerned that the size of some of these institutions becomes so large that it does become difficult to prosecute them" because it might damage the economy. That is not an aspect the AG should be considering. They should be upholding the rule of law which did not occur after the 2008 crisis
Madoff and Alan Stanford went to jail. although unrelated to the 2008 financial crisis, is evidence white collar criminals can in fact get very punitive sentences. In the case of the 2008 crisis, the link between the actions of any one individual and the crisis itself is more tenuous. The problem was no so much maleficence, but underestimating risk. The risk management models these banks were using could not have foreseen such a large and sudden catastrophic failure. You cannot put people in jail for failing to account for tail risk. Second, the crisis was possibly also caused by poor government policy, such as programs creating incentives for low-income homeowners who may have not have had good credit.
there is fairly strong evidence that repeal of the glass-steagall act was a contributing factor to the environment that allowed investment/securities firms to get out of control in the 2001-2008 time period:
Well, what do you expect? Of the last four secretaries of the treasury, not counting the acting ones who had the job briefly, three were from Goldman Sachs. The other one was from Citicorp.
I'm pretty sure it's not possible to find congress guilty of breaking the law by using the power vested in them by the Constitution. I think the closest you could come would be laws being ratified that the Supreme court then determined (from a case being brought) that infringed on constitutional rights, in which case that portion of the law is struck, but IANAL.
Virtually nobody went to jail because the govt was complicit in the whole scheme to a) boost the economy through debt creation and b) push loans for sub-prime borrowers (specifically targeting minorities) to get buy-in for the "American Dream" of home ownership for "disadvantaged" groups.
Moreover (and probably more important) is that the parties involved except the govt all had plausible deniability in that they could point to the other parties to deflect blame. I say "except the govt" because they were the ones who were pushing the banks to lower loan standards for minorities, backing the GSE's with explicit loan guarantees and encouraging home ownership as the essence of the American dream to minorities. The mechanics or mistakes of how it was done, with CDO's or inflated credit ratings or even fraud, were a consequence of the govt pressure applied. Also, this was not an explicit policy written into regs & etc. but an implicit policy imposed by threats or hints by agencies that had a lot of power over the banking, mortgage and credit markets they regulate.
In medical the standards are a little higher so they may be found as having violated medical regulations.
What I am curious about is whether Holmes will in the end have made any money with Theranos. She should lose everything and then some more but I suspect she will still end up with a few million in the bank or in houses.
Identifying a "direct cause" of the 2007-2009 financial crisis, with certainty exceeding 90-95% (the "reasonable doubt" threshold) would be worthy of a Nobel Memorial Prize, in my estimation.