[walrus01]

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.

[rayiner]

And you’re 95% certain that bond ratings are what caused the financial crisis?

[walrus01]

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.

[paulsutter]

So tell us then what it was? Good people doing solid work until they were hit by a random black swan event? That’s the official story and it’s absurd.

[kbenson]

I think the implication is that there were multiple causes from multiple sides, all to varying degrees of culpability.

In other words, bond ratings may not be the cause, but still be a cause.

[cycrutchfield]

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.

[walrus01]

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.

[charlesdm]

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.

[Sabinus]

The rich have the ability to make their unethical actions legal, whereas the poor have no such sway in politics.

[cycrutchfield]

It has nothing to do with politics, but it may have something to do with the cost of legal representation.

[rayiner]

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.

[cycrutchfield]

That is how our system of criminal law works, though. We would prefer 100 criminals go free to prevent 1 innocent person from being convicted.

[charlesdm]

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.

[jazzyk]

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.

[URSpider94]

Actually, in the USA, very few financial advisors have a fiduciary duty to their clients.

[jazzyk]

All bigger institutions certainly do. I have worked for quite a few.

[FireBeyond]

And never mind those situations where GS etc were playing both sides, advising one side to buy, others to sell.

They knew through sheer logic that one of these positions was by deduction not tenable.

But they went for it anyway, collecting commissions on both sides.

[icebraining]

Supposedly, that's why they paid "largest penalty ever assessed against a financial services firm in the history of the S.E.C." ($550 million). Unfortunately, I find it hard to believe that's anywhere near enough to dissuade them from doing the same next time.

[matt4077]

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.