The most relevant [ETA: US] case I can think of is the Hyatt Regency Walkway Collapse (http://en.wikipedia.org/wiki/Hyatt_Regency_walkway_collapse) in which over 100 people died and the engineers involved lost their licenses. No one went to jail, and this case was actually noteworthy for professional consequences being imposed for negligence.
That's not a 1:1 analogy. Civil engineering is a mature field, and the best practices in design / methods for analyzing structures are very well defined at this point. Effectively regulating the finance industry requires more than following the rules to the letter - also involves who you know, creativity in catching new kinds of misbehavior, and a bit of luck.
There is an argument to be made that we shouldn't allow the finance sector this much creativity. Banking has worked for hundreds of years, and most problems seem to be caused by new phenomena. It may be better to over regulate and then remove certain regulations only when the activities can be proven safe, rather than let everyone go crazy with our money and bankrupt millions of Americans every decade or so.
Right. New financial products/services should be, essentially, "guilty until proven innocent". Regulations should be very tight in the beginning, and then slowly relaxed - say, over 50 years.
By way of analogy, if I create a new kind of medical device, the FDA does not say, "We don't have any regulations that cover that, so it's completely unregulated until we see the need to write some." No way.
But a new financial product, while it can't kill anyone, it can still cause massive damage. (We just got a case study in this in 2008.) The default for any new financial idea should be regulated, not unregulated.
And "but it's not a bank!" doesn't cut it. Mortgage securitization wasn't a bank activity, but it still nearly destroyed the world economy. Repo isn't a bank activity, either, but it played a significant role in the crash. Both are "bank-like" enough that they needed serious regulation. Since the risks were not yet understood, any regulation in place was not nearly stringent enough.
This sounds like Paul Krugman's thesis that the run on the (unregulated) shadow banking system was at the "core of what happened" to cause the crisis and if only it was regulated, the crisis wouldn't have happened.
I am 100% sympathetic to that argument. Every time I hear someone bashing Sarbox because it "stifles innovation" I want to reach into my radio and slap the person who said it. I don't want "innovation" from my retirement fund. I want good stewardship of my money.
"Innovation" is almost always another way of saying "We found another way to gamble with the customer's money."
The entire premise that the banks brought down the economy is complete BS. They just make an easy scapegoat.
The regulators, rating agencies, mortgage lenders, government, GSEs all contributed to people overleveraging, but thats not even the real issue.
The real problem is that the economy has changed, and all but the high skilled jobs are going overseas or being done by machines.
Bankers are not going to jail because they didn't break any laws. People need to stop being parrots and making claims about things they dont understand.
Where did I say banks brought down the economy? Where did I say bankers should go to jail? Did you just see some words you can identify and decide to hang rant #47 on a reply to my comment?
One could say exactly the same thing of the software industry.
You look at the software industry, what do we see? Mild amateurs not encrypting personal data, or not protecting their sensitive data against hacking 101 attacks (we still see sql injections attacks in this day and age!). You see a very large shady industry prospering on invading the privacy of unsuspecting users (and not just the adclick of this world: google, facebook!). In a corporate environment, developers have a similar bad reputation than house builders in term of creating projects that very often take a lot longer that expected, fail, or simply are not fit for purpose.
Does it have no consequences? It has massive consequences and the worst data leaks are probably yet to come. Should we impose heavy regulations on the software industry and curb toxic innovation? It is certainly not an absurd debate. Obviously most people in the software industry will react to this with hostility. They will argue it would negatively affect innovation and progress, that there are good and bad apples, and that one cannot judge an entire industry without a minimum understanding of how it works and how it benefits the economy.
Well guess what: it is the same with the financial industry!
Don't know if this was ever enforced, but in the Code of Hammurabi (~1754 BC), Sections 229 and 230 prescribed capital punishment in the event a builder constructed a house, which then fell and killed someone.
Mass loss of money, while not as direct a cause and effect, can be far more lethal. People not going for checkups they can no longer afford. People scaling back budgets resulting in less healthy choices. People forgoing using costly medication. People moving to cheaper (and less safe) neighborhoods due to money lost. The general increase in stress with the money lost.
Far harder to measure but magnitudes greater damage.
Madoff was sentenced to more prison time than many murderers. Murder and fraud may not be equivalent, but that does not mean that one must necessarily be less serious than the other.
Financial crimes in the US carry some pretty draconian penalties in terms of sentence length. They have to, because if people think financial institutions are going to run off with their savings the whole industry collapses.
In Madoff's case there was an additional issue - the people he defrauded were mostly wealthy and powerful.