April 4, 2010

Why no arrests of Banksters yet in 2008 collapse?

A year and a half after the financial crash of 2008, no major Wall Street figures have been arrested (except for loners like Bernie Madoff). There has been much discussion of how to improve financial regulation, but it's clear that A) It's very complicated and B) Clever guys on Wall St. would probably find ways to outsmart not-as-clever civil servants.

So, it's totally impossible to impose some level of deterrence on future Wall Streeters, right? How can the government write rules ahead of time that will prevent firms from engaging in dubious behavior that hasn't been dreamed up yet?

Fortunately, there's another form of deterrence. As Voltaire said after the British navy messed up and lost the island of Minorca to the French: The English like to shoot an admiral now and then to encourage the others. We can encourage future banksters by what we do to the old banksters.

Now, shooting is probably a little much, but why not imprison a few 8-figure per year bank officers? That will put a little fear in future banksters. That will make them cautious about exploiting loopholes they find in regulations.

You may say, but that's the problem, they didn't violate any laws.

And I say, I've watched Law & Order. There are a lot of laws out there. Creative prosecutors can improvise. I've seen the feds put Martha Stewart in prison even a after they found out that she was innocent of what they started investigating her for. And Martha Stewart didn't lose a trillion dollars of the public's money. 

61 comments:

Anonymous said...

I'm half serious about this...

It can certainly be argued that Wall Street's bad behavior harmed more people than any terrorist attack ever has. Obama should declare some bankers "terrorists", round them up in the middle of the night, and ship them to Gitmo before anybody has a chance to react. I'm sure the federal judiciary will order them returned, but an awful lot of waterboarding could be carried out before that happens.

Let's see if the Neocons still like unchecked executive power after that.

Anonymous said...

That's a non-starter. Locking up bankers in jail is anti-Semitic and you know it -- so don't even go there!

Anonymous said...

hang 'em high:

http://www.rollingstone.com/politics/story/32906678/looting_main_street

Anonymous said...

Fearless prediction: Rejection rates by Komment Kontrol on this thread will run around 75% [or more].

Nenad said...

Steve, I really like your blog and respect your opinions, but in this case... you simply don't know what you are talking about. Please consider that it took several decades to properly examine the causes of Great Depression. "The bankers" non only didn't break any laws, they actually didn't cost taxpayers a dime - the loans have been repaid, Uncle Sam pocketed a cool billion from Goldman, even AIG is on its way to repaying the money. I do know that Wall St. people are very unpopular (they are assumed to make a lot of money, and nobody knows what is it that they actually do), but so were the Jews at one time or another. I hope you'll keep writing thoughtful and well research posts in the future.

John said...

Minorca, not Malta.

(The latter the British took from the French in 1800.)

Anonymous said...

Because it's anti-Semitic.

Harry Baldwin said...

Wouldn't Obama tend to prosecute only those bankers who didn't contribute heavily to his campaign? That would seem to shield most of them.

If, during the confirmation hearings for big shots put up for cabinet positions, it turns out that they haven't paid their taxes, I think they should be immediately prosecuted. It would be very "encouraging" to see Tim Geithner go to jail.

If the government is going to prosecute Martha Stewart, surely it should prosecute Charlie Rangel, whose tax evasion was so brazen.

sj071 said...

'Obama should declare some bankers "terrorists", round them up in the middle of the night, and ship them to Gitmo before anybody has a chance to react.'

We are really busy right now rounding up White Supremacists but we are also working on a cunnning plan to ensnare sleazy banksters...

Anonymous said...

Minorca, not Malta. I like the idea though.

Thrasymachus said...

Maybe I'll win the lottery and buy my own private island in the South Pacific. Hey, it could happen.

Anonymous said...

In the past when the govt had to bail out a financial institution they would sieze it, assign the assets and deposits (liabilities) to whomever they could get to take it (probably with a sweetener to do away with the looses) and the equity would be wiped out and all the employees from CEO to tellers would be out of a job. There is some incentive to run a bank soundly.

By the way why is no onw interested in the fact that the Fed is breaking clear unambigious black letter law by purchasing toxic mortgage securities. This stuff is not only not backed by full faith and credit of USG, it is clearly worth less than par. The fed bal sheet has lots of stuff not worth what it claims to be worth, is not secured by the USG and is unmarketable. Unless the US Attorney general or the press takes an interest I guess this just happens

Whiskey said...

Wrong solution Steve. The problem is the lawmakers, not the bankers. The Lawmakers, from Iceland, to Ireland, to Italy, to Spain, to Greece, to the UK, used banks and the banking system, particularly investment banks, as political patronage operations. The cajas in Spain, run by the regional governments as piggy banks, are the equivalent to the Fannie/Freddie disaster.

What caused the financial crisis, which was global (not restricted to the US and lots of loans to immigrant strawberry pickers who could not pay things back, which did not help but had no effect on Iceland)?

Too much money pumped into the system to buy employment, political patronage, and "push rope" upwards to create the illusion of growth. Only Germany pursued sound fiscal policies among the major powers, heck even Japan poured cement on anything that wouldn't move with I-bank help, and got nothing for it.

I don't like Ron Paul, but here he is right -- the gold standard has many drawbacks but one virtue -- it prevents printing money and the crashes that printing it generates.

Chief Seattle said...

Starting with Greenspan and a few of his cronies is a pretty darn good idea. The guy pretends to know everything until it all falls apart. Then he pretends to be an innocent bystander.

A public whipping would be better than a bullet, but I'd settle for giving him life in a supermax.

anony-mouse said...

Here are some of the names of people not charged in the Icelandic banking collapse, proportionally the biggest banking collapse ever (according to Wikipedia):

Jon Asgeir Johannesson (sp?)
Johannes Jonsson
Lyour Guomondsson
Agust Guomondsson
Bjorgolfur Thor Bjorgolfsson
Bjorgolfur Guomondsson

Apparently many of them have left the country, but if Steve's commenters are right they should be showing up in Israel any day now. I mean, isn't it obvious?

(More on Ireland's banking collapse maybe later. My fingers are tired.)

Mr. Anon said...

"Whiskey said...

I don't like Ron Paul, but here he is right -- the gold standard has many drawbacks but one virtue -- it prevents printing money and the crashes that printing it generates."

A year and a half ago, you were writing posts saying that Ron Paul was an idiot for pushing the gold standard. Now you're saying it's a good idea. How many other positions you've advocated are equally wrong?

TGGP said...

When Giuliani was prosecutor there was a game among lawyers in his office: pick a saintly person (say, Mother Theresa) and explain how you would convict them.

Making fun of Whiskey is a favorite point of mine, but I think he has a point here. The politicians and bankers collaborated in this mess. Of course the politicians don't want to discourage the bankers in the future!

Dave said...

A gold standard is no panacea. We had awful financial crises and depressions while were on the gold standard.

Richard Hoste said...

Yeah, arbitrary power for government! That's never been known to be abused! Hooray!

In a free market system banking wouldn't be 20% of the economy or whatever it is. The state is the problem, not the solution.

gghhjiol said...

Banksters rule America. Why would they arrest themselves? Would Hitler have arrested Nazi thugs?

Anonymous said...

TGGP: Making fun of Whiskey is a favorite point of mine, but I think he has a point here. The politicians and bankers collaborated in this mess.

Indeed:

Fanny, Freddie, and Obama
By The Prowler
on 9.8.08 @ 12:08AM
spectator.org

When President George W. Bush nominated Henry Paulson to serve as Treasury Secretary, Republicans raised a red flag that Paulson, who, along with his wife, has strong ties to the Democrat party, would not be an honest broker with Republicans.

That seems to have been borne out, with sources inside of Treasury reporting that Paulson briefed Sen. Barack Obama and his campaign advisers on the Fannie Mae and Freddie Mac bailout plan before offering such a briefing to the McCain campaign...

Paulson and Obama
Paulson and Obama
By The Prowler
on 9.26.08 @ 9:49AM
spectator.org

When Sen. Barack Obama was given the floor to speak during White House negotiations, according to White House aides, he did so raising concerns about a House Republican alternative to the Paulson/Bernanke $700 billion bailout. But those concerns weren't necessarily his, as he was not aware of the GOP plan before reviewing notes provided him by Paulson loyalists in Treasury prior to entering the meeting.

According to an Obama campaign source, the notes were passed to Obama via senior aides traveling with him, who had been emailed the document via a current Goldman Sachs employee and Wall Street fundraiser for the Obama campaign. "It was made clear that the memo was from 'friends' and was reliable," says the campaign source.

The memo allowed Obama and his fellow Democrats to box in Republican attendees and essentially took what President Bush had billed as a negotiating meeting off the rails...



More here, to include the re-appearance of Nell Minow; you might also want to have a gander at this story.

FelixM said...

"Clever guys on Wall St. would probably find ways to outsmart not-as-clever civil servants."

as a civil servant, I just have to comment.

first, the civil servants wouldn't have to be Einstein-clever. Adequate intelligence and thorough analysis would enable them to get to the facts

and, if necessary, they can hire hot shot financial/ legal analysts. (I've done this occasionally)

nope, the first difficulty is whether there is the political will to get scalps

and the second difficulty is that the US legal system is too accomodating in allowing lawyers to bamboozle juries

Anonymous said...

I don't like Ron Paul, but here he is right -- the gold standard has many drawbacks but one virtue -- it prevents printing money and the crashes that printing it generates.

Gee, I wonder why Whiskey doesn't like Ron Paul...

Pissed Off Chinaman said...

Wouldn't work Steve. You basically identified the problem in your post. A lot of this behavior was not only legal at the time, it had the stamp of approval among our nation's regulatory authorities. As distasteful as it may seem, convicting these folks would be unconstitutional.

Tom Merle said...

Prof. William Black, who prosecuted the crooks after the S&L violations, seems so persuasive on the extent of fraud this time around. How could all the fraudsters/banksters escape doing some jail time

Fred said...

"Would Hitler have arrested Nazi thugs?"

If you're going to invoke Hitler and the Nazis as examples of evil, be sure to say that Stalin and the communists were also evil. Otherwise, Svigor will get upset.

Anonymous said...

The problem is the lawmakers, not the bankers. The Lawmakers, from Iceland, to Ireland, to Italy, to Spain, to Greece, to the UK, used banks and the banking system, particularly investment banks, as political patronage operations.



The lawmakers were (and still are) owned lock, stock and barrel by the bankers. Just look at the relationship between Chris Dodd and the American financal sector. We have the best lawmakers Big Money can buy.

Anonymous said...

If you're going to invoke Hitler and the Nazis as examples of evil, be sure to say that Stalin and the communists were also evil.

Thats right, because that sort of even handedness is what happens everywhere else where historical examples are invoked.

Anonymous said...

why did the feds go after stewart? but anyway you're right - in anarcho-tyrannical state, the average honest citizen commits something like 3 felonies a day.

Vernunft said...

"It can certainly be argued that Wall Street's bad behavior harmed more people than any terrorist attack ever has."

Good night, everyone.

ben tillman said...

As distasteful as it may seem, convicting these folks would be unconstitutional.

We're not talking about ex post facto laws. We can use perfectly good laws against fraud. Investment bankers lied about the quality of the MBS they were selling.

David said...

>Uncle Sam pocketed a cool billion from Goldman<

Which came from the stockholders.

This is good how?

David said...

>If you're going to invoke Hitler and the Nazis as examples of evil,<

Commenters just do that so you don't get upset.

Anonymous said...

Damn Right they can send you to jail for anything they damn well please. But it takes a butt load of money for prosecution. I don't think we have the funds or the cojones to go after the really powerful.

Anonymous said...

TGGP: Making fun of Whiskey is a favorite point of mine, but I think he has a point here. The politicians and bankers collaborated in this mess.

Oops, forgot to include this one:

Bush didn't understand Paulson's bailout
James Forsyth
Tuesday, 15th September 2009, 8:57pm
spectator.co.uk

'...the president was clearly confused about how the government would buy these securities. He repeated his belief that the government was going to "buy low and sell high," and he still didn't understand why we hadn't put that into the speech like he'd asked us to. When it was explained to him that his concept of the bailout proposal wasn't correct, the president was momentarily speechless. He threw up his hands in frustration.

'"Why did I sign on to this proposal if I don't understand what it does?" he asked...

'It wasn't that the president didn't understand what his administration wanted to do. It was that the treasury secretary didn't seem to know, changed his mind, had misled the president, or some combination of the three...'

Indeed, Latimer reports White House gossip that at one meeting, an exasperated Bush told Paulson, "You've got to tell me what you're doing"...

Anonymous said...

In case you haven't noticed it, the Democratic Party is now the home of the Wall Street Bankers. I think the switch started back in 1968 when the Military Industrial Complex millionaires threw out the Banking millionaires (also known as Rockefeller Republicans.) The shift was made permanent by Bill Clinton who saw Wall Street as an enormous source of funding for his party. (Obama raised 10 times more money from Wall Street than McCain.)

Meanwhile the white working class is left without a party dedicated to advancing their interests. They vote Republican because they see that the Democrats will be even worse for them, but they are not intelligent enough to realize where their real interests lie or who their real enemies are.

Polistra said...

I assumed from the start that the "collapse" wasn't a collapse at all, but some kind of blackmail payment. I don't know what the information was, but the smell is unmistakable.

Under that assumption, the blackmailers certainly aren't going to suffer in any way, because that would undo the whole purpose of the payment.

Anonymous said...

"... that's the problem, they didn't violate any laws." Consider some quotations from Michael Lewis, author of the "Big Short: Inside the Doomsday Machine":
1. People see what they are paid to see.
2. Now they are playing not just with shareholder money but with taxpayer money.
3. The vast majority of the insane behavior was perfectly legal.
4. One of the big changes in American life over the past twenty-five years is the extension of credit to people who previously had trouble getting it.
5. The lender ... didn't bear the risk of the loans not being paid.
6. Teaser rates should be criminal.
The ratings agencies, the big accounting firms, and the major brokerage houses rewarded their top people for taking our taxpayer scalps ... the Iroquois made the mistake of using tomahawks instead of law books and vajazzle accounting.

Svigor said...

I'm more concerned with the fact that nothing has been done to ensure this won't happen again.

Anonymous said...

6. Teaser rates should be criminal.

Except that, as Steve has pointed out repeatedly, exactly the same, ah, "folks" will be behind the opposition to any proposed laws which would seek to forbid teaser rates.

PS: Some of you naive, doe-eyed apologists really need to spend a little time at Zero Hedge [and you also need to familiarize yourselves with the work of Matt Taibbi & Michael Lewis - there's a good overview of it all here].

These SOBs knew precisely what they were doing in 2007/2008/2009, and they hit paydirt in doing it.

PPS: And I suspect that I'm being charitable in calling you naive, doe-eyed apologists, but I doubt that Komment Kontrol is going to allow me switch gears and question what might be your true motivations in this discussion.

Svigor said...

Apparently many of them have left the country, but if Steve's commenters are right they should be showing up in Israel any day now. I mean, isn't it obvious?

I see. So over in Iceland, I suppose there are guys posting lists of names of Jewish banksters in America and using them to justify the argument that Icelanders are not to blame for the Icelandic financial crisis? Moreover, you agree with them?

Svigor said...

"Would Hitler have arrested Nazi thugs?"

If you're going to invoke Hitler and the Nazis as examples of evil, be sure to say that Stalin and the communists were also evil. Otherwise, Svigor will get upset.


Ah, I see. Because I complain about the total absence of proportionality on the issue, I have to be the only guy unable to take advantage of the Nazis' bad name (something I do on a regular basis when it suits my purposes).

A lose-lose proposition for me. Thanks Fred, you're a swell guy.

Victoria said...

Obama should declare some bankers "terrorists", round them up in the middle of the night, and ship them to Gitmo

Have you read Taibbi's Looting Main Street?
"That such a blatant violation of anti-trust laws took place and neither JP Morgan nor Goldman have been prosecuted for it is yet another mystery of the current financial crisis. 'This is an open-and-shut case of anti-competitive behavior,' says Taylor, the former regulator. ...

"Last year, when Jefferson County, staggered by the weight of its penalties, was unable to make its swap payments to JP Morgan, the bank canceled the deal. That triggered one-time "termination fees" of — yes, you read this right — $647 million. That was money the county would owe no matter what happened with the rest of its debt, even if bondholders decided to forgive and forget every dime the county had borrowed. It was like the herpes simplex of loans — debt that does not go away, ever, for as long as you live. ...

"The destruction of Jefferson County reveals the basic battle plan of these modern barbarians, the way that banks like JP Morgan and Goldman Sachs have systematically set out to pillage towns and cities from Pittsburgh to Athens."

Dave R. said...

Ah, but process crimes and technical federal felonies are for people who defy prosecutors' or police authority. Usually little people who we never hear about; Martha Stewart was exceptional in profile, not in the substance of the case. Bankers may crossed a few legal lines (though I wouldn't count on it), but they haven't actually defied any prosecutors or refused to roll over on a plea deal, so they're safe.

Svigor said...

Michael Lewis is running cover too, apparently. I'll post the link if I find it again.

Svigor said...

Debunking Michael Lewis’ Subprime Short Hagiography

Anonymous said...

Certain levels of failure should probably be criminal no matter how well-intentioned and innocent the people involved were (in this case: not very).

But since our political classes are, at best, unindicted co-conspirators, nothing much will happen.

Eric said...

Now, shooting is probably a little much, but why not imprison a few 8-figure per year bank officers? That will put a little fear in future banksters. That will make them cautious about exploiting loopholes they find in regulations.

This is a really stupid idea, for two reasons. The first is it flies in the face of any notion of the rule of law. You put people in jail for breaking the law, not for taking advantage of stupidity in the law.

And secondly it doesn't work. This is a pretty common tactic throughout the world, because it gives the masses a little thrill. China arrests and shoots about a thousand people for corruption every couple years. It doesn't make China less corrupt; it just means only connected people are allowed to be corrupt. The same thing will happen here - the only people who don't walk will be the ones who didn't donate last election.

Anyway the crisis was primarily spawned in Washington, not Wall Street. If you're looking for hides to nail to the wall Barney Frank and Chris Dodd would be a good place to start.

rob said...

China arrests and shoots about a thousand people for corruption every couple years. It doesn't make China less corrupt; it just means only connected people are allowed to be corrupt.

Hmm, so you prefer the current US system where even unconnected people are corrupt?

That assumes your unsupported assertion is accurate. How do you know that killing white collar criminals has no deterent effect? It seems to me that the sort of person who can plan and execute a moderately sophisticated fraud is just the sort of person who considers the noose in his calculations of net present value.

And secondly it doesn't work. [Punishing white collar crime] is a pretty common tactic throughout the world, because it gives the masses a little thrill.

If I may speak for the rest of the unwashed, it certainly does give me a thrill. The same thrill as when a serial rapist is imprisoned, or some dude who murdered a couple of people gets a lethal injection. It is the thrill of knowing we live in a society of laws where crime is punished. Even Ivy League educated criminals are not special snowflakes above the judgment of man. The same thrill you got when Eliot Sptizer got caught whoremongering.

David said...

>Meanwhile the white working class is left without a party dedicated to advancing their interests.<

Maybe A3P?

Anonymous said...

Anon. of 4/04, the policies you describe as "in the past" are still being followed by the FDIC with small- and medium-sized failed banks. I know of four operating in just my own county that have been liquidated in just this manner. The FDIC's funding for coverage of these losses - something like $26 billion through the end of 2009 - is not supplied by the taxpayer, but by insurance premiums charged to banks as a percentage of their insured deposits.

It is largely "too big to fail" institutions that have been "bailed out." The Troubled Assets Relief Plan (TARP) has been much misrepresented in the press and consequently misunderstood. TARP monies were forced on many banks that didn't need and didn't want them (e.g., J.P Morgan Chase, Wells Fargo). The terms were quite advantageous to the government and most of the money placed with commercial banks has been repaid, with interest. Even the bad banks, such as Citi, have proven profitable for the government, which has reportedly realized $8 billion on its investment in Citi.

Why does no one say anything about Fannie Mae and Freddie Mac? The two GSEs, which hold over half the residential mortages in the United States, have sustained losses of $141 billion from the fourth quarter 2008 through the fourth quarter 2009. Congress removed the ceiling on federal bailout of the GSEs at the end of 2009, and some authorities predict that their total losses will top $400 billion. All of this will be a net loss to the taxpayer, unlike the operations of FDIC.

The managements of the GSEs are answerable to their own special regulatory agency and to Congress, which repeatedly pressed them to loosen their credit standards. The Nobel Prize winning economist Joseph Stiglitz, and the current administration's head of the Office of Management and Budget Peter Orszag, in 2002 produced a study at the behest of Fannie Mae purporting to show that the likelihood of loss to the taxpayer from the GSEs was disappearingly small.

If anyone is to be pilloried for the collapse, it ought to be executives of the GSEs (e.g. Franklin Raines), politicians who encouraged loosening their credit standards (e.g., Barney Frank and Chris Dodd), and "economic advisors" like Stiglitz and Orszag who compliantly turned out propaganda for them.

Anonymous said...

Further, to Anon. of 4/05, who wrote that "the lawmakers were (and still are) owned lock, stock, and barrel by the bankers" -

Blaming business for corrupting politicians is like blaming the patrons of a bordello for corrupting the whores.

Eric said...

That assumes your unsupported assertion is accurate. How do you know that killing white collar criminals has no deterent effect?

Because the place is no less corrupt than it ever was. You would expect those kinds of purges to have even a little temporary effect on the number bureaucrats that have to be paid off, but from what I can tell it doesn't. Either the people who get executed aren't a perceptible part of the problem, or their rivals pick up the slack before the bodies are cold.

If I may speak for the rest of the unwashed, it certainly does give me a thrill. The same thrill as when a serial rapist is imprisoned, or some dude who murdered a couple of people gets a lethal injection. It is the thrill of knowing we live in a society of laws where crime is punished.

Oh, I have no problem prosecuting people for legitimate criminal behavior. It's not clear to me that's what we're talking about. The government, especially under Obama, would love to have a few scalps in Wall Street. But failure, in and of itself, isn't illegal.

Name names. Who would you charge with a crime, and what, specifically, are the charges?

Anonymous said...

You're certainly right about legal leeway. I've seen the Supreme Court extrapolate from the Constitution whatever the hell they think ought to be in it.

sj071 said...

'The government, especially under Obama, would love to have a few scalps in Wall Street.'

Lloyd, I am quite surprised that you are frequenting the same blogs...

Mr. Anon said...

"Eric said...

Name names. Who would you charge with a crime, and what, specifically, are the charges?"

For a start, how about Henry Paulson. As Treasury Secretary he used his authority to funnel billions of dollars to AIG, so that they could pay the debts they owed to Goldman-Sachs (or to put it more accurately to cover the bets that G-S made with it's bookie, AIG. Paulson had been CEO of Goldman Sachs, and at the time he still owned something like $ 600 million in stock in that company. Isn't that at least a conflict of interest?

Or about the executives at Goldman-Sachs, which packaged and sold CDOs as investments to thier clients while at the same time taking hedge positions which in effect were bets against them. Isn't that at least a betrayal of their fiduciary responsibilities.

Would you trust a doctor whom you payed to treat you for an illness, and who also took out a life-insurance policy on you?

What about the executives at many other companies Bear-Stearns for example, who payed themselves enormous bonuses for wrecking their companies. Was not that a breach of fiduciary trust, both by them and by the corporate boards which let them do it.

AmericanGoy said...

"Clever guys on Wall St. would probably find ways to outsmart not-as-clever civil servants."

FALSE.

The truth is, there is no banking sector trying to outsmart the government regulators.

There is no big business trying to "work in the grey zone of the law", while government employees are trying to catch them.


These are the same people, the elites.

They switch positions between the government, business "consultant" or lobbyist at will.

Best example - try to count all Goldman Sachs (cannot say "ex" here) in US government positions, including regulatory positions.

AmericanGoy said...

"The problem is the lawmakers, not the bankers."

I will now go bang my head against the wall, good night.

Anonymous said...

The last time i checked making a bad business decision is not a crime. Taking on bad risks is not a crime. Thus why are we talking about locking people up for? Oh i see the usual Jew-haters claim because it would be "anti-Semitic". Thanks for admistting that Gentiles are not smart enough to work in finance. My ego has gone sky high.

Eric said...

For a start, how about Henry Paulson. As Treasury Secretary he used his authority to funnel billions of dollars to AIG, so that they could pay the debts they owed to Goldman-Sachs (or to put it more accurately to cover the bets that G-S made with it's bookie, AIG.

Did Paulson do this on his own? I seem to remember Congress getting involved. You want to prosecute him because he convinced Congress to do something he would benefit from?

Paulson had been CEO of Goldman Sachs, and at the time he still owned something like $ 600 million in stock in that company. Isn't that at least a conflict of interest?

Sure. But there's nothing criminal about conflict of interest as long as it's disclosed. Again, Paulson didn't just get a checkbook and start writing checks to his friends from an unimaginably large treasury account. If people go to jail for the AIG bailout you need to make room for 538 of them.

Or about the executives at Goldman-Sachs, which packaged and sold CDOs as investments to thier clients while at the same time taking hedge positions which in effect were bets against them. Isn't that at least a betrayal of their fiduciary responsibilities.

How so? Do you always refuse to sell things to clients because you don't think the purchase is a good idea? Companies hedge their positions all the time - I don't find this the least bit surprising. Do the time frames match up, and were they actually advising clients to buy CDOs at the same time they were betting the other way? Or were they just providing CDOs to institutions that requested them?

Would you trust a doctor whom you payed to treat you for an illness, and who also took out a life-insurance policy on you?

Maybe. That all depends on what his advice is during the treatment and whether or not I refused to listen to take it.

What about the executives at many other companies Bear-Stearns for example, who payed themselves enormous bonuses for wrecking their companies. Was not that a breach of fiduciary trust, both by them and by the corporate boards which let them do it.

What an odd way to phrase that. Executives don't pay themselves. They're paid by the board. I don't begrudge anyone for getting paid as much as he can convince someone else to pay him, as long as there isn't fraud involved. If there was actual accounting fraud, then sure, prosecute.

The stockholders of these companies set up a system, through their representatives on the boards, that rewarded risk-taking. To the extent they got burned because executives went for the risky 25% profit vs the safe 15% (or whatever), I don't feel the least bit sorry for them.

I would like to see the system set up such that I, as a taxpayer, don't have to provide a whole bunch of money to keep everything from coming apart. But it's not at all clear to me there was much in the way of illegal activity. People made decisions based on the incentives the system offered. The fact that the system is fundamentally flawed is something I blame Congress for, not the bankers.

Mr. Anon said...

"Eric said...

Did Paulson do this on his own? I seem to remember Congress getting involved. You want to prosecute him because he convinced Congress to do something he would benefit from?

Sure. But there's nothing criminal about conflict of interest as long as it's disclosed."

Wrong. Conflicts of interest can be illegal. Government employees are forbidden from making decisions on behalf of the government that effect businesses or interests in which they have a stake. The Office of Government Ethics specifically warns civil servant employees away from these situations, and federal empolyees have been convicted for this kind of thing. This guy, for instance:

http://blogs.orlandosentinel.com/news_space_thewritestuff/2009/08/courtney-stadd-exspace-florida-board-member-is-tried-on-selfenrichment-charges.html

"How so? Do you always refuse to sell things to clients because you don't think the purchase is a good idea? Companies hedge their positions all the time - I don't find this the least bit surprising. Do the time frames match up, and were they actually advising clients to buy CDOs at the same time they were betting the other way? Or were they just providing CDOs to institutions that requested them?"

Yes, they did both concurrently.

"What an odd way to phrase that. Executives don't pay themselves. They're paid by the board. I don't begrudge anyone for getting paid as much as he can convince someone else to pay him, as long as there isn't fraud involved. If there was actual accounting fraud, then sure, prosecute.
The stockholders of these companies set up a system, through their representatives on the boards, that rewarded risk-taking. To the extent they got burned because executives went for the risky 25% profit vs the safe 15% (or whatever), I don't feel the least bit sorry for them."

Nonsense. I own stock. How much say do I have over executive pay? None. If I did, I'd vote for hiring some cheap CEO from India who'd do the job for a twentieth of the price; let those bastards get their jobs outsouced - let's see how they like it. The board members are often creatures of the CEO and beholden to them. Are you really so naive as to believe all that good corporate governance crap?

"Maybe. That all depends on what his advice is during the treatment and whether or not I refused to listen to take it."

Oh, bullshit. You would have no problem with your doctor betting that you would die? Libertarians are really full of it.

But, hey, sell on, oh libertarian super-man. Sell that drunk one for the road while your at it. Sell your own goddamned mother into white slavery for all I care. For Rand's sake, don't let anything interfere with selling.