The recurring theme I’m seeing today is fantasy. To start Bruce Judson has a dream of a “Night of the Long Knives” or, more accurately a “Week of the Long Knives” for Wall Street executives:
Day One: Read the HUD Inspector General’s reports and the public records of past mortgage foreclosure cases from across the nation.
Day Two: Meet with the team at the Office of the Inspector General at HUD that prepared the audits. Obtain the names of all the bank officials, lawyers, and notaries whose behavior, as cited in the audit reports or otherwise known to the investigators, represent clear and unquestionable criminal violations. Add to this list other individuals who have similarly demonstrated or testified to behavior unquestionably constituting criminal acts, as indicated by the public records of the mortgage foreclosure cases reviewed in day one.
Day Three: Indict all of the individuals on the list compiled on day two.
Day Four: Indict banks and financial institutions on criminal charges where criminal behavior by employees (as demonstrated by day three indictments) appears to be endemic. The Justice Department guidelines for prosecuting firms include: (1) the pervasiveness of such activity, (2) the compliance procedures in place, (3) attempts by the corporation to end bad behavior, and (4) cooperation with federal investigators. In 2008, the Justice Department adopted a policy of accepting “deferred prosecutions,†involving agreements to change corporate behavior without damaging innocent third parties through prosecution.
Corporations receive the benefits of “legal persons,†as demonstrated by Citizens United. But they must also bear the responsibilities of these privileges. A reading of the HUD reports, and other public records, suggests several banks should clearly be prosecuted.
Day 5: Discuss plea bargains with indicted lower-level officials in return for cooperating in investigations of higher-level officials.
Day 6: Consider plea bargains with indicted banks, which require the removal of all remaining officers and directors who were serving when egregious criminal activity occurred, as well as senior officials who were in a position to exercise appropriate supervisory responsibility but chose to look the other way.
Day 7: Indict any senior Wall Street officials implicated by new cooperative testimony resulting from activities on day five. Adopt and announce a policy that future criminal violations will be prosecuted in a similar fashion.
His basic point is sound: there’s an increasing body of evidence that actual criminal behavior took place and continues to take place on the part of bank executive, perjury at the very least.
But the political powers-that-be have been absolutely desperate over the last half dozen years to prop up the banks and bulwark public support for them. Paying attention to their crimes at this late date would undermine that effort and put too many politicians’ careers at risk. It’s a fantasy. It won’t happen. The most we can expect is a show of effort “to encourage the others”.
I remain unimpressed with the anger about the foreclosure paperwork. Its like being stuck in the corner at a party with a recent divorcee, who is convinced the former spouse lied on this or that document and the state’s attorney won’t do anything about it and the judge is certainly corrupt and the whole system lies in the balance and how can people trust to get married anymore?
The dude’s marriage didn’t fall apart because of his wife’s alleged perjury; our housing bubble wasn’t caused by the foreclosure paperwork signed after the bubble burst.
I think the frustration is based on an analogy: Al Capone wasn’t thrown into jail for racketeering but for tax evasion. IMO the proponents of prosecutions for falsifications on the foreclosure paperwork, e.g. Barry Ritholtz, Yves Smith, and the author of the linked post, Bruce Judson, believe that the banks should be prosecuted for the infractions on which they can be prosecuted because they’re vulnerable there.
@PD Shaw
It’s not just the foreclosure mess. An asset bubble of the magnitude we saw prior to 2007-2008 does not occur without extremely loose loaning standards (liar loans). It’s the only way to guarantee prices always go up, at least for a time. Eventually the system can’t handle any more debt, growth stops and prices plunge which is the definition of a financial ponzi scheme. Top executives at the banks were well aware their corporations were taking on enormous exposure which was most assuredly not in the interests of their shareholders.
It was accounting control fraud. Everyone who gave out no-doc (liars) loans should be prosecuted. At the peak, IIRC, about half of all mortgages were no-doc loans. Does anyone really think you are not going to have problems making loans when you dont know if the borrower has any income or assets? How can that not be a scam? But, that will never happen, so I think the falsifications are probably the best we can do.
Steve
@Dave, the problem with prosecuting perjury is that it gives the appearance of doing something, when nothing is done. Prosecuting Clemens for perjury, does not do much about steroids in baseball.
Plus I think the writer has a naive notion of who is most likely to be criminally liable. Its either (a) the local attorney who took on more cases than he/she could handle at cut-rate prices; or (b) the former pizza delivery boy charged with authenticating loans. Not Wall Street Executives.
There is certainly a problem with corporate entities in terms of diffused responsibilities, but the answer to that is clear regulation, but not so much regulation that multiple actors are required for compliance (and thus contributing to more diffusion).
@steve, the liars in a liar loan are the borrowers that took out the loan. Are we really going to prosecute them for perjury? Joe and Jane homeowner?
It harasses them. It impels them to spend money defending themselves. It discredits them. It may put them in jail. If your objective is to put them in jail, it may be your only opportunity for doing so.
Note that I’m not defending or supporting the view. I’m just psychoanalyzing it.