# Could we convict major bank and Wall Street figures?
**URL:** https://boards.straightdope.com/t/could-we-convict-major-bank-and-wall-street-figures/653463
**Category:** Great Debates
**Created:** [March 20, 2013, 4:45pm UTC](https://boards.straightdope.com/t/could-we-convict-major-bank-and-wall-street-figures/653463 "2013-03-20T16:45:14Z")
**Posts on this page:** 20
**Page:** 4
### Author:  [@Linden\_Arden](https://boards.straightdope.com/u/Linden_Arden)
#### Post date: [March 22, 2013, 2:56am UTC](https://boards.straightdope.com/t/could-we-convict-major-bank-and-wall-street-figures/653463/61 "2013-03-22T02:56:31Z")
> [@deltasigma](#):
>
> If you’ve read this thread, that has been made abundantly clear. Institutions took mortgage loans which were either bad on their face due to improper and/or insufficient underwriting documentation or were otherwise at a very high risk of default and packaged these for sale as investment grade securities.
>
> I really don’t think you need even a perfunctory familiarity with the law to realize that trying to sell loans with a high probability of default as investment grade constitutes fraud - do you?
>
> Then there is the conduct of the rating agencies which gave said securities AAA ratings when it was impossible for them to inquire into the quality of the paper in those securities. As I’ve said before, that is willful negligence at best.
None of which is a crime.
I actually read the Abacus prospectus from Goldman Sachs. It was completely labeled as ‘caveat emptor’ with disclaimers such as:
\*\*The underwriting could be faulty
Real estate prices could plunge
The rating agency could be incorrect
\*\*
And so on.
Anyway, the remedy here is in civil court where Goldman has been sued - not in criminal court.
Also, the rating agencies like Moody’s enjoy First Amendment protection from legal action as what they publish is merely an “opinion” much the same as a movie reviewer.
In short, **Bricker** has not had his question answered - what specific criminal charge should be brought against these bankers?
Matt Taibbi cannot answer this question - not that I am surprised.
---
### Author:  [@msmith537](https://boards.straightdope.com/u/msmith537)
#### Post date: [March 22, 2013, 3:09am UTC](https://boards.straightdope.com/t/could-we-convict-major-bank-and-wall-street-figures/653463/62 "2013-03-22T03:09:55Z")
> [@Algher](#):
>
> Good luck. First you need evidence - real evidence. Evidence that shows that the law was broken. Finance law is complicated enough to begin with.
>
> Then you need a jury with an IQ above room temperature, willing to sit for a long period of time to hear the evidence. I just sat for jury duty in a case involving the accusation that an adult sent some sort of illicit images to an underaged girl in another state, with the intent of further nefarious desires. The prosecution tossed off every one of us from the tech industry. How the hell are you going to seat a jury that can handle the in-depth analysis of the financial services industry to determine if someone at the top level violated the law?
There are entire companies that provide services doing this very thing.
> [@Algher](#):
>
> The better results would have been to allow their firms to fail, and their personal shares in the firms to be worthless, and their bonuses to have been last on the list of restitution, after all others. But Bush and Obama couldn’t do that without pissing off the powers that be.
That and not wanting to destroy the entire financial system.
---
### Author:  [@deltasigma](https://boards.straightdope.com/u/deltasigma)
#### Post date: [March 22, 2013, 3:36am UTC](https://boards.straightdope.com/t/could-we-convict-major-bank-and-wall-street-figures/653463/63 "2013-03-22T03:36:03Z")
> [@Linden\_Arden](#):
>
> None of which is a crime.
>
> I actually read the Abacus prospectus from Goldman Sachs. It was completely labeled as ‘caveat emptor’ with disclaimers such as:
>
> \*\*The underwriting could be faulty
> Real estate prices could plunge
> The rating agency could be incorrect
> \*\*
>
> And so on.
>
> Anyway, the remedy here is in civil court where Goldman has been sued - not in criminal court.
>
> Also, the rating agencies like Moody’s enjoy First Amendment protection from legal action as what they publish is merely an “opinion” much the same as a movie reviewer.
>
> In short, **Bricker** has not had his question answered - what specific criminal charge should be brought against these bankers?
>
> Matt Taibbi cannot answer this question - not that I am surprised.
Are you saying that every MBS was so labeled? If not, your comment is irrelevant.
BTW, the first amendment argument is widely regarded as being a pathetic last resort.
---
### Author:  [@Voyager](https://boards.straightdope.com/u/Voyager)
#### Post date: [March 22, 2013, 5:43am UTC](https://boards.straightdope.com/t/could-we-convict-major-bank-and-wall-street-figures/653463/64 "2013-03-22T05:43:20Z")
> [@deltasigma](#):
>
> Sorry, but that’s not how you look at debt instruments. Just because i know that if company X defaults and goes into bankruptcy that I’ll get 100 cents on the dollar for my company X bonds, that does not get those bonds a AAA rating.
>
> Come on people, this is some basic stuff here.
>
> I WILL grant you that’s how the people putting these derivatives together looked at things and it may be possible to make a plausible argument here, but that doesn’t lessen the degree of the fraud which is the issue at hand.
Correct me if I’m wrong, but my understanding of the purpose of ratings agencies is so that investors don’t have to study the composition of each and every investment they are trading. And of course to use more sophisticated models than investors can afford to use. So, expecting investors to look at the composition of all instruments is nonsense.
I also read that the ratings agencies let their customers see their models, so that they could structure their instruments to be just uncrappy enough to get AAA. Am I right on that?
And we know that agencies that didn’t give the banks the ratings they wanted didn’t get business the next time.
Something similar happened in the housing market. People assessing houses got hired in part by being willing to give high enough valuations to match inflated offers during the bubble. In California they changed things to assign this randomly now, causing all sorts of complaints, some of them valid since some getting the business didn’t know the neighborhoods very well.
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### Author:  [@deltasigma](https://boards.straightdope.com/u/deltasigma)
#### Post date: [March 22, 2013, 5:59am UTC](https://boards.straightdope.com/t/could-we-convict-major-bank-and-wall-street-figures/653463/65 "2013-03-22T05:59:34Z")
Investors would not have the time or inclination to delve into the minutiae of an individual MBS, that’s correct. You seem to be implying I was saying something different so I’m puzzled.
In terms of the rating agencies themselves, they certainly should have been looking at the composition of these securities. I’m not sure what other basis they could have used for rating them but if you do, I would be interested in knowing.
In terms of sharing any rating models with the client institutions for whom they were doing the ratings, I have no idea. Obviously that would be a conflict of interest but the entire structure of the industry is based on such a conflict so that wouldn’t be at all surprising.
And yes, the fraud was rampant throughout the system and there are literally ten’s of thousands of people who should probably have been indicted for fraud including loan officers and appraisers. There are no clean hands.
But let’s not forget either that the housing crisis was only a part of the fiasco. I heard today that the amount of bad mortgages amounted to maybe $1-2T but the exposure in terms of other types of derivatives may have reached as high as $30T. When the federal reserve was sending money to overseas sovereign banks, I don’t think it was to cover MBS trades. It was for things like CDOs and CDSs.
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### Author:  [@septimus](https://boards.straightdope.com/u/septimus)
#### Post date: [March 22, 2013, 9:46am UTC](https://boards.straightdope.com/t/could-we-convict-major-bank-and-wall-street-figures/653463/66 "2013-03-22T09:46:14Z")
> [@deltasigma](#):
>
> But let’s not forget either that the housing crisis was only a part of the fiasco.
This is an important point I tried to make upthread. If convictions for financial crimes were a goal, there’s lower-lying fruit outside the housing market.
And please don’t lose sight of the fact that provable criminal guilt should not be the sole criterion for malfeasance. Wall Street indulged in much _caveat emptor_ behavior which, while mostly “legal,” would not have been permitted had there been adequate regulation serving the public interest.
---
### Author:  [@Linden\_Arden](https://boards.straightdope.com/u/Linden_Arden)
#### Post date: [March 22, 2013, 12:38pm UTC](https://boards.straightdope.com/t/could-we-convict-major-bank-and-wall-street-figures/653463/67 "2013-03-22T12:38:29Z")
> [@deltasigma](#):
>
> When the federal reserve was sending money to overseas sovereign banks, I don’t think it was to cover MBS trades. It was for things like CDOs and CDSs.
Cite?
Keep in mind a discount window loan made to someone like Credit Suisse, USA is not a “foreign” bank loan just because their HQ are in Switzerland.
A US bank is a bank chartered in the US - period.
---
### Author:  [@Linden\_Arden](https://boards.straightdope.com/u/Linden_Arden)
#### Post date: [March 22, 2013, 12:45pm UTC](https://boards.straightdope.com/t/could-we-convict-major-bank-and-wall-street-figures/653463/68 "2013-03-22T12:45:21Z")
> [@deltasigma](#):
>
> BTW, the first amendment argument is widely regarded as being a pathetic last resort.
Wrong - it has been repeatedly a successful legal defense.
> [@](#):
>
> Does the First Amendment’s free-speech guarantee attach to opinions doled out by credit-rating agencies?
>
> Historically, the answer has been yes.
>
> …
>
> On the one hand, rating firms generally enjoy a free-speech right to “make informed, thoughtful predictions about the future,” says UCLA School of Law professor Eugene Volokh. “That is no different from what newspapers or scholars do.”
>
> To get around the Constitution, judges have ruled, a plaintiff suing a rating agency would have to show that a firm not only made false statements, but also did so with “actual malice” — a high legal hurdle.
[http://blogs.wsj.com/law/2009/04/21/a-first-amendment-defense-for-the-rating-agencies/](http://blogs.wsj.com/law/2009/04/21/a-first-amendment-defense-for-the-rating-agencies/)
---
### Author:  [@Martin\_Hyde](https://boards.straightdope.com/u/Martin_Hyde)
#### Post date: [March 22, 2013, 1:13pm UTC](https://boards.straightdope.com/t/could-we-convict-major-bank-and-wall-street-figures/653463/69 "2013-03-22T13:13:26Z")
I know this is GD but I have to say as someone who actually knows about the market and what caused the 2008 crash, please do not give any credence to anything **deltasigma** has said in this thread. Firstly, he’s not actually provided any real evidence to support any of his claims, just a few random links that don’t really prove anything. Secondly, his description of how the MBS market worked before the crash, the legal obligations of ratings agencies, and what constitutes fraud are all simply incorrect, period.
Let’s examine a few of those in detail.
Let’s first point something out, I had exposure to MBSes through mutual funds prior to the 2008 crash. All of those funds are now worth significantly more today than they were in 2008 when they crashed. I say this to point out that **deltasigma** hasn’t been giving you guys a very complete picture.
Some MBSes tanked, and it scared people because they realized “oh shit, we don’t know very much about these.” So people got scared of **all** MBSes–unreasonably. It’s the same type of behavior that can cause the entire DJIA or S&P 500 to lose several percentage points over news only affecting a small portion of those indexes. The market is “ultimately rational over time” but highly irrational on a daily basis. Real value shines through, but panic causes perfectly fine, healthy companies to lose market value along with bad companies.
This creates great opportunities for investors by the way. The same thing happened in the MBS market, a small portion of them being bad lead to panic, panic lead to further disasters. The underlying problem wasn’t the packaging of mortgages into securities or the ratings agencies, the underlying problem was a classic **asset bubble**. When it burst the most immediately damaged associated markets were the markets in mortgage securities, derivative instruments linked to them, and eventually (since those are big markets) that hit everyone else. It eventually lead to “genuine” (instead of paper) problems in massive lack of liquidity for small business which lead to stagnant economic growth, the real estate market bursting took out construction and associated trades and etc.
But the MBS market as a whole **was not fraudulent** in fact investors like me that were in that market before, during, and after that crash actually made money–as long as we were diversified. (Which I was by owning mutual funds that owned huge baskets of MBSes instead of owning individual MBS notes. Due to the high face value of MBSes you’d need to have significant capital to be sufficiently diversified enough while holding individual MBSes.)
Further, specific claims have been made. One is about the fraudulent presentation of MBSes as “investment grade.” Okay, so the only person who might have committed such a fraud would be the people who call stuff investment grade. Banks that package securities don’t call stuff any specific grade, that is left to ratings agencies. But ratings agencies **have a first amendment right** to analyze and rate stuff. A ratings agency can be dinged for illegal market activity, but “lack of some arbitrary level of rigor in coming up with ratings” isn’t illegal and what **deltasigma** calls a “pathetic excuse” (the first amendment) is precisely the legal reason the ratings agencies by and large committed no crimes.
If you could prove they were paid to lie and manipulate market prices, that would violate trading laws for sure, but you can’t prove that, and I highly doubt it happened.
Further, as to the banks that packaged the mortgages into securities, MBSes (and this is from someone who was and is in that market on a personal level) are never sold as “a collection of mortgages that will never default.” When you buy this stuff there are all kinds of notices in the fine print that the MBS is vulnerable to the underlying mortgage, that the interest payments can decrease unexpectedly if a large number of the mortgages are paid off early and etc. This stuff is issued in prospectus documents and etc when these things are sold. Most investors don’t read them, but that doesn’t mean the bank was saying they were something they weren’t.
Now, by and large many people were wrong about the inherent riskiness of many mortgages, but there has been little evidence presented that thousands and thousands of people have fraudulently misrepresented anything. If there is such evidence, present actual proof, not opinion.
Certainly some people unequivocally committed crimes, and some of them have been charged and have gone to prison. Some got away with it due to lack of evidence. But I’ve not seen one shred of proof that individuals on the internet have proof of guilt, beyond reasonable doubt, for people that have not been charged.
---
### Author:  [@Martin\_Hyde](https://boards.straightdope.com/u/Martin_Hyde)
#### Post date: [March 22, 2013, 1:20pm UTC](https://boards.straightdope.com/t/could-we-convict-major-bank-and-wall-street-figures/653463/70 "2013-03-22T13:20:29Z")
Another thing to point out, a lot of the MBS assets that were ultimately bad, **were called sub-prime**. But there was a grave miscalculation as to how risky MBSes backed by subprime mortgages actually were. These securities had much higher yields than “high-quality” MBSes, just like junk bonds today have a much higher yield than bonds from highly rated blue chip companies. Interestingly today many analysts are saying junk bond funds are “extremely safe” because junk bonds haven’t actually defaulted all that much relative to the increased payout they offer. Many people are now invested in junk bonds who wouldn’t have been before. (It’ll be interesting to see how that all turns out long term.)
But MBSes that were **understood** to be made up of sup-prime mortgages were popular precisely because they were higher yield. Many did not properly understand the risk in these, including professionals and ratings agencies. That’s evidence of bad analysis and risk management, not fraud.
Now, some MBSes were intentionally packaged with a mixture of different types of mortgages. This also wasn’t fraudulent. Typically if you looked at the documentation that banks issue with MBSes you’ll see a % breakdown on what % were subprime and etc. Some MBSes would have a few percent of subprime mortgages to boost yield, while mostly being made up of “high-quality” mortgages. Many of these MBSes were thrown out like hot potatoes during the crisis, but ultimately ended up paying off for anyone who held them. Many of them that the government took over as “toxic assets” actually earned a profit, not a loss, for the government.
Importantly, no one was hiding that some of the mortgages in these MBSes were subprime, people just didn’t have a respect for what “subprime” really meant.
---
### Author:  [@Bricker](https://boards.straightdope.com/u/Bricker)
#### Post date: [March 22, 2013, 1:41pm UTC](https://boards.straightdope.com/t/could-we-convict-major-bank-and-wall-street-figures/653463/71 "2013-03-22T13:41:18Z")
> [@deltasigma](#):
>
> If you’ve read this thread, that has been made abundantly clear. Institutions took mortgage loans which were either bad on their face due to improper and/or insufficient underwriting documentation or were otherwise at a very high risk of default and packaged these for sale as investment grade securities.
>
> I really don’t think you need even a perfunctory familiarity with the law to realize that trying to sell loans with a high probability of default as investment grade constitutes fraud - do you?
I don’t agree.
At early common law, fraud _per se_ was not criminal – instead, the concept of fraud was the underpinning of a number of different crimes, each with slightly different elements. This is true also in the federal system: there is no federal crime simply of “Fraud.” There are a host of crimes in which fraud is a major player. A quick search of chapter 18 of the US Code for “fraud,” “defraud,” or “fraudulent,” shows roughly 100 different statutes that use the terms in some way. Unfortunately, each has other elements which also must be proven. Current common law has a _tort_ of fraud, but again no crime simply called “fraud.”
So – trying to sell loans with a high probability of default as investment grade may or may not constitute fraud. A simple disclaimer like “past performance is not a guarantee of future results,” would likely be sufficient to destroy an attempt to prove, beyond a reasonable doubt, the reliance element of most fraud statutes.
If you have a SPECIFIC crime I will be happy to take a look at its elements. “Fraud” is not a specific crime; it’s a concept that underlies many different crimes.
“Specific” means a reference to a state or federal criminal statute, not the hand-wavingly vague attempts you’ve thus far offered up.
> [@](#):
>
> Then there is the conduct of the rating agencies which gave said securities AAA ratings when it was impossible for them to inquire into the quality of the paper in those securities. As I’ve said before, that is willful negligence at best.
OK, let’s say I agree with you that willful negligence was in play. “Willful negligence” is an excellent basis for a civil suit. But it’s not generally a crime.
---
### Author:  [@deltasigma](https://boards.straightdope.com/u/deltasigma)
#### Post date: [March 22, 2013, 1:58pm UTC](https://boards.straightdope.com/t/could-we-convict-major-bank-and-wall-street-figures/653463/72 "2013-03-22T13:58:17Z")
> [@Martin\_Hyde](#):
>
> I know this is GD but I have to say as someone who actually knows about the market and what caused the 2008 crash, please do not give any credence to anything **deltasigma** has said in this thread. Firstly, he’s not actually provided any real evidence to support any of his claims, just a few random links that don’t really prove anything. Secondly, his description of how the MBS market worked before the crash, the legal obligations of ratings agencies, and what constitutes fraud are all simply incorrect, period.
>
> Let’s examine a few of those in detail.
This is really quite tedious and I don’t intend to indulge this type of apparent intentional obfuscation of the widely known and accepted facts again. If people don’t want accept what I have to say, that’s fine. They are free to read any of the numerous and well documented accounts of the housing/mortgage crisis which paint the same picture that I have.
> [@Martin\_Hyde](#):
>
> Let’s first point something out, I had exposure to MBSes through mutual funds prior to the 2008 crash. All of those funds are now worth significantly more today than they were in 2008 when they crashed. I say this to point out that **deltasigma** hasn’t been giving you guys a very complete picture.
>
> Some MBSes tanked, and it scared people because they realized “oh shit, we don’t know very much about these.” So people got scared of **all** MBSes–unreasonably. It’s the same type of behavior that can cause the entire DJIA or S&P 500 to lose several percentage points over news only affecting a small portion of those indexes. The market is “ultimately rational over time” but highly irrational on a daily basis. Real value shines through, but panic causes perfectly fine, healthy companies to lose market value along with bad companies.
I never said that the ENTIRE MBS market was a shame. My comments were focused on the worst of the violations since that is the focus of this thread so that should have been expected to be my approach. Also, I always spoke of the MBS market in the past tense. Obviously things have changed and currently the federal reserve is even among those who buys billions in MBSs every month.
> [@Martin\_Hyde](#):
>
> This creates great opportunities for investors by the way. The same thing happened in the MBS market, a small portion of them being bad lead to panic, panic lead to further disasters. The underlying problem wasn’t the packaging of mortgages into securities or the ratings agencies, the underlying problem was a classic **asset bubble**. When it burst the most immediately damaged associated markets were the markets in mortgage securities, derivative instruments linked to them, and eventually (since those are big markets) that hit everyone else. It eventually lead to “genuine” (instead of paper) problems in massive lack of liquidity for small business which lead to stagnant economic growth, the real estate market bursting took out construction and associated trades and etc.
The popping of the asset bubble is simple what brought the fraud and corruption to light. People who don’t understand that truly do not understand how these securities are SUPPOSED to work regardless of what claims of expertise they may make and here is why.
When I bundle debt instruments into a security, I do so to create an overall level of default risk for that security. That is the key. Why? Because that is what truly tells you of your likelihood of having your principal investment being repaid. Everything else is speculation.
So while there will certainly be some borrowers who repay their loans early and therefore principal is repaid to the fund early, that is taken into account in the model that predicts payments that will be made by the security. The model will also predict a certain number of defaults. BUT and this is a very, very significant caveat, the number of defaults is determined by the credit quality of the loans.
And while may be true that in a rising real estate market such a security, one made of bad, default-prone mortgages, may still be able to pay back the principle to it’s account holders, the anticipation of such a rising market is merely guess and surmise and should never have been a part of the equation. Why? BECAUSE THESE ARE GODDAMNED DEBT INSTRUMENTS people – how many times do we have to go over this?
> [@Martin\_Hyde](#):
>
> But the MBS market as a whole **was not fraudulent** in fact investors like me that were in that market before, during, and after that crash actually made money–as long as we were diversified. (Which I was by owning mutual funds that owned huge baskets of MBSes instead of owning individual MBS notes. Due to the high face value of MBSes you’d need to have significant capital to be sufficiently diversified enough while holding individual MBSes.)
Good for you.
> [@Martin\_Hyde](#):
>
> Further, specific claims have been made. One is about the fraudulent presentation of MBSes as “investment grade.” Okay, so the only person who might have committed such a fraud would be the people who call stuff investment grade. Banks that package securities don’t call stuff any specific grade, that is left to ratings agencies. But ratings agencies **have a first amendment right** to analyze and rate stuff. A ratings agency can be dinged for illegal market activity, but “lack of some arbitrary level of rigor in coming up with ratings” isn’t illegal and what **deltasigma** calls a “pathetic excuse” (the first amendment) is precisely the legal reason the ratings agencies by and large committed no crimes.
Bullshit. The banks seeking these ratings wanted them stamped AAA and that’s what they got, ergo they presented them as investment grade.
As for a first ammendment defense, again, bullshit.[S&P Lawsuit First Amendment Defense May Fare Poorly, Experts Say | HuffPost Impact](http://www.huffingtonpost.com/2013/02/04/sp-lawsuit-first-amendment_n_2618737.html)
> [@](#):
>
> In 2010, San Francisco Superior Court Judge Richard Kramer [ruled that the First Amendment did not protect the ratings agencies](http://www.dandodiary.com/2010/06/articles/subprime-litigation/another-court-rejects-rating-agencies-first-amendment-defense/) from liability for ratings issued on certain types of private investments. In that case, the plaintiff is the giant California Public Employees’ Retirement System, known as Calpers.
> In 2011, an Albuquerque, N.M., federal judge [dismissed the free speech argument](http://www.reuters.com/article/2011/11/25/us-thornburg-firstamendment-decision-idUSTRE7AO1L220111125) raised by lawyers for the ratings agencies because, in part, the private trusts that technically purchased the mortgage bonds were not “public figures,” like publicly traded companies, entitled to more protections, he said.
> “The court rejects the rating agency defendants’ arguments that the First Amendment provides any protection to them under the facts of this case,” Judge James Browning wrote.
> Still, there is no indication that the companies are ready to abandon the free speech argument.
> [@Martin\_Hyde](#):
>
> If you could prove they were paid to lie and manipulate market prices, that would violate trading laws for sure, but you can’t prove that, and I highly doubt it happened.
Yes, and that is the basis of the present suit agains S&P – they’re being sued for precisely this, or hadn’t you heard?
> [@](#):
>
> According to the lawsuit, S&P recognized that home prices were sinking and that borrowers were having trouble repaying loans. Yet these facts weren’t reflected in the safe ratings S&P gave to complex real-estate investments known as mortgage-backed securities and collateralized debt obligations, the lawsuit alleges.
> [@Martin\_Hyde](#):
>
> Further, as to the banks that packaged the mortgages into securities, MBSes (and this is from someone who was and is in that market on a personal level) are never sold as “a collection of mortgages that will never default.” When you buy this stuff there are all kinds of notices in the fine print that the MBS is vulnerable to the underlying mortgage, that the interest payments can decrease unexpectedly if a large number of the mortgages are paid off early and etc. This stuff is issued in prospectus documents and etc when these things are sold. Most investors don’t read them, but that doesn’t mean the bank was saying they were something they weren’t.
see earlier comments.
> [@Martin\_Hyde](#):
>
> Now, by and large many people were wrong about the inherent riskiness of many mortgages, but there has been little evidence presented that thousands and thousands of people have fraudulently misrepresented anything. If there is such evidence, present actual proof, not opinion.
This is too absurd to even dignify with a response.
> [@Martin\_Hyde](#):
>
> Certainly some people unequivocally committed crimes, and some of them have been charged and have gone to prison. Some got away with it due to lack of evidence. But I’ve not seen one shred of proof that individuals on the internet have proof of guilt, beyond reasonable doubt, for people that have not been charged.
Baseless platitudes
---
### Author:  [@deltasigma](https://boards.straightdope.com/u/deltasigma)
#### Post date: [March 22, 2013, 2:00pm UTC](https://boards.straightdope.com/t/could-we-convict-major-bank-and-wall-street-figures/653463/73 "2013-03-22T14:00:01Z")
> [@Bricker](#):
>
> I don’t agree.
>
> At early common law, fraud _per se_ was not criminal – instead, the concept of fraud was the underpinning of a number of different crimes, each with slightly different elements. This is true also in the federal system: there is no federal crime simply of “Fraud.” There are a host of crimes in which fraud is a major player. A quick search of chapter 18 of the US Code for “fraud,” “defraud,” or “fraudulent,” shows roughly 100 different statutes that use the terms in some way. Unfortunately, each has other elements which also must be proven. Current common law has a _tort_ of fraud, but again no crime simply called “fraud.”
>
> So – trying to sell loans with a high probability of default as investment grade may or may not constitute fraud. A simple disclaimer like “past performance is not a guarantee of future results,” would likely be sufficient to destroy an attempt to prove, beyond a reasonable doubt, the reliance element of most fraud statutes.
>
> If you have a SPECIFIC crime I will be happy to take a look at its elements. “Fraud” is not a specific crime; it’s a concept that underlies many different crimes.
>
> “Specific” means a reference to a state or federal criminal statute, not the hand-wavingly vague attempts you’ve thus far offered up.
>
> OK, let’s say I agree with you that willful negligence was in play. “Willful negligence” is an excellent basis for a civil suit. But it’s not generally a crime.
10 USC chapter 47, but I’m sorry I have no intention of going through it section by section - you’re free to do so however.
---
### Author:  [@newcomer](https://boards.straightdope.com/u/newcomer)
#### Post date: [March 22, 2013, 2:00pm UTC](https://boards.straightdope.com/t/could-we-convict-major-bank-and-wall-street-figures/653463/74 "2013-03-22T14:00:05Z")
> [@Linden\_Arden](#):
>
> In short, **Bricker** has not had his question answered - what specific criminal charge should be brought against these bankers?
>
> Matt Taibbi cannot answer this question - not that I am surprised.
Conspiracy to commit fraud.
Based on emails there was an obvious trace of written intent - and I’m sure more of a verbal agreement during conversations - to defraud investors. They knowingly planned and committed a fraud regardless of what it says in prospectus. They would never sell those MBS securities if they came out with “this is sh!t”. The fact is, before they sold it, they knew it was sh!t.
There is no need for this elaborate rocket-scientist who can understand the risk.
Thorough investigation would yield al of that very easily. The problem is not what to charge them with - the problem is there was no WILL to charge them.
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### Author:  [@Bricker](https://boards.straightdope.com/u/Bricker)
#### Post date: [March 22, 2013, 2:05pm UTC](https://boards.straightdope.com/t/could-we-convict-major-bank-and-wall-street-figures/653463/75 "2013-03-22T14:05:44Z")
> [@deltasigma](#):
>
> BTW, the first amendment argument is widely regarded as being a pathetic last resort.
Really?
In _Jefferson Cty. Sch. Dist. No. R-1 v. Moody’s Investor’s Services_, 175 F. 3d 848 (10th Cir. 1999), Moody’s Investor’s Services published an evaluation of refunding bonds issued by the Jefferson County School District. Jefferson County contended the rating was wrong. The trial court granted Moody’s motion to dismiss the case, agreeing with Moody that whatever their rating was, it was protected by the First Amendment. The school district appealed to the Tenth Circuit, which rejected their appeal and sided with Moody’s.
_First Equity Corp. v. Standard & Poor’s Corp._, 690 F. Supp. 256 (D. Ct, SD N.Y. 1988) similarly gives S&P a First Amendment pass:
> [@](#):
>
> I find that the high degree of scienter imposed by Judge Goettel in his written decision reported at 670 F.Supp. 115 is consistent with well-established First Amendment principles requiring a plaintiff to demonstrate actual malice when seeking to impose liability on a newspaper for publication of a non-defamatory misstatement. See Time, Inc. v. Hill, 385 U.S. 374, 387, 87 S.Ct. 534, 541, 17 L.Ed.2d 456 (1967); Libertelli v. Hoffman-LaRoche, Inc., 7 Media L.Reptr. 1735 (S.D.N.Y.1981); Tumminello v. Bergen Evening Record, Inc., 454 F.Supp. 1156 (D.N.J.1978) (stating that “New Jersey could not, consistent with the requirements of the First Amendment, impose liability for a negligently untruthful new story. Recovery may be had at best only for knowing or reckless falsehood.” (emphasis in original; citation omitted)).
Can you cite some cases that illustrate the “pathetic last resort” failures you speak of?
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### Author:  [@Bricker](https://boards.straightdope.com/u/Bricker)
#### Post date: [March 22, 2013, 2:11pm UTC](https://boards.straightdope.com/t/could-we-convict-major-bank-and-wall-street-figures/653463/76 "2013-03-22T14:11:30Z")
> [@newcomer](#):
>
> Conspiracy to commit fraud.
>
> Based on emails there was an obvious trace of written intent - and I’m sure more of a verbal agreement during conversations - to defraud investors. They knowingly planned and committed a fraud regardless of what it says in prospectus. They would never sell those MBS securities if they came out with “this is sh!t”. The fact is, before they sold it, they knew it was sh!t.
If there’s no such crime as simple “fraud,” how can there be a crime of conspiracy to commit it?
And if the prospectus says, “The underwriting could be faulty,” “Real estate prices could plunge,” and “The rating agency could be incorrect,” then how can you possibly prove, beyond a reasonable doubt, that they induced the buyer to rely upon the rating agency or the underwriting?
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### Author:  [@deltasigma](https://boards.straightdope.com/u/deltasigma)
#### Post date: [March 22, 2013, 2:11pm UTC](https://boards.straightdope.com/t/could-we-convict-major-bank-and-wall-street-figures/653463/77 "2013-03-22T14:11:37Z")
> [@Bricker](#):
>
> Really?
>
> In _Jefferson Cty. Sch. Dist. No. R-1 v. Moody’s Investor’s Services_, 175 F. 3d 848 (10th Cir. 1999), Moody’s Investor’s Services published an evaluation of refunding bonds issued by the Jefferson County School District. Jefferson County contended the rating was wrong. The trial court granted Moody’s motion to dismiss the case, agreeing with Moody that whatever their rating was, it was protected by the First Amendment. The school district appealed to the Tenth Circuit, which rejected their appeal and sided with Moody’s.
>
> _First Equity Corp. v. Standard & Poor’s Corp._, 690 F. Supp. 256 (D. Ct, SD N.Y. 1988) similarly gives S&P a First Amendment pass:
>
> Can you cite some cases that illustrate the “pathetic last resort” failures you speak of?
I already have if you’ve bothered to read the intervening posts.
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### Author:  [@Martin\_Hyde](https://boards.straightdope.com/u/Martin_Hyde)
#### Post date: [March 22, 2013, 2:12pm UTC](https://boards.straightdope.com/t/could-we-convict-major-bank-and-wall-street-figures/653463/78 "2013-03-22T14:12:45Z")
> [@deltasigma](#):
>
> This is really quite tedious and I don’t intend to indulge this type of apparent intentional obfuscation of the widely known and accepted facts again. If people don’t want accept what I have to say, that’s fine. They are free to read any of the numerous and well documented accounts of the housing/mortgage crisis which paint the same picture that I have.
“If you don’t want to accept what I say just because I said it, then I don’t care.” Well, sorry I don’t accept things not based on fact or supported by evidence. When I’m making an opinion I try to make it clear I’m talking about my opinion, but when you assert a bunch of people have committed crimes and a bunch of acts of intentional misleading (whether criminal or not) have occurred you’ve taken up the claim of specific acts. You need to be able to demonstrate those, and you haven’t.
> [@](#):
>
> I never said that the ENTIRE MBS market was a shame. My comments were focused on the worst of the violations since that is the focus of this thread so that should have been expected to be my approach. Also, I always spoke of the MBS market in the past tense. Obviously things have changed and currently the federal reserve is even among those who buys billions in MBSs every month.
And that’s fine, I think it was important to point out to the thread as a whole that the MBS market was never **that bad** , but just like all markets bad news has outsize impact even on good investments.
> [@](#):
>
> The popping of the asset bubble is simple what brought the fraud and corruption to light. People who don’t understand that truly do not understand how these securities are SUPPOSED to work regardless of what claims of expertise they may make and here is why.
Please explain how these securities are **supposed** to work, compared to how they **did** work.
> [@](#):
>
> When I bundle debt instruments into a security, I do so to create an overall level of default risk for that security. That is the key. Why? Because that is what truly tells you of your likelihood of having your principal investment being repaid. Everything else is speculation.
Bundling of debt is definitely for diversification purposes, holding a piece of many loans is far less risky than holding one big loan for obvious reasons. But you’re saying somehow there is fraud if these instruments default? Or what are you saying **specifically** in reference to this point? That because a **ratings agency** (and not banks–who do not assign credit ratings to their own debt creations) said something was AAA and it ended up being a poor investment that fraud or corruption happened? Please show the actual link here.
> [@](#):
>
> So while there will certainly be some borrowers who repay their loans early and therefore principal is repaid to the fund early, that is taken into account in the model that predicts payments that will be made by the security. The model will also predict a certain number of defaults. BUT and this is a very, very significant caveat, the number of defaults is determined by the credit quality of the loans.
No, that’s not true at all and shows you have a grave misunderstanding about these instruments sufficient that I don’t think you should be talking about them. The number of defaults, to be frank is based on “luck.” That’s the simple answer, the long answer is that some instruments made up of many loans will suffer many defaults while others will not. Part of that will be based on how they are structured. You are **correct** that a bank that intentionally creates a debt instrument made up mostly of sub-prime loans is going to have information about historical default rates and etc, but none of them **promise** a specific percent of defaults versus non-defaults. That’s not opinion, that is fact.
You literally made the claim just now that the **credit rating** is what **determines** how many loans in a security of bundled loans defaults or go into early repayment (which for an investor is bad as well, since we are investing for long term coupon payments usually.) That’s not true at all, the actual circumstances of those individual loans is what determines that, the credit rating is an assessment of how likely something is, not a deterministic mechanism. The fact that you feel that it is shows you have a poor/novice understanding of this issue and should not be speaking authoritatively about it.
> [@](#):
>
> And while may be true that in a rising real estate market such a security, one made of bad, default-prone mortgages, may still be able to pay back the principle to it’s account holders, the anticipation of such a rising market is merely guess and surmise and should never have been a part of the equation. Why? BECAUSE THESE ARE GODDAMNED DEBT INSTRUMENTS people – how many times do we have to go over this?
You’re not making any substantial point here, this is basically a nonsense statement. Any investment shows performance in prior periods, in the prior periods are during a rising market then that is what it will show. I’ve never in my life invested a cent in anything over a public exchange that didn’t say “past performance isn’t a guarantee of future results” somewhere. A credit ratings agency mostly only has models to go off of, and if you don’t think they should model how say, the real estate market has behaved in the past quarter, past four quarters, past 5 years, past 10 years etc in assessing the riskiness of real estate investment vehicles then I’d simply tell you that you should start your own ratings firm using your own models. Just because they choose to use a model you disagree with has nothing to do with whether or not they were behaving fraudulently or illegally manipulated the market.
> [@](#):
>
> Bullshit. The banks seeking these ratings wanted them stamped AAA and that’s what they got, ergo they presented them as investment grade.
Yes, banks certainly knew what structure would get AAA, what would get AAa etc. But that’s not a sign of corruption or fraud.
> [@](#):
>
> As for a first ammendment defense, again, bullshit.[S&P Lawsuit First Amendment Defense May Fare Poorly, Experts Say | HuffPost Impact](http://www.huffingtonpost.com/2013/02/04/sp-lawsuit-first-amendment_n_2618737.html)
Yes, an ongoing civil suit is a great argument that the First Amendment doesn’t protect ratings agency against criminal prosecution when their ratings are ultimately a poor representation of the underlying risk of a rated entity.
> [@](#):
>
> Yes, and that is the basis of the present suit agains S&P – they’re being sued for precisely this, or hadn’t you heard?
Yes, an ongoing civil suit is a great argument that the First Amendment doesn’t protect ratings agency against criminal prosecution when their ratings are ultimately a poor representation of the underlying risk of a rated entity.
see earlier comments.
> [@](#):
>
> This is too absurd to even dignify with a response.
>
> Baseless platitudes
That’s actually the summation of the entirety of your contributions to this thread. Please, anyone and everyone, don’t listen to such a financial market neophyte. Not being at all an expert on the law, but just an “interested observer” of the legal system I can also say this guy’s legal acumen appears to not be so great either.
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### Author:  [@CurtC](https://boards.straightdope.com/u/CurtC)
#### Post date: [March 22, 2013, 2:13pm UTC](https://boards.straightdope.com/t/could-we-convict-major-bank-and-wall-street-figures/653463/79 "2013-03-22T14:13:00Z")
> [@deltasigma](#):
>
> Sorry, but that’s not how you look at debt instruments. Just because i know that if company X defaults and goes into bankruptcy that I’ll get 100 cents on the dollar for my company X bonds, that does not get those bonds a AAA rating.
>
> Come on people, this is some basic stuff here.
If an investment, in a worst-case scenario, gives me back 100 cents on the dollar, why would that not be considered good-as-cash and therefore worthy of a AAA rating?
I realize that in retrospect, they didn’t guarantee 100 cents on the dollar, but at the time many investors, thinking that real estate would always go up, thought of it that way.
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### Author:  [@JohnT](https://boards.straightdope.com/u/JohnT)
#### Post date: [March 22, 2013, 2:13pm UTC](https://boards.straightdope.com/t/could-we-convict-major-bank-and-wall-street-figures/653463/80 "2013-03-22T14:13:34Z")
For people wanting to convict executives for fraud, are y’all equally willing to convict the homeowner who bought a $300,000 house on a liar loan based upon income they did not receive? How about the mother of two who thought she could “figure out something” when when the ARM reset? What about the mortgage broker, a 9-5 guy who wanted to reach his numbers and did so by selling a mortgage to the mother of two he knew had no chance of paying the loan once the ARM adjusted?
This “fraud” went up and down the financial industry and wasn’t strictly the province of hundreds of executives - there were millions of homeowners and thousands staff workers in these firms that were complicit as well.
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