# 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:** 8
### Author:  [@Martin\_Hyde](https://boards.straightdope.com/u/Martin_Hyde)
#### Post date: [March 22, 2013, 11:31pm UTC](https://boards.straightdope.com/t/could-we-convict-major-bank-and-wall-street-figures/653463/141 "2013-03-22T23:31:00Z")
Interestingly the response to the 2008 financial crisis, in which “too big to fail” (and AG Holder appears to see this) was recognized as a big problem was legislation that actually makes it likely that the biggest banks would get even bigger–and they have.
While some parts of the Federal bureaucracy may feel “too big to fail” is bad (and I personally feel that is the case), a lot of the banking regulators sort of talk out of the side of their mouth on that issue. What I mean is, they may say they dislike TBTF, but they also appear to **like** big banks because it makes the regulatory job easier, and it is easier to get compliance with Byzantine regulations from big banks than it is from small banks.
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### Author:  [@Honesty](https://boards.straightdope.com/u/Honesty)
#### Post date: [March 23, 2013, 12:36am UTC](https://boards.straightdope.com/t/could-we-convict-major-bank-and-wall-street-figures/653463/142 "2013-03-23T00:36:47Z")
> [@Martin\_Hyde](#):
>
> **JohnT** I do think many of the crimes committed were by borrowers who lied on their mortgage application (something it clearly says in black and white is a criminal act by the way, so there is no excuse for it.) By and large I do think people should be prosecuted to dissuade that kind of thing, but I think a lot of times it’s hard to differentiate between “I lied because I really wanted the home and knew if I didn’t my mortgage application would be rejected” and “I was confused because my eyes glaze over at the sight of paperwork and accidentally noted that a $10,000 gift from my parents was income and didn’t note that it was a gift from an external source” and things like that.
You’re blaming the victim (the American people). So what if someone put in “1,000,000” for income on the mortgage application? It’s the banks responsibility to confirm income by insisting on copies of recent pay stubs and contacting the employer of the applicant to confirm employment. It’s also the banks responsibility to obtain a credit report of the applicant. The fact that many borrowers were given loans they didn’t qualify for, doesn’t speak badly of the borrowers, rather, it shows that banks were furiously rubber-stamping loans without confirming income of applicants. The Banks had the tools (to confirm income) but deliberately chose not to use them.
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### Author:  [@Martin\_Hyde](https://boards.straightdope.com/u/Martin_Hyde)
#### Post date: [March 23, 2013, 3:47pm UTC](https://boards.straightdope.com/t/could-we-convict-major-bank-and-wall-street-figures/653463/143 "2013-03-23T15:47:36Z")
> [@Honesty](#):
>
> You’re blaming the victim (the American people). So what if someone put in “1,000,000” for income on the mortgage application? It’s the banks responsibility to confirm income by insisting on copies of recent pay stubs and contacting the employer of the applicant to confirm employment. It’s also the banks responsibility to obtain a credit report of the applicant. The fact that many borrowers were given loans they didn’t qualify for, doesn’t speak badly of the borrowers, rather, it shows that banks were furiously rubber-stamping loans without confirming income of applicants. The Banks had the tools (to confirm income) but deliberately chose not to use them.
No, it speaks badly of both. It’s unambiguously a crime to lie on a mortgage application. Not doing due diligence in verifying claims on a mortgage application is definitely bad fiscal responsibility from the banks, the resultant loans defaulting are in large part also the fault of bad responsibility from the banks. The banks are the professionals and the ones making a profit, it is expected they verify and do due diligence, you’ve absolutely correct on that.
But what we’re talking about is sending Wall Street executives to prison for crimes they committed prior to the financial crisis. When you have someone lie on a mortgage application, that individual has committed a crime. I don’t believe it is a crime at all to “not thoroughly investigate claims made on a mortgage application.” I also think even if it was a crime it’d be very difficult to lay responsibility for that crime on the CEO, unless you had clear evidence he had made decisions or issued directives ordering his underlings to do such things. (Of course those orders are only evidence of a crime if the underlying act–failure in due diligence, is a criminal act, which I do not **believe** it is.)
This, again, is a major side issue and as usual no one wants to actual talk about the ugly reality of “real crimes need to be proven by evidence.” I’ll note **deltasigma** has still yet to provide one scintilla of evidence of any crime where we know who the perpetrator most likely is and where no one has acted.
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### Author:  [@JohnT](https://boards.straightdope.com/u/JohnT)
#### Post date: [March 23, 2013, 9:56pm UTC](https://boards.straightdope.com/t/could-we-convict-major-bank-and-wall-street-figures/653463/144 "2013-03-23T21:56:37Z")
> [@Ann\_Hedonia](#):
>
> Actually, I agree with you to some extent regarding culpability but I don’t think it would be productive to go after individual homeowners. I think any homeowner that lied on his loan application deserves just what they got…they may deserve to lose their home and they may deserve some guilt over causing their local banker some difficulties.
>
> But I find it a little disingenuious to blame these homeowners for crashing the economy when they didn’t realize that there were bankers and investors placing huge bets at the equivalent of a casino on whether or not they could pay their mortgage. Punishment should be proportional to the offense.
And you’re right, it is disingenuous to blame any single homeowner (or group of same) for crashing the economy, but as **Honesty** ( :snerk: ) illustrates yet again, people are quite willing to ignore fraud done by one group to prosecute fraud committed by another… which, in my humble opinion, is even more disingenuous.
Is there anybody in this thread who thinks the housing crisis would **not** have been mitigated had ALL homeowners and ALL mortgage origination personnel (all “little guys”) been completely honest in their dealings, with the resulting securitizations and CDO’s and CDS’s all based upon honest, true appraisals of the underlying assets?
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### Author:  [@deltasigma](https://boards.straightdope.com/u/deltasigma)
#### Post date: [March 23, 2013, 10:08pm UTC](https://boards.straightdope.com/t/could-we-convict-major-bank-and-wall-street-figures/653463/145 "2013-03-23T22:08:30Z")
Just a point of order - MBSs are a type of CDO but [CDO is a much broader category.](http://en.wikipedia.org/wiki/Collateralized_debt_obligation#Types_of_collateral) Also, credit default swaps (CDSs) wouldn’t have been involved in the housing crisis except to the extent that there were CDSs out on individual institutions like Lehman or AIG.
I’d also like to correct a mistake I made earlier. When I said if you have 20 CDSs and you sold the net present value of their payment streams, that would probably not be a CDO but something more akin to a [Total Return Swap](http://en.wikipedia.org/wiki/Total_return_swap) - another type of derivative.
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### Author:  [@newcomer](https://boards.straightdope.com/u/newcomer)
#### Post date: [March 24, 2013, 1:21am UTC](https://boards.straightdope.com/t/could-we-convict-major-bank-and-wall-street-figures/653463/146 "2013-03-24T01:21:51Z")
> [@deltasigma](#):
>
> Also, credit default swaps (CDSs) wouldn’t have been involved in the housing crisis except to the extent that there were CDSs out on individual institutions like Lehman or AIG.
How about this point of order:
> [@](#):
>
> a five-page document itemizing the mortgage securities on which banks such as Goldman Sachs Group Inc. and Societe Generale SA had bought $62.1 billion in credit-default swaps from AIG.
> …
> That lack of disclosure shows how the government has obstructed a proper accounting of what went wrong in the financial crisis, author and former investment banker William Cohan says.
> …
> The public can now see for the first time how poorly the securities performed, with losses exceeding 75 percent of their notional value in some cases. Compounding this, the document and Bloomberg data demonstrate that the banks that bought the swaps from AIG are mostly the same firms that underwrote the CDOs in the first place.
> …
> In some cases, banks also owned mortgage lenders, and they should be challenged to explain whether they gained any insider knowledge about the quality of the loans bundled into the CDOs, he says.
> …
> As details of the coverup emerge, so does anger at the perceived conflicts. Philip Angelides, chairman of the Financial Crisis Inquiry Commission, at a hearing held by his panel on Jan. 13, questioned how banks could underwrite poisonous securities and then bet against them. “ **It sounds to me a little bit like selling a car with faulty brakes and then buying an insurance policy on the buyer of those cars** ,” he said.
> …
> the poor performance of the underlying securities (which are actually specific slices or tranches of CDOs) shows they were toxic in the first place and were probably replenished with bundles of mortgages that were particularly troubled.
source: [http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ax3yON\_uNe7I](http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ax3yON_uNe7I)
Someone stepping in to ask “What exactly is the against law here?” in 3… 2… 1… :o
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### Author:  [@deltasigma](https://boards.straightdope.com/u/deltasigma)
#### Post date: [March 24, 2013, 1:33am UTC](https://boards.straightdope.com/t/could-we-convict-major-bank-and-wall-street-figures/653463/147 "2013-03-24T01:33:50Z")
> [@newcomer](#):
>
> How about this point of order:
>
> source: [http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ax3yON\_uNe7I](http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ax3yON_uNe7I)
>
> Someone stepping in to ask “What exactly is the against law here?” in 3… 2… 1… :o
I think you’ve misinterpreted. I was responding only to this narrow point. I guess I should have made that clear.
> [@JohnT](#):
>
> with the resulting securitizations and CDO’s and CDS’s all based upon honest, true appraisals of the underlying assets?
No CDS’s were based on asset appraisals AFAIK except indirectly as a part of determining the ability of an entity to repay it’s debts. Further, I interpreted John’s comments to be limited to the MBS market but perhaps that was my mistake and if so I apologize.
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### Author:  [@septimus](https://boards.straightdope.com/u/septimus)
#### Post date: [March 24, 2013, 8:22am UTC](https://boards.straightdope.com/t/could-we-convict-major-bank-and-wall-street-figures/653463/148 "2013-03-24T08:22:41Z")
I think it’s tangential to focus on whether it is homeowners or finance professionals who could be more easily prosecuted for fraud.
Human nature doesn’t change much. If a large number of homeowners committed fraud in recent years, why didn’t they 40 years ago? If brokers and bankers engaged in large-scale fraud in recent years, why didn’t they 40 years ago? IMO, we should _blame systemic changes_, rather than focus on blaming individuals, or large groups of people.
The U.S. financial system has been steered toward corruption and unfettered greed, and away from the public interest. _That_ is the problem. The purpose of jailing Wall St. criminals is not to “punish evil,” but to steer the financial system back toward sanity by sending a message that financial crimes will be punished. (Perhaps hundreds of thousands of homeowners did commit fraud, but would prosecuting them serve a purpose? Jailing the most egregious financiers might be useful.)
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### Author:  [@Evil\_Captor](https://boards.straightdope.com/u/Evil_Captor)
#### Post date: [March 24, 2013, 3:57pm UTC](https://boards.straightdope.com/t/could-we-convict-major-bank-and-wall-street-figures/653463/149 "2013-03-24T15:57:33Z")
> [@JohnT](#):
>
> But they would not have been “rendered homeless” nor their “credit destroyed” had they not committed fraud or overbought on housing, right? 😕
Let me unconfuse you. The people with the primary responsibility for the fraud involved in some of those loans were the bankers and real estate agents who made them. They are trained in their respective fields, including what is fraud and how not to do it.
In short, they knew what they were doing, and that it was wrong. They were nothing but fraudulent criminal scum in suits. I mean, right here in Atlanta they were calling their home loans to middle class black people “jungle loans.”
Their victims, er, customers, may have known to some extent that their mortgage papers were off, I don’t know. I am sure the bankers and real estate agents assured them that everything was all right, and that they were believed, after all, they were experts in their field … weren’t they?
But hey, there was money to be made, and as we all know the new conservative ethos is that any considerations of morality are unimportant, where there is money to be made.
Did that help?
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### Author:  [@ralph124c](https://boards.straightdope.com/u/ralph124c)
#### Post date: [March 24, 2013, 4:00pm UTC](https://boards.straightdope.com/t/could-we-convict-major-bank-and-wall-street-figures/653463/150 "2013-03-24T16:00:54Z")
When an investment bank knowingly bundles up bad/non-performing mortgage loans, and sells them to investors, it has committed fraud. Plain and simple. No matter how many legalese terms you use, its still fraud. The CEOs who allowed this to happen are guilty-they made huge incomes and bonuses through financial fraud.
It really kills me when a CEO stands up and says that he “didn’t know” what was going on-bullshite-he was paid MILLIONS to know what his firm was doing.:smack:
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### Author:  [@Evil\_Captor](https://boards.straightdope.com/u/Evil_Captor)
#### Post date: [March 24, 2013, 4:02pm UTC](https://boards.straightdope.com/t/could-we-convict-major-bank-and-wall-street-figures/653463/151 "2013-03-24T16:02:03Z")
> [@Martin\_Hyde](#):
>
> But what we’re talking about is sending Wall Street executives to prison for crimes they committed prior to the financial crisis. When you have someone lie on a mortgage application, that individual has committed a crime. I don’t believe it is a crime at all to “not thoroughly investigate claims made on a mortgage application.” I also think even if it was a crime it’d be very difficult to lay responsibility for that crime on the CEO, unless you had clear evidence he had made decisions or issued directives ordering his underlings to do such things. (Of course those orders are only evidence of a crime if the underlying act–failure in due diligence, is a criminal act, which I do not **believe** it is.)
No, there has been a TON of evidence presented in this very thread that the financial execs committed fraud, the cites of the Matt Taibi articles and others are very convincing. You just don’t want to accept it, you’re just sticking your fingers in your ears and going “LA LA LA LA LA NO EVIDENCE HERE.” There IS evidence here, lots of it, if you’d care to look at it objectively.
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### Author:  [@Evil\_Captor](https://boards.straightdope.com/u/Evil_Captor)
#### Post date: [March 24, 2013, 4:06pm UTC](https://boards.straightdope.com/t/could-we-convict-major-bank-and-wall-street-figures/653463/152 "2013-03-24T16:06:05Z")
> [@Ann\_Hedonia](#):
>
> I posted this link earlier in the thread but this is what Eric Holder said on the subject last week.
>
> [Realities Behind Prosecuting Big Banks - The New York Times](http://dealbook.nytimes.com/2013/03/11/big-banks-go-wrong-but-pay-a-little-price/)
>
> “I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if we do prosecute — if we do bring a criminal charge — it will have a negative impact on the national economy, perhaps even the world economy,” Mr. Holder told the Senate Judiciary Committee. “I think that is a function of the fact that some of these institutions have become too large.”
Sure, that’s his excuse. His reason is that the the White House has told him, “Don’t go after Wall Street, they give us lots of money.”
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### Author:  [@deltasigma](https://boards.straightdope.com/u/deltasigma)
#### Post date: [March 24, 2013, 4:19pm UTC](https://boards.straightdope.com/t/could-we-convict-major-bank-and-wall-street-figures/653463/153 "2013-03-24T16:19:42Z")
> [@Evil\_Captor](#):
>
> Let me unconfuse you. The people with the primary responsibility for the fraud involved in some of those loans were the bankers and real estate agents who made them. They are trained in their respective fields, including what is fraud and how not to do it.
Precisely. And I should point out that in many if not most cases of subprime loans, these were marketed VERY aggressively to people who did not really understand what they were signing but instead were relying, and I believe justifiably so, on the good faith and bona fides of the professionals that they were dealing with.
So for example, in the case of ARM loans where people were qualified at teaser rates, I think most borrowers were truly shocked when their rates reset and virtually doubled. In most cases I really don’t think they had any idea that was going to happen.
Even more tragic are the HELOC loans - Home Equity Lines of Credit. Here you had people with substantial equity in their homes or who owned them outright and lost them because these loans were marketed so aggressively to a public that was not really in a position to understand what they were getting themselves into and instead relied on the misleading and self-serving lies of loan officers and others in the banking industry.
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### Author:  [@Bricker](https://boards.straightdope.com/u/Bricker)
#### Post date: [March 24, 2013, 7:04pm UTC](https://boards.straightdope.com/t/could-we-convict-major-bank-and-wall-street-figures/653463/154 "2013-03-24T19:04:38Z")
> [@newcomer](#):
>
> How about this point of order:
>
> source: [http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ax3yON\_uNe7I](http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ax3yON_uNe7I)
>
> Someone stepping in to ask “What exactly is the against law here?” in 3… 2… 1… :o
Why the surprise?
It’s a fundamental principle of criminal law that the law must exist first and then be violated. In other words, the law must exist before the crime happens. It must be clear and unambiguous and give an ordinary person reasonable notice of the conduct that is prohibited.
It’s telling that all the people in this thread who keep insisting that these things are crimes cannot actually specify what crime they are. Despite my explanation that “fraud” standing alone is generally not a crime, I keep seeing people desperately say, “But…but…but… it’s fraud!”
Yeah, so what?
Case in point:
> [@Evil\_Captor](#):
>
> No, there has been a TON of evidence presented in this very thread that the financial execs committed fraud, the cites of the Matt Taibi articles and others are very convincing. You just don’t want to accept it, you’re just sticking your fingers in your ears and going “LA LA LA LA LA NO EVIDENCE HERE.” There IS evidence here, lots of it, if you’d care to look at it objectively.
“Fraud” is not a crime.
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### Author:  [@deltasigma](https://boards.straightdope.com/u/deltasigma)
#### Post date: [March 24, 2013, 7:29pm UTC](https://boards.straightdope.com/t/could-we-convict-major-bank-and-wall-street-figures/653463/155 "2013-03-24T19:29:01Z")
> [@Bricker](#):
>
> Why the surprise?
>
> It’s a fundamental principle of criminal law that the law must exist first and then be violated. In other words, the law must exist before the crime happens. It must be clear and unambiguous and give an ordinary person reasonable notice of the conduct that is prohibited.
>
> It’s telling that all the people in this thread who keep insisting that these things are crimes cannot actually specify what crime they are. Despite my explanation that “fraud” standing alone is generally not a crime, I keep seeing people desperately say, “But…but…but… it’s fraud!”
>
> Yeah, so what?
>
> Case in point:
>
> “Fraud” is not a crime.
Fraud is theft by deception is it not? So theft is not a crime eh?
You should do stand up comedy Bricker.
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### Author:  [@JohnT](https://boards.straightdope.com/u/JohnT)
#### Post date: [March 24, 2013, 7:29pm UTC](https://boards.straightdope.com/t/could-we-convict-major-bank-and-wall-street-figures/653463/156 "2013-03-24T19:29:16Z")
So, from what I get, it’s not a crime to lie on a loan application, but it is a crime to be lied to (especially if you don’t catch the lie.)
Got it. **Bricker** , have fun. I’m out. (Maybe… y’all know how this goes. 😃 )
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### Author:  [@Honesty](https://boards.straightdope.com/u/Honesty)
#### Post date: [March 24, 2013, 7:32pm UTC](https://boards.straightdope.com/t/could-we-convict-major-bank-and-wall-street-figures/653463/157 "2013-03-24T19:32:05Z")
> [@JohnT](#):
>
> And you’re right, it is disingenuous to blame any single homeowner (or group of same) for crashing the economy, but as **Honesty** ( :snerk: ) illustrates yet again, people are quite willing to ignore fraud done by one group to prosecute fraud committed by another… which, in my humble opinion, is even more disingenuous.
Whatever, dude. If you’re a multi-billion dollar international banking institution and cannot be bothered to
A) Insist on recent pay stubs from the applicant;
or
B) Confirm applicant’s employment with employer’s HR;
or
C) Pull up credit history of the applicant to determine credit worthiness
Then it’s the Banks fault for approving loans without proper documentation. The banks had the tools to confirm pay, employment history, and credit worthiness but decided NOT to use those tools.
I’m of the opinion that the Federal government ought to open a publically owned bank. Private banks are modern day pirates: hoarding money from the government at 0.25% interest and then charging the people 4% on a mortgage loan or 20% for credit cards. That’s _well_ over a 1000% mark-up.
Federal banks ought to be able to compete in this market. I - and every single American person - would love to borrow money from the people’s bank at 0.25% interest. Why are we forced to beg JPMorgan Chase or Bank of America for a loan when they’re flush with cash at low interest from the government? Why is it that we’re forced to have an unnecessary middle-man to get money? It’s stupid and the system seems to be designed to provide an industry with a stream of revenue on the backs of the people. There should be a cap that makes it so that market rates can never exceed 100% of the discount rate (the amount banks pay to the government).
- Honesty
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### Author:  [@Honesty](https://boards.straightdope.com/u/Honesty)
#### Post date: [March 24, 2013, 7:52pm UTC](https://boards.straightdope.com/t/could-we-convict-major-bank-and-wall-street-figures/653463/158 "2013-03-24T19:52:05Z")
> [@deltasigma](#):
>
> Fraud is theft by deception is it not? So theft is not a crime eh?
>
> You should do stand up comedy Bricker.
You misunderstand Bricker, deltasigma. From what I’ve observed, Bricker examines the world under the narrow microscope of law. If we were to transport Bricker 100 years in the past to Sojourner Truth’s famous speech _Ain’t I a Woman_, he’d likely be confused as to why someone would expect the law to have a thick vein of morality running through it.
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### Author:  [@John\_Mace](https://boards.straightdope.com/u/John_Mace)
#### Post date: [March 24, 2013, 7:53pm UTC](https://boards.straightdope.com/t/could-we-convict-major-bank-and-wall-street-figures/653463/159 "2013-03-24T19:53:15Z")
> [@Bricker](#):
>
> “Fraud” is not a crime.
Can you elaborate on this, because I sense a semantic subtlety here that may be immaterial to the actual debate. Whether it’s “fraud” or “fraud to commit ‘x’ crime” is something most people are probably not sensitive to, if I’m getting this write.
Is it because there has to be some actual damages for the fraud to be actionable? That is, I can lie about my income on my mortgage application, but if no damages are incurred by the bank, then I can’t be prosecuted, criminally, for fraud.
> [@Honesty](#):
>
> You misunderstand Bricker, deltasigma. From what I’ve observed, Bricker examines the world under the narrow microscope of law. If we were to transport Bricker 100 years in the past to Sojourner Truth’s famous speech Ain’t I a Woman, he’d likely be confused as to why someone would expect the law to have a thick vein of morality running through it.
Emphasis added. In a debate about the law, such as this one, that is absolutely the correct perspective to take.
Note that the thread title is not “Did Wall Streeters do something bad”? It asks if a crime was committed.
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### Author:  [@deltasigma](https://boards.straightdope.com/u/deltasigma)
#### Post date: [March 24, 2013, 8:04pm UTC](https://boards.straightdope.com/t/could-we-convict-major-bank-and-wall-street-figures/653463/160 "2013-03-24T20:04:34Z")
> [@Honesty](#):
>
> You misunderstand Bricker, deltasigma. From what I’ve observed, Bricker examines the world under the narrow microscope of law. If we were to transport Bricker 100 years in the past to Sojourner Truth’s famous speech _Ain’t I a Woman_, he’d likely be confused as to why someone would expect the law to have a thick vein of morality running through it.
Personally I have no doubt that countless crimes were committed. The mere fact that I’m not going to waste my time searching the internet for what evidence there might be or what statutes they might satisfy is totally irrelevant. Anyone with even a modicum of common sense, no I take that back, you don’t even need that much - pretty much anyone who knows ANYTHING about what happened understands that virtually every legal principle our judicial system is based on was flaunted. Matching that behavior up with particular statutes or regulations is mere clean-up duty.
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