From what I’ve heard, the businessmen who have been failing have mostly been guilty of foolish optimism. They made deals that were profitable but very risky. They collected the profits but when it came time to pay for the risky deals that fell through, they aren’t able to. The consequences to the economy as a whole for these deals collapsing would be catastrophic, so the government is stepping in to accept the debt.
But nothing illegal as far as I see. And considering that collecting the money and walking worked, I may even be wrong about if being foolish. But still somebody’s going to have to pay for these risky deals having been made. And if I have a choice between it being me or the idiots that creating this problem and collecting billions doing it, then I say let’s make the idiots pay as large a share as we can get out of them.
Some will disagree. There are people who believe as an article of faith that businessmen can do no wrong and must be cherished and protected by the rest of us. These people usually have spent too much time listening to media paid for by businessmen. They’ll say that if we punish businessmen for doing something stupid and destructive, then we’ll discourage future business.
I disagree. I figure if you punish businessmen for doing something stupid and destructive, then you’ll be discouraging future stupidity and destruction.
A poster named Scylla shed some light on that. Ratings analysts provided them but given the nature of the instruments, I gather that their risk was really anyone’s guess. I don’t know if it was the sort of thing that was only obvious in hindsight. If you could show that sellers were somehow in cahoots with the people providing the ratings, you could probably bring fraud charges, but I don’t think that is the case.
In the S&L crisis of the late 80s, there were a couple of people who made a lot of money committing various types of fraud, but the bulk of the damage was done by honest people who had to make riskier and riskier investments in order to compete. The point here is that the path to Hell is paved with good intentions.
The problem is that they provide risk assessment for a fee, and that’s how they make their profit. There were lots of banks “shopping around” for favorable ratings on investment products they were crafting, and if a bank went to all that trouble and got a lousy rating, well… they wouldn’t be coming back for another one.
So there was a phenomenon similar to grade inflation at Ivy League schools: you’re paying out the nose for a Harvard Diploma… so why would you want one with a “B” on it when Yale is just as prestigious and willing to give out an easy “A” if you’re politically connected? Same thing here: the banks are paying out the nose for risk ratings, so why would they want anything but AAA?
I don’t understand why the so-called “independent” ratings firms are allowed to take any money at all from their clients; if they were truly independent they’d take a flat annual fee from the various stock and bond exchanges, or the Fed, or some third entity.
There are two entirely different facets to the question. First, did individuals within the corporation do things that were so egregious and criminal in intent (think Enron) that it would allow prosecutors to pierce the corporate veil and prosecute them for their actions?
The other area is insider trading. The executives and partners of a company like Lehman are paid their bonuses in shares of the company, not in cash. There are restrictions on the sale of those shares. The payment of these bonuses can give you a very high net worth on paper. If you can’t sell the shares, it’s all good collateral but doesn’t have any real worth on a “today” basis. In the last year, Lehman shares were over $60. When they company went down they were worth something like 20 cents. Think what that does to your net worth statement if you thought you were worth $10 million a year ago and most of it was in Lehman shares. So the question becomes, when the shares still had some value did these partners unload what they could knowing that the company was tanking? That could make them guilty of insider trading.