Saying "there's no legal way to go after them!" I find kind of upsetting when bankers can hire great lobbyists to ensure they set up the law favorably for themselves.
Definitely agree we should have paid off mortgages instead though.
Do you have an example of a law you think should’ve been used to put people in prison that we didn’t pass because of lobbying?
What the bankers are accused of doing is classic civil fraud: lying about the quality of assets they sold to investors. These sorts of transactions between sophisticated parties has always been the subject of civil rather than criminal enforcement. (Criminal fraud tends to come into play only where the misrepresentations are more clear cut and egregious, and the victims are ordinary consumers rather than sophisticated counterparties.)
The fraud was clear cut, though. Bankers were treating mortgage pricing in different areas as independent, and that was the entire underpinning of CDO risk tranching. That assumption is obviously wrong, and it was obviously wrong before the crash. The reason I know that is that it was obvious to my entire class of interns at Citi in 2006 during the bank's training sessions, and we asked our lecturer how you could assume a lack of correlation in housing prices in different areas and even nationwide. If it was obvious to a group of quant interns, I don't buy that the people structuring them didn't know on some level. At best it was financially-induced blindness.
It's fine to use civil fraud for that when the torts can be litigated by the entities involved.
The fact that the government had to come in, and the taxpayer took the hit, materially changes things in my view. That's when the bar needed to shift from civil to criminal.
I'd be happy if laws sat on the book and weren't enforced until just this sort of occasion arose, than the opposite, where we didn't have the laws and can't retrospectively enforce them.
That is a very bad idea. Basically a dictatorship or oligarchy where those in power do what they want by selectively enforcing laws when they want. "Rule by law" is the phrase used to describe this system, most famously used in China.
I meant more the idea that we have a financial system that allowed this to happen. Since the repeal of the Glass–Steagall act there's been greater and greater instability and more opportunities for banks to reap large sums of money. Eating away at these protections allows for more exploitation basically.
In terms of protections from prison, basically controlling the firms that are meant to police them seems sufficient. No real accountability from the financial crisis seems to show that...
Glass-Steagall stands out, not in that they'd necessarily have gone to prison, but specific regulation likely could have softened the blow. I realize this is debated, but I wanted to counter the undercurrent of your post that the finance industry isn't working to undermine protective regulation for their own benefit, leaving us in a situation with very little pragmatic recourse for damages.
Glass-Steagall prohibited the combination of investment banks and commercial banks. Interestingly enough, during the financial crisis, these combined entities actually fared pretty well. It was the stand alone investment banks that had the most problems and caused the most instability.
On one hand there's some intuitive sense to that; by nature of being combined entities with a less risky business class you have less exposure to the fallout.
On the other hand, when you say "fared pretty well" do you mean insofar as "they didn't totally implode"? because at a glance every "bog standard bank" I'm pulling up #'s for over 06-08 did pretty terribly.
That all being said, I'll echo, I agree that glass-Steagall wouldn't have prevented the financial crisis; and potentially had minimal mitigating effect, but stand by my core thrust that it's a datapoint of consumer-serving regulation being overturned by the interested parties to leave us in a situation where instituting even stronger regulation that might impose criminal consequences is politically infeasible.
You’re talking about two different kinds of things. Regulations exist to address conduct that isn’t inherently wrongful, but may be undesirable. Criminal laws exist to address conduct that is inherently malicious. They’re not on a spectrum, they’re two different things.
We repealed Glass-Steagall for the same reason we deregulated airline fares. It was part of a larger, mostly positive trend of deregulating major sectors of the economy. That really has nothing to do with whether there are criminal laws we could’ve instituted. Were we going to put people in jail for trying to combine a commercial bank with an investment bank? Were we going to put people in jail for shoddy underwriting of mortgages?
The fact that people always call for bankers to be jailed, but never specific bankers for specific conduct, is telling. When you’re talking about an anonymous our composite of an entire industry of people, it’s easy to project all the bad intent we consider necessary to prosecuting someone for a crime. It’s much harder when you’re talking about a specific person and his or her specific conduct. “We should send someone to jail because 35% of mortgages in this portfolio should’ve been valued this way if you used these different underwriting standards. No, he didn’t do the underwriting or tell anyone which standards to use. But he was higher on the org chart than the people who did!”
You seem to be selectively ignoring my core point.
You're touting a narrative that distracts from the actual failure mode of these systems, repeatedly asking for the singular responsibility or legal culpability for the crisis, when that's not what I'm addressing.
My focus is instead on the systemic patterns that allow for these decisions to be made _without liability_. Of course no one person decided, "let's go out and screw over mortgage holders," there was simply no natural incentive to look too hard at if that was happening; and in a political situation wherein even basic protections can't be maintained, _of course_ there wouldn't be laws to assign personal liability.
It's funny that you bring up airline deregulation, as I consider that a wonderful example of exactly the pattern I'm citing. Although costs dropped, service quality followed alongside massive consolidation, soon accompanied by drops in employee pay and benefits, to the point that airlines now regularly file for bankruptcy and use that opportunity to further divest themselves of employee commitments while still giving massive bonuses to executives. (and similarly to the banks, in most of these cases _no one did anything illegal_)
Yet; there is still no hope of even re-instituting regulatory regimes, let alone punitive regimes. (look at recent airline behaviors in the news re: bumping and consumer abuses, and the extremely muted responses for examples of this. While that might not directly result from deregulation, it speaks towards an extremely un-empowered consumer base)
I would cap this rebuttal with a quote to directly shut down your assertion that deregulation has been "mostly positive", especially in light of your airline context, from the former CEO of American Airlines:
"The consequences of deregulation have been very adverse. Our airlines, once world leaders, are now laggards in every category, including fleet age, service quality and international reputation. Fewer and fewer flights are on time. Airport congestion has become a staple of late-night comedy shows. An even higher percentage of bags are lost or misplaced. Last-minute seats are harder and harder to find. Passenger complaints have skyrocketed. Airline service, by any standard, has become unacceptable."
To bring this ramble back to the point, I believe it's the wrong question to ask "what specific law did they break" when we've had a combination of conscious choice to trade worker and consumer protections for lower costs, and incentives aligned behind the powers that be to encourage that, such that even the most basic protections are non-existent, let alone a specific system of accountability.
Just to add a little perspective, American Airlines used to fly with a grand piano in their airplanes (in the 747 upper deck lounge). There is absolutely no way that would ever make financial sense without the heavy cost of regulatory capture being integrated into the ticket price. Modern day luxury personal airliners aren't even that austentacious with regards to weight (which directly translates into cost to operate).
This isn't your main point but service quality hasn't dropped on airlines. You can still receive gold plated service if you are willing to pay the prices that used to be paid (or just fly enough to get sufficient status). What has happened is that the market has provided what people actually want: cheap flights with no frills.
Airline deregulation has been an unmitigated success for customers.
Yes, and I think something else has happened to flying as well. Computer modeling has gotten so much better. I have flown a lot over the years (just under 2 million miles on American alone), and I notice a huge difference between the number of empty seats on flights in the 1990's vs today. Back then, one of the perks I was given for being a frequent flier on American was that I was usually seated with an empty middle seat next to me. Now, with even higher status, I never have an empty middle seat next to me; boarding is more difficult, fitting my carry-on overhead is more difficult, getting attention from an attendant is more difficult, etc.
> The fact that people always call for bankers to be jailed, but never specific bankers for specific conduct, is telling.
The only telling thing about is that the system is so incredibly opaque, and responsibility for harm is so diffused in it, that it's a criminal's dream.
What sort of redress should we seek for their reckless behaviour? Criminal convictions, debt forgiveness, nationalization. Not a single one of them took place. Just because the public was not directly being defrauded (even though plenty of actual fraud did take place), doesn't mean that we were not impacted by the fraud that was taking place.
Who was responsible for the Iraq war? Everyone was involved in the lies that lead up to it, but nobody - nobody has been held accountable. Does that mean that there wasn't a thing wrong with how the GOP dragged two countries into it? It's just an unfortunate accident that bad behaviour in bad faith brought about bad results, and we should throw our hands in the air and say: "Well, shucks! What an unfortunate accident! It would be terrible if we sought redress for it... Or changed the rules so that it wouldn't happen again."
> Do you have an example of a law you think should’ve been
> used to put people in prison that we didn’t pass because
> of lobbying?
Aside from the topic at hand, this question shows a great deal of
ignorance about how laws are written.
It's not like there's some independent agency or submission process
where people can submit completed bills, which'll only get picked up or
not depending on special interests. So we could somehow review the
difference between laws that got picked up and passed v.s. those who
didn't as some check on corruption.
Rather, the laws don't get written to begin with if they don't align
with special interests, that's how pervasive they are.
Are you joking? People propose laws all the time. Maybe not in the specific legislative language that you need before you actually pass a bill, but certainly the general idea. Journalists do it. Think tanks do it. Advocacy organizations do it. Even regular people do it. Haven't you ever heard someone say "There should be a law against that!" ?
So whenever someone says "there should be a law against that" that's something that should count against the GPs request for examples of laws that didn't pass?
Then "annoying children in restaurants" or something equally absurd would be the #1 most requested law by that metric.
I was referring to laws that would actually get presented to the legislature to vote on, which the GP is proposing as some metric, but as I'm pointing out can't be used as such because the very fact that it's made it that far is a function of special interests, think tanks etc.
GP didn't ask about the most requested law. He asked for some examples of laws that, if they had been on the books in the financial crisis era but were prevented from being there by lobbying, would have ended up with people in prison due to their actions.
He didn't say anything about "being presented to the legislature." As you make clear, the actual legislative votes aren't really all that important compared to everything that comes before that point.
That request is just rhetorical grandstanding. There's no way for anyone to know what laws would have been realistically proposed and passed if the universe wasn't in the state that it's currently in.
If you attempted to collate such a list you'd end up with an infinite amount of garbage, including but not limited to a proposed law that anyone suspected of wrongdoing be beheaded.
marricks asserted that no one went to jail because bankers hire lobbyists to make sure that laws are written in such a way as to make the jailing of bankers impossible.
Asking for a specific example of when that has happened isn't rhetorical grandstanding, it's just asking for evidence to support a claim.
> Definitely agree we should have paid off mortgages instead though.
So if Donald Trump has a mortgage on a penthouse apartment worth $25 million the government should have paid that off, but some family making $15,000/year that can't get a mortgage in the first place should get nothing? Pay off all the mortgages is a terrible idea.
It's a terrible idea mainly in that it is unfair to everyone who didn't drink the kool-aid and buy a house because the value was supposed to always go up. Not just because wealthy people might profit.
If there's ever another bailout, they should heavily regulate the people who gain something from it. Not as a punitive measure, but more like a statement of good faith. "If you bought these homes, surely that meant you intended to live in them. So as a condition of the bailout you can't sell them for more than X or rent them for more than Y." It seems drastic, but I can't see many other ways to approach fairness in that situation.
But I don't think we've learned because people are still arguing over whether we should have just thrown the bankers in prison, like the system wouldn't just replace them with more bankers.
> It's a terrible idea mainly in that it is unfair to everyone who didn't drink the kool-aid and buy a house because the value was supposed to always go up. Not just because wealthy people might profit.
It's a terrible idea for a lot of different reasons. Above all because it isn't a good idea. It doesn't come out of any kind of problem solving or optimization logic, just "wouldn't be awesome if I didn't have a mortgage anymore".
> But I don't think we've learned because people are still arguing over whether we should have just thrown the bankers in prison, like the system wouldn't just replace them with more bankers.
People are influenced by fear as well as greed. Of course the system would just come up with more bank executives. We'd want it to. But those bank executives would have something more to fear than just an earlier retirement than they had hoped for. Their greed would push them in one direction and their fear in the other. Hopefully the two would balance out to something closer to the social optimum. At the very least we should expect it to be closer than when there's nothing to fear at all.
Yes it’s a terrible and immoral idea. It basically means giving people with mortgages free houses. What about people who are renting? I wonder how they would feel if other people except them were given free houses from the government.
It also means rewarding fiscal irresponsibility as people who took 90-100% mortgages on big houses and could barely afford repayments are going to be rewarded while fiscally responsible people who were renting and maybe saving for a deposit down the line get nothing.
They get more house supply, at a much cheaper price. What tended to happen (at least in places without non-recourse loans) is that all of the people in houses pay way too much towards their mortgage, have to make sacrifices in other areas of their spending, and loads of retail/service employees get fired.
Then rent like the rest of us. Don't take a mortgage if you can't afford it. Rent and save a bigger deposit so you can take mortgage with lower repayments.
The idea that people should be rewarded for making poor choices / taking loans they cannot afford is really worrisome.
But I don't think we've learned because people are still arguing over whether we should have just thrown the bankers in prison, like the system wouldn't just replace them with more bankers.
Yes it is far better to let the banks fail. Then the system replaces the bankers, with no cost to taxpayers!
Agreed. The more sensible forms of debt jubilee I've seen proposed would give money to everyone equally, but with the proviso that if you have debt you have to use the money to pay that off first.
I just don't understand what the point or justification purpose of this massive give away is supposed to be in the first place. Why are people with about twice the median income (=can qualify for a mortgage on $400,000 home) getting a multi-hundred thousand dollar check from uncle sam?
If we are going to do wealth distribution why not start at the bottom and work our way up, instead starting in the middle and working our way up to the upper middle?
Why was our solution to bail out the ones that caused the crisis and allow them to just get richer thereafter?
Sure, universal income and taxing the richest more, re-enacting glass-steagall is better I'm just saying in that situation it would have been more moral to just forgive mortgages than what we ended up doing.
By pay off mortgages, do you mean essentially giving free houses to people (e.g. rewarding them for making incredibly poor choices and financing homes they can't afford)? Or do you mean pay them off temporarily and have those people pay the government back?
If it's the former, what kind of message would that send to those of us who were responsible enough to avoid getting in over our heads?
It depends how you see the situation. Do you think it's closer to people acting irresponsibly, or closer to people getting scammed on a massive scale by institutions they trusted to provide good risk estimation? I'd go with 80% scam loans, where the scammers should lose the money and the scammed should get some kind of help. (Possibly not a full free repayment though - maybe maintaining the fixed introductory rate?) Because what kind of message are you sending otherwise? And how would more people in debt help the society at the moment?
Many of the people we're talking about were dumb enough to buy $500k+ homes on "stated income loans", when they had little or no actual income to speak of. While I do think the people who were offering those loans should have been punished both financially and criminally, I don't think the people who were foolish enough to use them to buy homes they couldn't afford should have been rewarded.
So what about people who are renting? Will they get a 300k cheque from government since people with mortgages are getting paid off? Or will renters get totally screwed over?
So what about whataboutism? They're not a part of the risky buyer / scammy lender scenario. There are loads of issues with the properties market, but this situation didn't apply to all of them. As long as the solution doesn't make the property prices raise even more, renters should not be affected.
Also, I specifically mentioned that some of the blame is on the buyers, so instead of free houses, they could be given the opportunity to continue paying off at the original terms, or a similar form of help. Remember that if the buyers don't get the houses in the end, the banks do instead. And why would we want that to happen?
The way I understood you is that all mortgages should have been paid off by the government. So if people keep the houses and their mortgages are paid off by a gov bailout that is essentially like giving free houses to half of population while the other half that is renting gets nothing.
That is a huge moral hazard. It is essentially same as giving 300k cheque to a selected part of population based on arbitrary logic. How can that be fair to do that? The only fair way to do it would be to just write a cheque for everybody. So all people get the same handout. Any other way is super discriminatory.
I understand that it's appealing for people with mortgages but you have to see how massively discriminatory and unfair that would be.
Definitely agree we should have paid off mortgages instead though.
Wow, OK. Let's think this through a bit further. What effect on the housing market, to say nothing of civil society, would you expect if the government were to stop the music and pay off everyone's mortgages using everyone else's taxes?
Definitely agree we should have paid off mortgages instead though.