Radical finace reform: How about enforcing the law?
When big disasters happen we want a big solution. It's human nature to want a remedy that is seemingly proportionate to the disease. So after the terrorist attacks of Sept. 11, 2001, we didn't just ban box cutters from airplanes and rest assured that in the future no passengers would ever again allow their plane to be turned into a guided missle. (Even if terrorists overpowered the crew, passengers would gang up and thwart the mission, like the heroes on United Flight 93.) No. Instead we invaded two countries, spent more than $1 trillion, formed the Department of Homeland Security etc.
Little things can make a big difference, as Malcolm Gladwell taught us in The Tipping Point. Often they make a bigger difference than big things. The reaction to last year's financial disaster is big. We're talking about founding a consumer financial safety agency. We're going to regulate hedge funds, require new forms to be filled out, enable the hiring of even more lawyers etc. I wrote in favor last week.
But, reacting to the column, reader Mark Adams had another idea. How about if we just enforce the fraud and perjury statutes already on the books? The subprime mortgage crisis might never have happened, or at least it wouldn't have been as bad, without "liar loans'' -- borrowers and mortgage originators basically defrauding lenders by lying about their incomes and assets. Is it not astonishing that none or few if these lying borrowers are being prosecuted? Here is Mark:
Hi Jay,The best financial regulation that could be created would be mandatory prosecution and jail time for perjury. None of the financial crises you spoke of could have been accomplished without multiple acts of perjury. In order for mortgage backed securities to go south, it took an entire network of perjurers -- borrowers, loan officers, appraisers, brokers, rating agencies. None of them ever gets prosecuted for perjury, unless a particular prosecutor is trying to leverage them for some other crime. The whole concept of having something called a "liar's loan," which originates with a sworn financial statement and application, is just insane.
When Bill Clinton was in the jackpot for perjury, I was one of the people who thought he should have been prosecuted. I voted for the guy...
twice and actually liked him as a president and as a person. But you just can't have people lying under oath at any level of society. The whole world relies on people telling the truth under oath. If they don't want to tell the truth, they shouldn't sign sworn documents.If a particular business or industry wants to tolerate a bit of deception and dishonesty in certain transactions, it should be allowed to do so. But it shouldn't be allowed to use sworn documents in its operations. The absence of sworn documents would be a good indicator of reliability of particular types of transactions.
