Yes, the some bankers deserve jail
I've been of two minds on potential prosecutions of mortgage bankers and their henchmen. I think most business folks obeyed the rules of the system as it was designed, and I'm surprised by the pushback that happens every time somebody mentions that those committing fraud included the homebuyers who lied about their income and assets on their loan applications. Being a small fry doesn't exempt you from the law. And the gut calculation of, "There was a terrible financial crash so somebody must be guilty," doesn't lock the case. How much of the crash was caused by fraud, and how much was the inevitable denouement of a massive investment bubble?
On the other hand, as the late Charles Kindleberger pointed out long ago, massive fraud always accompanies investment manias, and the housing bubble was no exception. Fraud may not have caused the crash, but there is strong prima facie indication that it existed in various pockets and should be dealt with. Most eloquent on this has been Barry Ritholtz, who has another terrific post today on prosecuting banksters and lists 10 areas ripe for indictments:
1. MERS 2. Mortgage Pools (Warranties & Reps) 3. Bad Securitization (Quality) 4. “Misplaced” Mortgage Notes 5. Force-Placed Insurance 6. Illegal “Pyramid” Servicing Fees 7. Document Fraud for Sale 8. False Affidavits, Perjury (Robo-Signing) 9. Foreclosure Mills, Process servers exasperate problem 10. Active Servicemen losing homes while on tour of dutyOf this list, five issues are prosecution-ready, where individual states have jurisdiction. These include: 1) Force-Placed Insurance; 2) Illegal “Pyramid” Servicing Fees; 3) Fraud Documents for Sale; 4) False Affidavits, Perjury (Robo-Signing) and 5) Foreclosure Mills, Process servers.
Also, see Megan McArdle debate Matt Taibbi on the subject of Goldman Sachs.
Let me also say, by way of shop talk, that all this discussion is quite healthy and that we owe it largely to the Web. Mainstream media is petrified of getting sued for libel and has adopted elaborate rituals for discussing criminality and potential criminality. You don't want to convict someone in the paper, but the taboos also suppress even reasonable discussions of potential wrongdoing until allegations are certified by a prosecutor. Ritholtz's comments (even without the mf bomb!) would be unimaginable in the New York Times.
Comments
How much of the crash was caused by fraud, and how much was the inevitable denouement of a massive investment bubble...
And how much was due to the inability or incapacity of regulators and oversight agencies to monitor and of that aspect... how much was the result of a deliberate and conscious choice to simply not fund those regulators and oversight agencies?
We shouldn't need to empty the prisons of all the victims of drug prohibition sentences to provide enough space to house those who should go to jail over this... the 50-100 Bush Administration members and the other 100 or so from industry will fit just about anywhere.
Posted by: MrRational | May 20, 2011 10:28 AM
Yes, praise be to the internet for making the spread of information so much easier.
I honestly don't know how people stayed informed without it..
They must have had newsprint on their hands all the time...
Posted by: John J. Walters | May 20, 2011 11:46 AM
Non payment of a debt is a civil matter.
Forging documents and committing perjury is fellony criminal. So is conspiring to do so or turning a blind eye and participating in the scheme.
No right of action stems from fraud. A Plaintiff who commits fraud on the court is not permitted by law to profit from it's fraud.
We don't need millions spent on extra judges to process foreclosure cases, we need millions spend on prosecution of the banks and mortgage companies committing fraud.
That will shake the financial system, but that is the price for getting rid of the disease and dead wood.
Posted by: JamesM | May 20, 2011 5:16 PM