Rug Burn Junky on 3/9/2011 at 01:37
Quote Posted by Pyrian
In my experience, for virtually every case of so-called criminal negligence there are several technical-minded peons who've pointed it out to middle management, which in turn decided to look the other way and even communicate that as unofficial policy. But that's usually difficult or impossible to prove, so "should have known" ends up being the only standard that can be enforced.
From a legal perspective, absolutely. And it
should be enforced. The problem is that it gets conflated with the moral question by people just out to hang the bankers in effigy. That leads to hysterical overreactions and bad policy.
But not only that, anyone who would have whistleblown on this wouldn't have even had the ear of the traders who packaged them for Fannie/Freddie. It's not a vertical arrangement, where the traders have authority over the brokers. A lot of times the traders were at different companies altogether from the brokers who wrote the mortgages. relying on a representation and warranty in a purchase agreement, even when working at the same "Bank."
The fact is, if you have a proper regulatory regime to fix the problems that led up to the financial crisis, the one part of the chain that really wouldn't change is the trading at the investment bank level - which is where this lawsuit is focused. What needs to be tightened are the steps below that, where the malfeasance typically occurred. But because of the economies of scale (and the "certainty" of securities disclosure laws), it's easier to go after the big banks who sold the securities, than each of the brokers who wrote the mortgages in the first place. And in the long term, that will have an effect - if you kill the market for bad mortgages at any step in the chain, it will discourage bad practices. But that doesn't mean that this is the most effective way to get there.
Actually, in a weird way, the fact that this lawsuit is structured the way it is is precisely why the investments aren't the cause. The securities disclosure laws ('33 Act, mainly) are robust enough that there are methods of determining culpability even when you're up the chain.
Quote:
Personally, I think it's kind of disgusting that CEO's with enormous compensation packages are so quick to deny any responsibility for what their companies do.
I don't entirely disagree, but seeing what I've seen at senior levels of banking, it's really not possible to have complete knowledge of what the entire corporation is engaged in on a micro level. You simply have to rely on your lieutenants. That's not to say that they can completely disavow responsibility, because you can and should own your actions: I've had the CEO of one of our affiliate entities tell me that he wasn't signing a fairly innocuous document until I could explain the full of chain of due diligence behind it. That killed at least an extra day of work, but I was happy to do it for him. But from personal experience, if I had to check into the underlying facts on every thing I worked on, I'd have to put in a 32 hour workday just to be half as productive as I am now. Tasks can't be accomplished on a large scale without spreading responsibility around, and when the happens "blame" becomes diffuse. It's one of the reasons that the notion of corporate personhood has real problems, because people want to anthropomorphize that into the CEO. It's nice to think that you can just hold the guy at the top personally responsible for all acts of the corporation itself, but that's really a quaint, naive notion.
The compensation, however, is all out of whack, but that's a market failure. The answer is to figure out a way to limit that fairly, not to put outlandish responsibilities on what truly is a mere administrative role in most corporate structures.
CCCToad on 3/9/2011 at 04:07
Quote Posted by Pyrian
In my experience, for virtually every case of so-called criminal negligence there are several technical-minded peons who've pointed it out to middle management, which in turn decided to look the other way and even communicate that as unofficial policy. But that's usually difficult or impossible to prove, so "should have known" ends up being the only standard that can be enforced.
Good point, that's an inherent problem in any Bureaucracy though. There's a natural tendency to ass-kiss the man above you and cover for his mistakes, so that you can get his job one day.
Spitzer's investigation found exactly the same situation with the ".com bubble", where hordes of middle managers were aware that some share prices were artificially inflated but swept it under the rug.
Rug Burn Junky on 3/9/2011 at 15:04
Spitzer was a grandstanding jack ass. Saying that people figured out that prices were "artifically inflated" during a bubble should be met with "no shit, sherlock." Market price is market price and you can't fight stampeding bulls. Saying that you recognize a bubble and trade accordinglt, and assigning fault are two different things.
Spitzer twisted that for his own political gain, the same way people are demagoguing "the banks just profited off of TARP!"* now, and you have to be an ignorant buffoon to fall for it.
Oh, yeah... guess that's par for the course. Now get the fuck out of this thread.
*Remember, also, that the whole Tea Party movement can trace its coalescing moment to Rick Santelli bitching about homeownermortgage relief, and that somehow morphed into screaming about the banks, without realizing that they're two fundamentally different, and mostly opposed, narratives.
dexterward on 3/9/2011 at 17:08
Quote Posted by CCCToad
Wall Street is pure evil, and must be removed from their control of the government before this country can prosper again.
Pretty much, also can be applied across the whole world. Mental shortcut, of course, but so what. Any kind of "informed debate" on this subject is completely pointless, human greed will prevail no matter what, as witnessed across last few years. (Unfortunately most humans also have an attention span of a, well, human, and as such already forgotten the giant dick that burst the bubble shafting them nicely at the same time)
