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Why Did Economists Not Spot the Crisis?

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  • #31
    Too big to fail has been around since the early 1980's when Continental Illinois went belly up and the Fed stepped in to cover them. That, and the Greenspan Put has been around since 1987 or so. Is it any surprise that 20 years later of the same behavior on behalf of the Fed, the banks acted the way they did?

    "If some banks are thought to be too big to fail, then, in the words of a distinguished American economist, they are too big. It is not sensible to allow large banks to combine high street retail banking with risky investment banking or funding strategies, and then provide an implicit state guarantee against failure." - Mervyn King, Governor, Bank of England quoting Alan Greenspan.
    Meddle not in the affairs of dragons, for you are crunchy and taste good with ketchup.

    Abusing Yellow is meant to be a labor of love, not something you sell to the highest bidder.

    Comment


    • #32
      Originally posted by gunnut View Post
      The big banks probably did, but not the individual home owners.

      Hank Paulson sat on the board of AIG which insured some of these assets. He had a personal interest to make sure these institutions remained solvent. This is the example of the "good ol' boys network" and you will rarely see me use that term.
      Ok, then what Greenspan said does not apply to the big banks. Good to know rational actor theory still holds :)

      Originally posted by gunnut View Post
      The individual buyers didn't think the good times would end. They knew it would end, just not on their watch. They had to get in before real estate got really out of hand. Some of them saw how the system worked and bought more than they could afford. They relied on future equity to pay off present debt. Once people stopped buying, this "future" disappeared.
      I thought the bubble burst the moment ppl had to start making payments on what they bought.

      Originally posted by gunnut View Post
      If you bought in 2001 and sold in 2006, you probably made 80% to 100%.

      If you bought in 2003 and sold in 2006, you probably made 40% to 60%.

      If you bought in 2006 like I did, you would have lost 40%. No one's here to bail me out. I don't want anyone to bail me out. But how often do you find people like me? I could have just walked away and totalled up the losses at 20% 3 years ago. I stuck around because I actually have a sense of responsibility. I practice what I preach.
      Sorry to hear

      Comment


      • #33
        Someone used the the recent recession to explain Adam Smith's Invisible Hand theory to me, I hope I got the explanation right. After every recession/depression prices will return to normal rates. Perhaps not as high as the bubble, but if the market follows the rules, prices will rise. In this instance, people bought houses they couldn't afford, and ended up losing them. People with money (Vultures) bought up the houses for cheap, which leads to some people having a shitload of houses which they can sell at whatever price they like. After a while the housing market will bounce back, because let's face it, people need places to live. The market will reach an equilibrium where people will buy houses for more than they were buying in 2001 but still at a lower price than normal, since the Vultures who now have shitloads of houses want to unload them, since they aren't making a profit just sitting there. If the Vultures play it smart and unload the houses at a good price, they will still make a good profit.

        You also need to look at the purpose of why the house was bought. If it was bought for someone to live in, than the worth of the house is fairly irrelevant. Sure, it could have been bought for cheaper, but as long as he can keep making the payments and likes the house, it's a question of missing out on an opportunity to get in cheap, but it's not a loss, per se. If the house was bought as an investment, then yes, a drop in the market is harmful to the buyer. He then has two choices: Either to unload the house (possibly to a Vulture) and cut losses, or try and stick it out for the long haul, where he might not get his original price back, but could potentially make more than if he unloads it to a Vulture
        Meddle not in the affairs of dragons, for you are crunchy and taste good with ketchup.

        Abusing Yellow is meant to be a labor of love, not something you sell to the highest bidder.

        Comment


        • #34
          Originally posted by Double Edge View Post
          Ok, then what Greenspan said does not apply to the big banks. Good to know rational actor theory still holds :)
          You mean "irrational exuberance?"

          Originally posted by Double Edge View Post
          I thought the bubble burst the moment ppl had to start making payments on what they bought.
          The bubble burst when those who bought more than what they could afford were not able to pass the property down to the next buyer for a profit. There were a few reasons for this.

          First is market saturation. Everyone who could afford a house already has one. Everyone who could afford only half a house, but borrowed more to get a full house, already has one too. Who's left to buy more houses?

          Second is sort of related to the first. Sub-prime borrowers have always made minimum (interest only) payment on the houses they couldn't afford. This method doesn't build any equity. What they relied on was the market driving up the prices of their houses so they could sell for a profit. When no one's left to buy these overpriced houses, they're left holding the bag. Those who were in it to make a few quick bucks just walked away from their loans and they're done. If they had already flipped a few houses, they're still in the positive. Who's left with these bad loans? The banks. Who insures these loans? Fannie and Freddie. Who owns Fannie and Freddie? The federal government. Do you think the federal government will let a government enterprise go under?

          The whole thing was a pyramid scheme made possible by government enterprises and the stupid notion that "everyone should be able to own his own home." Fannie and Freddie were established by FDR. Big surprise.

          Originally posted by Double Edge View Post
          Sorry to hear
          Thank you. I will get through this. I just won't be able to afford that nice car or that trip around the world...2 or 3 cars...and 2 or 3 trips around the world...
          Last edited by gunnut; 16 Feb 11,, 01:04.
          "Only Nixon can go to China." -- Old Vulcan proverb.

          Comment


          • #35
            Originally posted by bigross86 View Post
            Someone used the the recent recession to explain Adam Smith's Invisible Hand theory to me, I hope I got the explanation right. After every recession/depression prices will return to normal rates. Perhaps not as high as the bubble, but if the market follows the rules, prices will rise. In this instance, people bought houses they couldn't afford, and ended up losing them. People with money (Vultures) bought up the houses for cheap, which leads to some people having a shitload of houses which they can sell at whatever price they like. After a while the housing market will bounce back, because let's face it, people need places to live. The market will reach an equilibrium where people will buy houses for more than they were buying in 2001 but still at a lower price than normal, since the Vultures who now have shitloads of houses want to unload them, since they aren't making a profit just sitting there. If the Vultures play it smart and unload the houses at a good price, they will still make a good profit.

            You also need to look at the purpose of why the house was bought. If it was bought for someone to live in, than the worth of the house is fairly irrelevant. Sure, it could have been bought for cheaper, but as long as he can keep making the payments and likes the house, it's a question of missing out on an opportunity to get in cheap, but it's not a loss, per se. If the house was bought as an investment, then yes, a drop in the market is harmful to the buyer. He then has two choices: Either to unload the house (possibly to a Vulture) and cut losses, or try and stick it out for the long haul, where he might not get his original price back, but could potentially make more than if he unloads it to a Vulture
            But the vultures will also need to look at the cost of sitting on those properties. Even getting in on the cheap is still not that cheap when you factor in various taxes and fees to maintain the property. Here in California the property tax is capped at 1% of the purchase price, subject to some modifications. That sounds good on paper, but we make it up with overpriced real estate. A 1% tax on a 1000 square foot condo is a lot when that condo is valued at $300,000 in a decent neighborhood.

            Housing prices haven't really changed much since the crash. Stock market has been up, and down, and now up again. Depends on when you get in and get out, your money is better in the market making roughly 10% per year than in the real estate market with a fixed drain every year.
            "Only Nixon can go to China." -- Old Vulcan proverb.

            Comment


            • #36
              Originally posted by Shek View Post
              You're confusing both national debt with private debt and the quality of debt.
              I don't think I'm confused, because you see, they all have a pattern. When the normal pattern reaches unprecedental levels, that is a warning, is it not?

              Comment


              • #37
                Originally posted by gunnut View Post
                But the vultures will also need to look at the cost of sitting on those properties. Even getting in on the cheap is still not that cheap when you factor in various taxes and fees to maintain the property. Here in California the property tax is capped at 1% of the purchase price, subject to some modifications. That sounds good on paper, but we make it up with overpriced real estate. A 1% tax on a 1000 square foot condo is a lot when that condo is valued at $300,000 in a decent neighborhood.

                Housing prices haven't really changed much since the crash. Stock market has been up, and down, and now up again. Depends on when you get in and get out, your money is better in the market making roughly 10% per year than in the real estate market with a fixed drain every year.
                So we have to assume that the Vultures know what they are getting into, or else they keep the recession rolling instead of being a part of fixing it.

                What I don't understand is how housing prices have stayed the same. If someone made a 100% profit buying in in 2001 and selling in 2006, that means that housing prices doubled between 2001 and 2006. Using you as an example, you say that you lost 40% by buying in 2006, and could have sold at a 20% loss in 2009. That has to mean that real estate was worth 20% more in 2006 than in 2009.

                Or am I making a fundamental mistake somewhere?
                Meddle not in the affairs of dragons, for you are crunchy and taste good with ketchup.

                Abusing Yellow is meant to be a labor of love, not something you sell to the highest bidder.

                Comment


                • #38
                  Originally posted by gunnut View Post
                  You mean "irrational exuberance?"
                  No, i meant greenspan saying he could not understand how institutions could leverage themselves to the point where greed overcame any aversion to risk or instinct of self-preservation is false.

                  Its false these institutions allowed greed to overcome their instinct to self-preservaiton because they knew there would be a bailout. They knew they were too big to fail and that someone would help them out.

                  Its this knowledge about the bailout that allowed them to crank up the risk to insane levels. In lehmans case they lost but the others survived. You would think the managers running this casino would all have got the can for the behaviour when the govt stepped in, but they had contracts stipulating what their bonuses would be so there was no downside, cept for earlier retirement. But they'd find other things to do.


                  Originally posted by gunnut View Post
                  The bubble burst when those who bought more than what they could afford were not able to pass the property down to the next buyer for a profit.
                  And i'm saying because so many people ending up buying what they could not afford, when time came to make payments they defaulted. It was the poorest ones that start defaulting and then it becomes more and before we know its a tide and then a flood.

                  Now if ppl cannot pay back then prices take a hit then those houses will end up back on themarket but now there are fewer to buy and the asking price is lower. Its at this point what you said happens, they cannot pass the property onto the next buyer at the expected price point.

                  Originally posted by gunnut View Post
                  There were a few reasons for this.

                  First is market saturation. Everyone who could afford a house already has one. Everyone who could afford only half a house, but borrowed more to get a full house, already has one too. Who's left to buy more houses?
                  Right.

                  Originally posted by gunnut View Post
                  Second is sort of related to the first. Sub-prime borrowers have always made minimum (interest only) payment on the houses they couldn't afford. This method doesn't build any equity. What they relied on was the market driving up the prices of their houses so they could sell for a profit. When no one's left to buy these overpriced houses, they're left holding the bag. Those who were in it to make a few quick bucks just walked away from their loans and they're done. If they had already flipped a few houses, they're still in the positive. Who's left with these bad loans? The banks. Who insures these loans? Fannie and Freddie. Who owns Fannie and Freddie? The federal government. Do you think the federal government will let a government enterprise go under?
                  Yep

                  Originally posted by gunnut View Post
                  The whole thing was a pyramid scheme made possible by government enterprises and the stupid notion that "everyone should be able to own his own home." Fannie and Freddie were established by FDR. Big surprise.
                  Yes, but he also provided a protection, glass-steagal, which was removed in '98. That was the check that could have prevented this from happening. Ppl want fewer regulations because thats where the big bucks are.

                  You can't have less regulations and institutions that are too big to fail. one has to go. But they got that big because of all the mergers & acquistions in the 90s. See, this is where anti-trust laws might be useful but you don't like that.

                  Its really hellish, there is no way to stop these things from happening. Always preparing to fight the last war

                  Originally posted by gunnut View Post
                  Thank you. I will get through this. I just won't be able to afford that nice car or that trip around the world...2 or 3 cars...and 2 or 3 trips around the world...
                  Ah well nowadays fewer ppl will be able to do that anyway. Its a funny feeling coming out of a boom into a bust. All those notions of what was normal pre-bust don't make sense anymore.
                  Last edited by Double Edge; 16 Feb 11,, 01:50.

                  Comment


                  • #39
                    Originally posted by bigross86 View Post
                    So we have to assume that the Vultures know what they are getting into, or else they keep the recession rolling instead of being a part of fixing it.

                    What I don't understand is how housing prices have stayed the same. If someone made a 100% profit buying in in 2001 and selling in 2006, that means that housing prices doubled between 2001 and 2006. Using you as an example, you say that you lost 40% by buying in 2006, and could have sold at a 20% loss in 2009. That has to mean that real estate was worth 20% more in 2006 than in 2009.

                    Or am I making a fundamental mistake somewhere?
                    All those numbers are rough numbers. The margin will depend on the region and the price of the houses. Housing around my parts have stayed pretty much flat over the last 2 years. I lost about 30% by the beginning of 2009 and another 10% since.

                    Perhaps I wasn't clear on what "since the crash" meant. The housing market crash took about 3 years to complete, from 2007 to the end of 2009. Prices have remained relatively stable since with very light trading volumes.
                    "Only Nixon can go to China." -- Old Vulcan proverb.

                    Comment


                    • #40
                      Originally posted by Double Edge View Post
                      No, i meant greenspan saying he could not understand how institutions could leverage themselves to the point where greed overcame any aversion to risk or instinct of self-preservation is false.

                      Its false these institutions allowed greed to overcome their instinct to self-preservaiton because they knew there would be a bailout. They knew they were too big to fail and that someone would help them out.

                      Its this knowledge about the bailout that allowed them to crank up the risk to insane levels. In lehmans case they lost but the others survived. You would think the managers running this casino would all have got the can for the behaviour when the govt stepped in, but they had contracts stipulating what their bonuses would be so there was no downside, cept for earlier retirement. But they'd find other things to do.
                      You pretty much nailed it. They knew they were too big to fail. Look at how much Goldman Sachs made before the crash. It only made MORE since.

                      Originally posted by Double Edge View Post
                      And i'm saying because so many people ending up buying what they could not afford, when time came to make payments they defaulted. It was the poorest ones that start defaulting and then it becomes more and before we know its a tide and then a flood.

                      Now if ppl cannot pay back then prices take a hit then those houses will end up back on themarket but now there are fewer to buy and the asking price is lower. Its at this point what you said happens, they cannot pass the property onto the next buyer at the expected price point.
                      Yes, and of course the road to hell is paved with good intentions. Government forced loose lending standards on the banks because otherwise they would be "racist." You can't just apply loose standards to the poor. You have to apply them to all. So those with more money started to buy more. Those who don't need houses bought 2nd houses. And on and on. This loose lending standard drove up the market. Guess who are the first to suffer and could least afford to walk away?

                      Originally posted by Double Edge View Post
                      Yes, but he also provided a protection, glass-steagal, which was removed in '98. That was the check that could have prevented this from happening. Ppl want fewer regulations because thats where the big bucks are.

                      You can't have less regulations and institutions that are too big to fail. one has to go. But they got that big because of all the mergers & acquistions in the 90s. See, this is where anti-trust laws might be useful but you don't like that.

                      Its really hellish, there is no way to stop these things from happening. Always preparing to fight the last war
                      Not fewer regulations, but wrong regulations caused this crash. Poor people shouldn't be able to buy stuff they can't afford. Owning a home is not the American dream. The American dream is to make enough money to buy whatever you want, if you choose so, a home, without government interference.

                      The first step to prevent a mess like this from happening again is to get rid of Fannie and Freddie. Stop subsidizing poor people. Banks will need to actually look at the risk now instead of just passing it on to the feds. When the money comes out of their own pocket, they will be more mindful. At the same time, STOP with the mortgage interest deduction and homeowner's tax credit. It manipulates the market by enticing people to buy something they might not buy otherwise. See how the little things in the tax form could actually be a part of the housing bubble?

                      Remember, government is not the solution to our problems. Government IS the problem.

                      Originally posted by Double Edge View Post
                      Ah well nowadays fewer ppl will be able to do that anyway. Its a funny feeling coming out of a boom into a bust. All those notions of what was normal pre-bust don't make sense anymore.
                      Good thing I'm cheap and never got used to the flush years.
                      Last edited by gunnut; 16 Feb 11,, 02:15.
                      "Only Nixon can go to China." -- Old Vulcan proverb.

                      Comment


                      • #41
                        gunnut,

                        the whole thing was a pyramid scheme made possible by government enterprises and the stupid notion that "everyone should be able to own his own home." Fannie and Freddie were established by FDR. Big surprise.
                        the whole market was over-saturated, not just housing for lower income people. in fact, IIRC the bubble was worst among already high-value properties, which indicates a high-degree of middle class/upper-middle class use of mortgage leveraging.

                        it's also clear that internal banking regulations broke down as banks sought massive short-term profit. they in fact leveraged their own money from the regular business of lending to get into more profitable, exotic instruments.

                        note that this was a worldwide phenomena. last time i checked, spain, ireland, UK, france, and italy didn't have fannie/freddie.
                        There is a cult of ignorance in the United States, and there has always been. The strain of anti-intellectualism has been a constant thread winding its way through our political and cultural life, nurtured by the false notion that democracy means that "My ignorance is just as good as your knowledge."- Isaac Asimov

                        Comment


                        • #42
                          Any economist that conflicts with the narrative established by popular media will get routinely ignored.

                          That's why you don't see any conflicting economist opinions on TV, beyond the minimum that is needed for CYA.

                          Comment


                          • #43
                            It's long but an entertaining read
                            Why Isn't Wall Street in Jail? | Rolling Stone Politics Why Isn't Wall Street in Jail?
                            Financial crooks brought down the world's economy — but the feds are doing more to protect them than to prosecute them

                            Illustration by Victor Juhasz
                            Over drinks at a bar on a dreary, snowy night in Washington this past month, a former Senate investigator laughed as he polished off his beer.

                            "Everything's ****ed up, and nobody goes to jail," he said. "That's your whole story right there. Hell, you don't even have to write the rest of it. Just write that."

                            I put down my notebook. "Just that?"

                            "That's right," he said, signaling to the waitress for the check. "Everything's ****ed up, and nobody goes to jail. You can end the piece right there."

                            Nobody goes to jail. This is the mantra of the financial-crisis era, one that saw virtually every major bank and financial company on Wall Street embroiled in obscene criminal scandals that impoverished millions and collectively destroyed hundreds of billions, in fact, trillions of dollars of the world's wealth — and nobody went to jail. Nobody, that is, except Bernie Madoff, a flamboyant and pathological celebrity con artist, whose victims happened to be other rich and famous people.

                            This article appears in the March 3, 2011 issue of Rolling Stone. The issue is available now on newsstands and will appear in the online archive February 18.

                            The rest of them, all of them, got off. Not a single executive who ran the companies that cooked up and cashed in on the phony financial boom — an industrywide scam that involved the mass sale of mismarked, fraudulent mortgage-backed securities — has ever been convicted. Their names by now are familiar to even the most casual Middle American news consumer: companies like AIG, Goldman Sachs, Lehman Brothers, JP Morgan Chase, Bank of America and Morgan Stanley. Most of these firms were directly involved in elaborate fraud and theft. Lehman Brothers hid billions in loans from its investors. Bank of America lied about billions in bonuses. Goldman Sachs failed to tell clients how it put together the born-to-lose toxic mortgage deals it was selling. What's more, many of these companies had corporate chieftains whose actions cost investors billions — from AIG derivatives chief Joe Cassano, who assured investors they would not lose even "one dollar" just months before his unit imploded, to the $263 million in compensation that former Lehman chief Dick "The Gorilla" Fuld conveniently failed to disclose. Yet not one of them has faced time behind bars.

                            Invasion of the Home Snatchers

                            Instead, federal regulators and prosecutors have let the banks and finance companies that tried to burn the world economy to the ground get off with carefully orchestrated settlements — whitewash jobs that involve the firms paying pathetically small fines without even being required to admit wrongdoing. To add insult to injury, the people who actually committed the crimes almost never pay the fines themselves; banks caught defrauding their shareholders often use shareholder money to foot the tab of justice. "If the allegations in these settlements are true," says Jed Rakoff, a federal judge in the Southern District of New York, "it's management buying its way off cheap, from the pockets of their victims."

                            Taibblog: Commentary on politics and the economy by Matt Taibbi

                            To understand the significance of this, one has to think carefully about the efficacy of fines as a punishment for a defendant pool that includes the richest people on earth — people who simply get their companies to pay their fines for them. Conversely, one has to consider the powerful deterrent to further wrongdoing that the state is missing by not introducing this particular class of people to the experience of incarceration. "You put Lloyd Blankfein in pound-me-in-the-ass prison for one six-month term, and all this bullshit would stop, all over Wall Street," says a former congressional aide. "That's all it would take. Just once."

                            But that hasn't happened. Because the entire system set up to monitor and regulate Wall Street is ****ed up.

                            Just ask the people who tried to do the right thing.

                            Wall Street's Naked Swindle


                            Here's how regulation of Wall Street is supposed to work. To begin with, there's a semigigantic list of public and quasi-public agencies ostensibly keeping their eyes on the economy, a dense alphabet soup of banking, insurance, S&L, securities and commodities regulators like the Federal Reserve, the Federal Deposit Insurance Corp. (FDIC), the Office of the Comptroller of the Currency (OCC) and the Commodity Futures Trading Commission (CFTC), as well as supposedly "self-regulating organizations" like the New York Stock Exchange. All of these outfits, by law, can at least begin the process of catching and investigating financial criminals, though none of them has prosecutorial power.

                            The major federal agency on the Wall Street beat is the Securities and Exchange Commission. The SEC watches for violations like insider trading, and also deals with so-called "disclosure violations" — i.e., making sure that all the financial information that publicly traded companies are required to make public actually jibes with reality. But the SEC doesn't have prosecutorial power either, so in practice, when it looks like someone needs to go to jail, they refer the case to the Justice Department. And since the vast majority of crimes in the financial services industry take place in Lower Manhattan, cases referred by the SEC often end up in the U.S. Attorney's Office for the Southern District of New York. Thus, the two top cops on Wall Street are generally considered to be that U.S. attorney — a job that has been held by thunderous prosecutorial personae like Robert Morgenthau and Rudy Giuliani — and the SEC's director of enforcement.

                            The relationship between the SEC and the DOJ is necessarily close, even symbiotic. Since financial crime-fighting requires a high degree of financial expertise — and since the typical drug-and-terrorism-obsessed FBI agent can't balance his own checkbook, let alone tell a synthetic CDO from a credit default swap — the Justice Department ends up leaning heavily on the SEC's army of 1,100 number-crunching investigators to make their cases. In theory, it's a well-oiled, tag-team affair: Billionaire Wall Street Asshole commits fraud, the NYSE catches on and tips off the SEC, the SEC works the case and delivers it to Justice, and Justice perp-walks the Asshole out of Nobu, into a Crown Victoria and off to 36 months of push-ups, license-plate making and Salisbury steak.

                            That's the way it's supposed to work. But a veritable mountain of evidence indicates that when it comes to Wall Street, the justice system not only sucks at punishing financial criminals, it has actually evolved into a highly effective mechanism for protecting financial criminals. This institutional reality has absolutely nothing to do with politics or ideology — it takes place no matter who's in office or which party's in power. To understand how the machinery functions, you have to start back at least a decade ago, as case after case of financial malfeasance was pursued too slowly or not at all, fumbled by a government bureaucracy that too often is on a first-name basis with its targets. Indeed, the shocking pattern of nonenforcement with regard to Wall Street is so deeply ingrained in Washington that it raises a profound and difficult question about the very nature of our society: whether we have created a class of people whose misdeeds are no longer perceived as crimes, almost no matter what those misdeeds are. The SEC and the Justice Department have evolved into a bizarre species of social surgeon serving this nonjailable class, expert not at administering punishment and justice, but at finding and removing criminal responsibility from the bodies of the accused.

                            The systematic lack of regulation has left even the country's top regulators frustrated. Lynn Turner, a former chief accountant for the SEC, laughs darkly at the idea that the criminal justice system is broken when it comes to Wall Street. "I think you've got a wrong assumption — that we even have a law-enforcement agency when it comes to Wall Street," he says.

                            In the hierarchy of the SEC, the chief accountant plays a major role in working to pursue misleading and phony financial disclosures. Turner held the post a decade ago, when one of the most significant cases was swallowed up by the SEC bureaucracy. In the late 1990s, the agency had an open-and-shut case against the Rite Aid drugstore chain, which was using diabolical accounting tricks to cook their books. But instead of moving swiftly to crack down on such scams, the SEC shoved the case into the "deal with it later" file. "The Philadelphia office literally did nothing with the case for a year," Turner recalls. "Very much like the New York office with Madoff." The Rite Aid case dragged on for years — and by the time it was finished, similar accounting fiascoes at Enron and WorldCom had exploded into a full-blown financial crisis. The same was true for another SEC case that presaged the Enron disaster. The agency knew that appliance-maker Sunbeam was using the same kind of accounting scams to systematically hide losses from its investors. But in the end, the SEC's punishment for Sunbeam's CEO, Al "Chainsaw" Dunlap — widely regarded as one of the biggest assholes in the history of American finance — was a fine of $500,000. Dunlap's net worth at the time was an estimated $100 million. The SEC also barred Dunlap from ever running a public company again — forcing him to retire with a mere $99.5 million. Dunlap passed the time collecting royalties from his self-congratulatory memoir. Its title: Mean Business.


                            The pattern of inaction toward shady deals on Wall Street grew worse and worse after Turner left, with one slam-dunk case after another either languishing for years or disappearing altogether. Perhaps the most notorious example involved Gary Aguirre, an SEC investigator who was literally fired after he questioned the agency's failure to pursue an insider-trading case against John Mack, now the chairman of Morgan Stanley and one of America's most powerful bankers.

                            Aguirre joined the SEC in September 2004. Two days into his career as a financial investigator, he was asked to look into an insider-trading complaint against a hedge-fund megastar named Art Samberg. One day, with no advance research or discussion, Samberg had suddenly started buying up huge quantities of shares in a firm called Heller Financial. "It was as if Art Samberg woke up one morning and a voice from the heavens told him to start buying Heller," Aguirre recalls. "And he wasn't just buying shares — there were some days when he was trying to buy three times as many shares as were being traded that day." A few weeks later, Heller was bought by General Electric — and Samberg pocketed $18 million.

                            After some digging, Aguirre found himself focusing on one suspect as the likely source who had tipped Samberg off: John Mack, a close friend of Samberg's who had just stepped down as president of Morgan Stanley. At the time, Mack had been on Samberg's case to cut him into a deal involving a spinoff of the tech company Lucent — an investment that stood to make Mack a lot of money. "Mack is busting my chops" to give him a piece of the action, Samberg told an employee in an e-mail.

                            A week later, Mack flew to Switzerland to interview for a top job at Credit Suisse First Boston. Among the investment bank's clients, as it happened, was a firm called Heller Financial. We don't know for sure what Mack learned on his Swiss trip; years later, Mack would claim that he had thrown away his notes about the meetings. But we do know that as soon as Mack returned from the trip, on a Friday, he called up his buddy Samberg. The very next morning, Mack was cut into the Lucent deal — a favor that netted him more than $10 million. And as soon as the market reopened after the weekend, Samberg started buying every Heller share in sight, right before it was snapped up by GE — a suspiciously timed move that earned him the equivalent of Derek Jeter's annual salary for just a few minutes of work.

                            The deal looked like a classic case of insider trading. But in the summer of 2005, when Aguirre told his boss he planned to interview Mack, things started getting weird. His boss told him the case wasn't likely to fly, explaining that Mack had "powerful political connections." (The investment banker had been a fundraising "Ranger" for George Bush in 2004, and would go on to be a key backer of Hillary Clinton in 2008.)

                            Aguirre also started to feel pressure from Morgan Stanley, which was in the process of trying to rehire Mack as CEO. At first, Aguirre was contacted by the bank's regulatory liaison, Eric Dinallo, a former top aide to Eliot Spitzer. But it didn't take long for Morgan Stanley to work its way up the SEC chain of command. Within three days, another of the firm's lawyers, Mary Jo White, was on the phone with the SEC's director of enforcement. In a shocking move that was later singled out by Senate investigators, the director actually appeared to reassure White, dismissing the case against Mack as "smoke" rather than "fire." White, incidentally, was herself the former U.S. attorney of the Southern District of New York — one of the top cops on Wall Street.

                            Pause for a minute to take this in. Aguirre, an SEC foot soldier, is trying to interview a major Wall Street executive — not handcuff the guy or impound his yacht, mind you, just talk to him. In the course of doing so, he finds out that his target's firm is being represented not only by Eliot Spitzer's former top aide, but by the former U.S. attorney overseeing Wall Street, who is going four levels over his head to speak directly to the chief of the SEC's enforcement division — not Aguirre's boss, but his boss's boss's boss's boss. Mack himself, meanwhile, was being represented by Gary Lynch, a former SEC director of enforcement.

                            Aguirre didn't stand a chance. A month after he complained to his supervisors that he was being blocked from interviewing Mack, he was summarily fired, without notice. The case against Mack was immediately dropped: all depositions canceled, no further subpoenas issued. "It all happened so fast, I needed a seat belt," recalls Aguirre, who had just received a stellar performance review from his bosses. The SEC eventually paid Aguirre a settlement of $755,000 for wrongful dismissal.

                            Rather than going after Mack, the SEC started looking for someone else to blame for tipping off Samberg. (It was, Aguirre quips, "O.J.'s search for the real killers.") It wasn't until a year later that the agency finally got around to interviewing Mack, who denied any wrongdoing. The four-hour deposition took place on August 1st, 2006 — just days after the five-year statute of limitations on insider trading had expired in the case.

                            "At best, the picture shows extraordinarily lax enforcement by the SEC," Senate investigators would later conclude. "At worse, the picture is colored with overtones of a possible cover-up."


                            Episodes like this help explain why so many Wall Street executives felt emboldened to push the regulatory envelope during the mid-2000s. Over and over, even the most obvious cases of fraud and insider dealing got gummed up in the works, and high-ranking executives were almost never prosecuted for their crimes. In 2003, Freddie Mac coughed up $125 million after it was caught misreporting its earnings by $5 billion; nobody went to jail. In 2006, Fannie Mae was fined $400 million, but executives who had overseen phony accounting techniques to jack up their bonuses faced no criminal charges. That same year, AIG paid $1.6 billion after it was caught in a major accounting scandal that would indirectly lead to its collapse two years later, but no executives at the insurance giant were prosecuted.

                            All of this behavior set the stage for the crash of 2008, when Wall Street exploded in a raging Dresden of fraud and criminality. Yet the SEC and the Justice Department have shown almost no inclination to prosecute those most responsible for the catastrophe — even though they had insiders from the two firms whose implosions triggered the crisis, Lehman Brothers and AIG, who were more than willing to supply evidence against top executives.

                            In the case of Lehman Brothers, the SEC had a chance six months before the crash to move against Dick Fuld, a man recently named the worst CEO of all time by Portfolio magazine. A decade before the crash, a Lehman lawyer named Oliver Budde was going through the bank's proxy statements and noticed that it was using a loophole involving Restricted Stock Units to hide tens of millions of dollars of Fuld's compensation. Budde told his bosses that Lehman's use of RSUs was dicey at best, but they blew him off. "We're sorry about your concerns," they told him, "but we're doing it." Disturbed by such shady practices, the lawyer quit the firm in 2006.

                            Then, only a few months after Budde left Lehman, the SEC changed its rules to force companies to disclose exactly how much compensation in RSUs executives had coming to them. "The SEC was basically like, 'We're sick and tired of you people ****ing around — we want a picture of what you're holding,'" Budde says. But instead of coming clean about eight separate RSUs that Fuld had hidden from investors, Lehman filed a proxy statement that was a masterpiece of cynical lawyering. On one page, a chart indicated that Fuld had been awarded $146 million in RSUs. But two pages later, a note in the fine print essentially stated that the chart did not contain the real number — which, it failed to mention, was actually $263 million more than the chart indicated. "They ****ed around even more than they did before," Budde says. (The law firm that helped craft the fine print, Simpson Thacher & Bartlett, would later receive a lucrative federal contract to serve as legal adviser to the TARP bailout.)

                            Budde decided to come forward. In April 2008, he wrote a detailed memo to the SEC about Lehman's history of hidden stocks. Shortly thereafter, he got a letter back that began, "Dear Sir or Madam." It was an automated e-response.

                            "They blew me off," Budde says.

                            Over the course of that summer, Budde tried to contact the SEC several more times, and was ignored each time. Finally, in the fateful week of September 15th, 2008, when Lehman Brothers cracked under the weight of its reckless bets on the subprime market and went into its final death spiral, Budde became seriously concerned. If the government tried to arrange for Lehman to be pawned off on another Wall Street firm, as it had done with Bear Stearns, the U.S. taxpayer might wind up footing the bill for a company with hundreds of millions of dollars in concealed compensation. So Budde again called the SEC, right in the middle of the crisis. "Look," he told regulators. "I gave you huge stuff. You really want to take a look at this."

                            But the feds once again blew him off. A young staff attorney contacted Budde, who once more provided the SEC with copies of all his memos. He never heard from the agency again.

                            "This was like a mini-Madoff," Budde says. "They had six solid months of warnings. They could have done something."

                            Three weeks later, Budde was shocked to see Fuld testifying before the House Government Oversight Committee and whining about how poor he was. "I got no severance, no golden parachute," Fuld moaned. When Rep. Henry Waxman, the committee's chairman, mentioned that he thought Fuld had earned more than $480 million, Fuld corrected him and said he believed it was only $310 million.

                            The true number, Budde calculated, was $529 million. He contacted a Senate investigator to talk about how Fuld had misled Congress, but he never got any response. Meanwhile, in a demonstration of the government's priorities, the Justice Department is proceeding full force with a prosecution of retired baseball player Roger Clemens for lying to Congress about getting a shot of steroids in his ass. "At least Roger didn't screw over the world," Budde says, shaking his head.

                            Fuld has denied any wrongdoing, but his hidden compensation was only a ripple in Lehman's raging tsunami of misdeeds. The investment bank used an absurd accounting trick called "Repo 105" transactions to conceal $50 billion in loans on the firm's balance sheet. (That's $50 billion, not million.) But more than a year after the use of the Repo 105s came to light, there have still been no indictments in the affair. While it's possible that charges may yet be filed, there are now rumors that the SEC and the Justice Department may take no action against Lehman. If that's true, and there's no prosecution in a case where there's such overwhelming evidence — and where the company is already dead, meaning it can't dump further losses on investors or taxpayers — then it might be time to assume the game is up. Failing to prosecute Fuld and Lehman would be tantamount to the state marching into Wall Street and waving the green flag on a new stealing season.

                            The most amazing noncase in the entire crash — the one that truly defies the most basic notion of justice when it comes to Wall Street supervillains — is the one involving AIG and Joe Cassano, the nebbishy Patient Zero of the financial crisis. As chief of AIGFP, the firm's financial products subsidiary, Cassano repeatedly made public statements in 2007 claiming that his portfolio of mortgage derivatives would suffer "no dollar of loss" — an almost comically obvious misrepresentation. "God couldn't manage a $60 billion real estate portfolio without a single dollar of loss," says Turner, the agency's former chief accountant. "If the SEC can't make a disclosure case against AIG, then they might as well close up shop."

                            As in the Lehman case, federal prosecutors not only had plenty of evidence against AIG — they also had an eyewitness to Cassano's actions who was prepared to tell all. As an accountant at AIGFP, Joseph St. Denis had a number of run-ins with Cassano during the summer of 2007. At the time, Cassano had already made nearly $500 billion worth of derivative bets that would ultimately blow up, destroy the world's largest insurance company, and trigger the largest government bailout of a single company in U.S. history. He made many fatal mistakes, but chief among them was engaging in contracts that required AIG to post billions of dollars in collateral if there was any downgrade to its credit rating.

                            St. Denis didn't know about those clauses in Cassano's contracts, since they had been written before he joined the firm. What he did know was that Cassano freaked out when St. Denis spoke with an accountant at the parent company, which was only just finding out about the time bomb Cassano had set. After St. Denis finished a conference call with the executive, Cassano suddenly burst into the room and began screaming at him for talking to the New York office. He then announced that St. Denis had been "deliberately excluded" from any valuations of the most toxic elements of the derivatives portfolio — thus preventing the accountant from doing his job. What St. Denis represented was transparency — and the last thing Cassano needed was transparency.


                            Another clue that something was amiss with AIGFP's portfolio came when Goldman Sachs demanded that the firm pay billions in collateral, per the terms of Cassano's deadly contracts. Such "collateral calls" happen all the time on Wall Street, but seldom against a seemingly solvent and friendly business partner like AIG. And when they do happen, they are rarely paid without a fight. So St. Denis was shocked when AIGFP agreed to fork over gobs of money to Goldman Sachs, even while it was still contesting the payments — an indication that something was seriously wrong at AIG. "When I found out about the collateral call, I literally had to sit down," St. Denis recalls. "I had to go home for the day."

                            After Cassano barred him from valuating the derivative deals, St. Denis had no choice but to resign. He got another job, and thought he was done with AIG. But a few months later, he learned that Cassano had held a conference call with investors in December 2007. During the call, AIGFP failed to disclose that it had posted $2 billion to Goldman Sachs following the collateral calls.

                            "Investors therefore did not know," the Financial Crisis Inquiry Commission would later conclude, "that AIG's earnings were overstated by $3.6 billion."

                            "I remember thinking, 'Wow, they're just not telling people,'" St. Denis says. "I knew. I had been there. I knew they'd posted collateral."

                            A year later, after the crash, St. Denis wrote a letter about his experiences to the House Government Oversight Committee, which was looking into the AIG collapse. He also met with investigators for the government, which was preparing a criminal case against Cassano. But the case never went to court. Last May, the Justice Department confirmed that it would not file charges against executives at AIGFP. Cassano, who has denied any wrongdoing, was reportedly told he was no longer a target.

                            Shortly after that, Cassano strolled into Washington to testify before the Financial Crisis Inquiry Commission. It was his first public appearance since the crash. He has not had to pay back a single cent out of the hundreds of millions of dollars he earned selling his insane pseudo-insurance policies on subprime mortgage deals. Now, out from under prosecution, he appeared before the FCIC and had the enormous balls to compliment his own business acumen, saying his atom-bomb swaps portfolio was, in retrospect, not that badly constructed. "I think the portfolios are withstanding the test of time," he said.

                            "They offered him an excellent opportunity to redeem himself," St. Denis jokes.

                            In the end, of course, it wasn't just the executives of Lehman and AIGFP who got passes. Virtually every one of the major players on Wall Street was similarly embroiled in scandal, yet their executives skated off into the sunset, uncharged and unfined. Goldman Sachs paid $550 million last year when it was caught defrauding investors with crappy mortgages, but no executive has been fined or jailed — not even Fabrice "Fabulous Fab" Tourre, Goldman's outrageous Euro-douche who gleefully e-mailed a pal about the "surreal" transactions in the middle of a meeting with the firm's victims. In a similar case, a sales executive at the German powerhouse Deutsche Bank got off on charges of insider trading; its general counsel at the time of the questionable deals, Robert Khuzami, now serves as director of enforcement for the SEC.

                            Another major firm, Bank of America, was caught hiding $5.8 billion in bonuses from shareholders as part of its takeover of Merrill Lynch. The SEC tried to let the bank off with a settlement of only $33 million, but Judge Jed Rakoff rejected the action as a "facade of enforcement." So the SEC quintupled the settlement — but it didn't require either Merrill or Bank of America to admit to wrongdoing. Unlike criminal trials, in which the facts of the crime are put on record for all to see, these Wall Street settlements almost never require the banks to make any factual disclosures, effectively burying the stories forever. "All this is done at the expense not only of the shareholders, but also of the truth," says Rakoff. Goldman, Deutsche, Merrill, Lehman, Bank of America ... who did we leave out? Oh, there's Citigroup, nailed for hiding some $40 billion in liabilities from investors. Last July, the SEC settled with Citi for $75 million. In a rare move, it also fined two Citi executives, former CFO Gary Crittenden and investor-relations chief Arthur Tildesley Jr. Their penalties, combined, came to a whopping $180,000.

                            Throughout the entire crisis, in fact, the government has taken exactly one serious swing of the bat against executives from a major bank, charging two guys from Bear Stearns with criminal fraud over a pair of toxic subprime hedge funds that blew up in 2007, destroying the company and robbing investors of $1.6 billion. Jurors had an e-mail between the defendants admitting that "there is simply no way for us to make money — ever" just three days before assuring investors that "there's no basis for thinking this is one big disaster." Yet the case still somehow ended in acquittal — and the Justice Department hasn't taken any of the big banks to court since.

                            All of which raises an obvious question: Why the hell not?

                            Gary Aguirre, the SEC investigator who lost his job when he drew the ire of Morgan Stanley, thinks he knows the answer.

                            Last year, Aguirre noticed that a conference on financial law enforcement was scheduled to be held at the Hilton in New York on November 12th. The list of attendees included 1,500 or so of the country's leading lawyers who represent Wall Street, as well as some of the government's top cops from both the SEC and the Justice Department.

                            Criminal justice, as it pertains to the Goldmans and Morgan Stanleys of the world, is not adversarial combat, with cops and crooks duking it out in interrogation rooms and courthouses. Instead, it's a cocktail party between friends and colleagues who from month to month and year to year are constantly switching sides and trading hats. At the Hilton conference, regulators and banker-lawyers rubbed elbows during a series of speeches and panel discussions, away from the rabble. "They were chummier in that environment," says Aguirre, who plunked down $2,200 to attend the conference.

                            Aguirre saw a lot of familiar faces at the conference, for a simple reason: Many of the SEC regulators he had worked with during his failed attempt to investigate John Mack had made a million-dollar pass through the Revolving Door, going to work for the very same firms they used to police. Aguirre didn't see Paul Berger, an associate director of enforcement who had rebuffed his attempts to interview Mack — maybe because Berger was tied up at his lucrative new job at Debevoise & Plimpton, the same law firm that Morgan Stanley employed to intervene in the Mack case. But he did see Mary Jo White, the former U.S. attorney, who was still at Debevoise & Plimpton. He also saw Linda Thomsen, the former SEC director of enforcement who had been so helpful to White. Thomsen had gone on to represent Wall Street as a partner at the prestigious firm of Davis Polk & Wardwell.

                            Two of the government's top cops were there as well: Preet Bharara, the U.S. attorney for the Southern District of New York, and Robert Khuzami, the SEC's current director of enforcement. Bharara had been recommended for his post by Chuck Schumer, Wall Street's favorite senator. And both he and Khuzami had served with Mary Jo White at the U.S. attorney's office, before Mary Jo went on to become a partner at Debevoise. What's more, when Khuzami had served as general counsel for Deutsche Bank, he had been hired by none other than Dick Walker, who had been enforcement director at the SEC when it slow-rolled the pivotal fraud case against Rite Aid.

                            "It wasn't just one rotation of the revolving door," says Aguirre. "It just kept spinning. Every single person had rotated in and out of government and private service."

                            The Revolving Door isn't just a footnote in financial law enforcement; over the past decade, more than a dozen high-ranking SEC officials have gone on to lucrative jobs at Wall Street banks or white-shoe law firms, where partnerships are worth millions. That makes SEC officials like Paul Berger and Linda Thomsen the equivalent of college basketball stars waiting for their first NBA contract. Are you really going to give up a shot at the Knicks or the Lakers just to find out whether a Wall Street big shot like John Mack was guilty of insider trading? "You take one of these jobs," says Turner, the former chief accountant for the SEC, "and you're fit for life."

                            Fit — and happy. The banter between the speakers at the New York conference says everything you need to know about the level of chumminess and mutual admiration that exists between these supposed adversaries of the justice system. At one point in the conference, Mary Jo White introduced Bharara, her old pal from the U.S. attorney's office.

                            "I want to first say how pleased I am to be here," Bharara responded. Then, addressing White, he added, "You've spawned all of us. It's almost 11 years ago to the day that Mary Jo White called me and asked me if I would become an assistant U.S. attorney. So thank you, Dr. Frankenstein."

                            Next, addressing the crowd of high-priced lawyers from Wall Street, Bharara made an interesting joke. "I also want to take a moment to applaud the entire staff of the SEC for the really amazing things they have done over the past year," he said. "They've done a real service to the country, to the financial community, and not to mention a lot of your law practices."

                            Haw! The line drew snickers from the conference of millionaire lawyers. But the real fireworks came when Khuzami, the SEC's director of enforcement, talked about a new "cooperation initiative" the agency had recently unveiled, in which executives are being offered incentives to report fraud they have witnessed or committed. From now on, Khuzami said, when corporate lawyers like the ones he was addressing want to know if their Wall Street clients are going to be charged by the Justice Department before deciding whether to come forward, all they have to do is ask the SEC.

                            "We are going to try to get those individuals answers," Khuzami announced, as to "whether or not there is criminal interest in the case — so that defense counsel can have as much information as possible in deciding whether or not to choose to sign up their client."

                            Aguirre, listening in the crowd, couldn't believe Khuzami's brazenness. The SEC's enforcement director was saying, in essence, that firms like Goldman Sachs and AIG and Lehman Brothers will henceforth be able to get the SEC to act as a middleman between them and the Justice Department, negotiating fines as a way out of jail time. Khuzami was basically outlining a four-step system for banks and their executives to buy their way out of prison. "First, the SEC and Wall Street player make an agreement on a fine that the player will pay to the SEC," Aguirre says. "Then the Justice Department commits itself to pass, so that the player knows he's 'safe.' Third, the player pays the SEC — and fourth, the player gets a pass from the Justice Department."


                            When I ask a former federal prosecutor about the propriety of a sitting SEC director of enforcement talking out loud about helping corporate defendants "get answers" regarding the status of their criminal cases, he initially doesn't believe it. Then I send him a transcript of the comment. "I am very, very surprised by Khuzami's statement, which does seem to me to be contrary to past practice — and not a good thing," the former prosecutor says.

                            Earlier this month, when Sen. Chuck Grassley found out about Khuzami's comments, he sent the SEC a letter noting that the agency's own enforcement manual not only prohibits such "answer getting," it even bars the SEC from giving defendants the Justice Department's phone number. "Should counsel or the individual ask which criminal authorities they should contact," the manual reads, "staff should decline to answer, unless authorized by the relevant criminal authorities." Both the SEC and the Justice Department deny there is anything improper in their new policy of cooperation. "We collaborate with the SEC, but they do not consult with us when they resolve their cases," Assistant Attorney General Lanny Breuer assured Congress in January. "They do that independently."

                            Around the same time that Breuer was testifying, however, a story broke that prior to the pathetically small settlement of $75 million that the SEC had arranged with Citigroup, Khuzami had ordered his staff to pursue lighter charges against the megabank's executives. According to a letter that was sent to Sen. Grassley's office, Khuzami had a "secret conversation, without telling the staff, with a prominent defense lawyer who is a good friend" of his and "who was counsel for the company." The unsigned letter, which appears to have come from an SEC investigator on the case, prompted the inspector general to launch an investigation into the charge.

                            All of this paints a disturbing picture of a closed and corrupt system, a timeless circle of friends that virtually guarantees a collegial approach to the policing of high finance. Even before the corruption starts, the state is crippled by economic reality: Since law enforcement on Wall Street requires serious intellectual firepower, the banks seize a huge advantage from the start by hiring away the top talent. Budde, the former Lehman lawyer, says it's well known that all the best legal minds go to the big corporate law firms, while the "bottom 20 percent go to the SEC." Which makes it tough for the agency to track devious legal machinations, like the scheme to hide $263 million of Dick Fuld's compensation.

                            "It's such a mismatch, it's not even funny," Budde says.

                            But even beyond that, the system is skewed by the irrepressible pull of riches and power. If talent rises in the SEC or the Justice Department, it sooner or later jumps ship for those fat NBA contracts. Or, conversely, graduates of the big corporate firms take sabbaticals from their rich lifestyles to slum it in government service for a year or two. Many of those appointments are inevitably hand-picked by lifelong stooges for Wall Street like Chuck Schumer, who has accepted $14.6 million in campaign contributions from Goldman Sachs, Morgan Stanley and other major players in the finance industry, along with their corporate lawyers.

                            As for President Obama, what is there to be said? Goldman Sachs was his number-one private campaign contributor. He put a Citigroup executive in charge of his economic transition team, and he just named an executive of JP Morgan Chase, the proud owner of $7.7 million in Chase stock, his new chief of staff. "The betrayal that this represents by Obama to everybody is just — we're not ready to believe it," says Budde, a classmate of the president from their Columbia days. "He's really ****ing us over like that? Really? That's really a JP Morgan guy, really?"

                            Which is not to say that the Obama era has meant an end to law enforcement. On the contrary: In the past few years, the administration has allocated massive amounts of federal resources to catching wrongdoers — of a certain type. Last year, the government deported 393,000 people, at a cost of $5 billion. Since 2007, felony immigration prosecutions along the Mexican border have surged 77 percent; nonfelony prosecutions by 259 percent. In Ohio last month, a single mother was caught lying about where she lived to put her kids into a better school district; the judge in the case tried to sentence her to 10 days in jail for fraud, declaring that letting her go free would "demean the seriousness" of the offenses.

                            So there you have it. Illegal immigrants: 393,000. Lying moms: one. Bankers: zero. The math makes sense only because the politics are so obvious. You want to win elections, you bang on the jailable class. You build prisons and fill them with people for selling dime bags and stealing CD players. But for stealing a billion dollars? For fraud that puts a million people into foreclosure? Pass. It's not a crime. Prison is too harsh. Get them to say they're sorry, and move on. Oh, wait — let's not even make them say they're sorry. That's too mean; let's just give them a piece of paper with a government stamp on it, officially clearing them of the need to apologize, and make them pay a fine instead. But don't make them pay it out of their own pockets, and don't ask them to give back the money they stole. In fact, let them profit from their collective crimes, to the tune of a record $135 billion in pay and benefits last year. What's next? Taxpayer-funded massages for every Wall Street executive guilty of fraud?

                            The mental stumbling block, for most Americans, is that financial crimes don't feel real; you don't see the culprits waving guns in liquor stores or dragging coeds into bushes. But these frauds are worse than common robberies. They're crimes of intellectual choice, made by people who are already rich and who have every conceivable social advantage, acting on a simple, cynical calculation: Let's steal whatever we can, then dare the victims to find the juice to reclaim their money through a captive bureaucracy. They're attacking the very definition of property — which, after all, depends in part on a legal system that defends everyone's claims of ownership equally. When that definition becomes tenuous or conditional — when the state simply gives up on the notion of justice — this whole American Dream thing recedes even further from reality.
                            when a security made up entirely of high risk sub prime mortgages from buyers sub 600 credit scores and is rated a triple A bond the list of those who had to know better is longer than just economists. It's not loike we didn't experience a severe housing crash in the early 90s that created an enviroment that would of resulted in the same thing if we'd had the same regulatory attitude and regulations. To only qualify for a subprime loan 5 years ago you had to be near insolvement or have a strong history of late or non payment to drive a credit score below 600 or be taking one of those creative loans that saw the principal increase as well as the interest rate every year. Would you loan someone money knowing they could only afford to pay the interest the first five years and think it as safe a bond issued by a city or a thriving corporation? The real sad thing is the bankers were working under a great model that could not of been much more rewarding to them and really seems to of done nothing to hurt them financially. Their earnings leaped right back up to a level that gave them the incentive to focus solely on short term returns and an inducement to play blind to long term risks. I can't see any real change till those in this country in positions that give a lifetime of earning over a few years don't start recieiving packages that reward them for their decisons as much 5 or 7 years later as the next quarter. It's a real weakness in our system beyond wall st.
                            I work for UTC a strategic company that invests heavily on improvements that provide benefits over the long haul. We built our own power plant to drive down energy costs. The reward will be over a generation and grant a long term competitive edge against domestic and global competition and eliminates the potentially huge losses from power interruptions. I am sure the very well compensated executives could of given themselves a bit more bump based on the bottomline or a penny or two on the dividend. Our economy is hindered because of the huge reward given to those with a responsibility to think strategically to focus too heavily on the short term.

                            It doesn't take an Economist to know people mostly act in the way most benefical for them. In 10 or 20 years there will no doubt be another " How did we not see it" banking moment like the S&L fiasco that cost us billions in the 80s, the tech bubble fueld by IPAs or the Triple A toilet paper bond experience of the last decade. I know people here are mostly hostile to regulation but did we experience anything like those three events from Glass Steagel to 1980s deregulation and the era of exponential growth in executive pay?
                            Where free unions and collective bargaining are forbidden, freedom is lost.”
                            ~Ronald Reagan

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                            • #44
                              Originally posted by random_reader View Post
                              By the way, this is off-topic, but is it just me or does Mr. Rajan look like a Indian version of George Clooney? He's definitely got the suave and intelligent look down.



                              Heh, I get the feeling he got his fair share of girls when he was younger.

                              Ugh, gonna have to disagree with your assessment here. He won't be turning my head if he walked by me.

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                              • #45
                                I just don't see what the big deal is with George Clooney. The guy hasn't had a hit movie or TV show since ER. Is he good looking? I don't know. I'm not that into guys to tell.
                                "Only Nixon can go to China." -- Old Vulcan proverb.

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