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Comment by rayiner | Hacker News Reader

> Too bad the US can’t retrospectively prosecute bankers for 2008 and claw back their size-subsidized, low risk premium profits.

The Theranos case clearly illustrates why. Fraud by the top executives of a company, who lied about what their technology can do to raise a bunch of money, and endangered patients in the process--that is a story you can explain to a jury. Even if you think there are "bankers" (curiously, you do not identify specific bankers) who broke the law, good luck explaining to a jury exactly what anyone did that was illegal.

I'd also posit that this is a very good thing. You shouldn't be able to put people in jail for a crime you can't explain to a group of a dozen ordinary people.

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I don't know that this is a very persuasive argument. We have all sorts of complex, technical "laws" (both in statutes and agency rules extending those statutes). A lot of them are important and sensible.

In a field like finance, once you make something illegal, doesn't the prosecution's argument pretty much come down to:

1. Under the US code, foo is illegal. That's the rule that everybody working in this field has to play by.

2. The defendant fooed, flagrantly and with relish, and in the process made umpteen zillion dollars.

3. At all times, the defendant made it clear that they knew fooing was wrong. For instance, when discussing fooing, they logged into each other's email accounts and wrote drafts rather than sending emails, and shredded their birth certificates after discussing foo.

4. As a result of all this reckless fooing, which we remind you is illegal in the US, 3,392 people lost their houses.

A jury can't follow this argument?

An argument I've read more frequently is that the laws around this stuff aren't clear enough, so that a defense attorney can hopelessly muddle up a case by arguing "we weren't fooing, we were clearly barring". We could make the laws a lot more clear! But in doing so, we'd potentially disrupt the economy, and so it's a tricky balancing act.

>Even if you think there are "bankers" (curiously, you do not identify specific bankers) who broke the law, good luck explaining to a jury exactly what anyone did that was illegal.

Prosecutors who investigated 2008 came away saying that there was no evidence of criminal intent, based on the fact that they didn't break or intend to break any laws in the process of making their really stupid bets. Preet Bharara, former US attorney in New York after the crisis, discussed this in his podcast fairly recently.

I worked in the industry. Literally, there were employees of 7-11 who stated their income as $100,000 or more in order to qualify for a home loan. This type of fraud was rampant and known by everyone.

Are you implying that the bankers should go to jail for the misrepresentations made by the applicant because they didn’t exercise an “appropriate” level of diligence?

No, IIRC from reports years back, there is considerable evidence that this kind of fraud was not often not initiated by applicants but encouraged by lender agents, who were in turn encouraged by lender policies and incentive structure, which was set by lender executives. This isn't lack of diligence, this is setting a policy with reasonably foreseeable consequences.

You lost the jury at “lender policies and incentive structures.”

"Bank employees were instructed to tell prospective clients to lie about their income, drastically, and sometimes helped them do it. Bank employees did this because when people lied about their income, the bank made more money, even though doing so put people at financial risk."

I'm not sure this is a hard case to make.

>Bank employees were instructed to tell prospective clients to lie about their income

But is there explicit proof of this? I didn't think there was, but maybe I'm wrong. I thought at best the argument would be more like:

"Bank executives set up incentives for their employees that they knew would encourage fraudulent behaviour."

Fortunately or unfortunately, "encouraged shady behavior" does not directly equate to "illegal". For example, if you encourage someone to steal a car tomorrow you're not doing anything illegal until they actually do it, they tell you they did it, and you fail to report it (accessory at that point). The actual crime part is on them.

It's massively unethical and it feels like people should be in jail, but proving actual crime took place during the lead-up to the recession would be a massive undertaking with little satisfaction as payout, and just as many run-of-the-mill home buyers going to jail as lender associates or executives.

> Fortunately or unfortunately, "encouraged shady behavior" does not directly equate to "illegal".

If an expert tells you to break the law and insists it's fine, and you don't really know how all of this works, I don't think we can still call that merely "encouraging shady behavior".

I'm pretty sure we can and do exactly that all the time. Case law established a very long time ago that ignorance of the law is not an excuse for illegal activity. The burden of crime is always on the person committing the crime, not the person inciting it, expert or not (there's a small exception here for entrapment, but that's completely separate from this situation).

I could be wrong here, so if you or anyone else with more legal background than I have can point to specific prosecutions related to this kind of situation I'd love to read more.

“Inciting” is exactly the name given to the crime of inducing someone else to commit a crime.

No, that's only for inciting physical violence (against a person or property) in conjunction with a felony. It would not apply to anything from the mortgage bubble. Unless you've got a specific law to reference?

> For example, if you encourage someone to steal a car tomorrow you're not doing anything illegal until they actually do it.

No, you've committed the crime of solicitation at the moment you encouraged a particular person to commit a particular crime. And, if they agree and either of you takes any concrete step to implement the agreement (even short of completing the theft), you've both committed the crime of conspiracy.

The fraud itself is the crime, but the system set up to profit from it and the inducement to commit the crime are not part and parcel of the act itself?

Perhaps we need better prosecutors who can credibly charge crimes that have broad networks of profiteers eagerly pushing dupes into committing crimes that are precisely arranged so that the profiting entity has no liability for the narrowly construed criminal act other than having engineered a situation where it was incredibly possible and only indirectly soliciting the act itself...

We could have such prosecutors were the system not already hopelessly captive to the interests of the criminals.

But what can you do when law is lawless.

I think these people mostly weren't bankers, they were fly by night mortgage pushers who had no incentive not to write bad loans. They wrote crappy loans and then sold the loans on to the banks.

Which is part of the problem with bringing anyone to justice. The actual banks could pretend that they believed they were buying quality debt, which they diced up into CDO and whatnot.

Iceland successfully identified, prosecuted, and jailed specific bankers for their roles during the 2008 financial crisis https://www.bloomberg.com/news/features/2016-03-31/welcome-t... and this article mentions "market manipulation and fraud".

A second article mentions, "He argues the crimes themselves are simple matters such as embezzlement, merely with a complicated “wrapping” of financial jargon around them." https://www.ft.com/content/dcdb43d4-bd52-11e6-8b45-b8b81dd5d.... This shows that prosecutions and imprisonment are possible for bank actions related to the 2008 financial crisis. Iceland's special prosecutor also believes that similar crimes were carried out in many other countries so the opportunity for prosecution was therefore possible.

> You shouldn't be able to put people in jail for a crime you can't explain to a group of a dozen ordinary people.

This sounds so wrong. Why shouldn't people whose only virtue (related to the case) is being smart enough to come up with complex crimes go to jail? Are we forgetting just how, well, average the average person is?

If “the big short” can explain it then the DOJ can.

As far as I remember the big short doesn't though.

Part of the premise behind writing the book was to explain to the public what happened and why.

There are several good analogies in both the book and the movie (ie. the chef and the fish) that greatly helped me understand the mechanics of it.

The book and movie do a pretty solid job about explaining what CDOs, derivatives, etc. are.

What the book and movie don't do (unless I'm forgetting something) is explain how anything involved with the 2008 crisis was illegal - the sole exception being that CDSs are very arguably insurance contracts and should be regulated by insurance laws.

The Big Short made it sound like credit rating agencies engaged in intentional negligence, which doesn't strike me as something "too abstract to prosecute" (or whatever the excuse is supposed to be here).

Negligence in general isn't a crime - it does become a crime if gross negligence directly causes death or major injury, but as far as I know, you can't prosecute someone if their negligence merely costs someone some amount of money, no matter how much. It may cause liability for that amount of money, but that's not a crime that the government can prosecute and threaten with jail time, that's a civil case between them and whoever suffered and may sue them for some money.

I misused the term. How about "fraud," then?

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