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Comment by brc | Hacker News Reader

Who doesn't love some popular culture - a virtual lynch mob piece?

I would have less issues with writing like this if they actually cited some exampes where laws were broken, and which laws were broken. I'm not pretending that the whole thing was always on the right side of the law - I'm not - but you can't just say 'they're all criminals, lock them up!'.

Because from what I've read, most of what caused the issues were not only legal, they were government backed up and sanctioned.

They might have been a bad idea, some morally wrong, some the result of some very poor judgement or influence by the wrong lobbyists. But criminal in the popular sense is vastly different from criminal in the law sense.

I'm right behind locking people up for breaking the laws. But if it's going to happen, someone needs to cite specific examples where specific people (or companies) broke specific laws.

Because all I've seen is a case where the government relaxed regulations regarding speculating with depositors money, opened up the monetary taps to let debt flow freely, and then guided that money into questionable lending for social and political purposes.

Completely unlike the insider trading accusations from the 1980's most of all the obscene money that was taken off the table was done in plain view of the regulators, and backed up by politicians convinced they'd found the magic cure for endless economic growth.

View on HN

He gives one example, of an SEC investigator who got fired just for trying to talk to John Mack, now running Morgan Stanley, about a suspected case of insider trading. (An associate of Mack suddenly started buying a company's stock in huge amounts, shortly before the company was acquired, and made $15 million. The acquired company had been a client of Credit Suisse. John Mack interviewed at Credit Suisse just before this, and had been leaning on his associate for a piece of another deal. The implication being that Mack picked up some info at Credit Suisse about the upcoming acquisition, passed it to his buddy, in exchange for a piece of the other deal, which I think made Mack about $10 million.)

Morgan Stanley had a bunch of their lawyers pressuring the SEC above the investigator's head. Most of those Morgan Stanley lawyers were former SEC or DOJ bigwigs themselves. As a result, the investigator was fired, even though he had recently received sterling reviews. The fired guy eventually won a $750k wrongful dismissal suit against the SEC.

With all respect, this is absolutely small fry in the scheme of things. Insider trading goes on all the time, irrespective of market conditions. Insider trading did not cause the financial collapse. This type of story is likely to happen in any decade you care to mention, and is not indicative of the wider culture of taking big bets based on other people's money, and getting richly rewarded for it.

No, but it is an indication of the "enforcement" and regulation bodies being cowed and coopted by the bankers, which certainly effects the handling of the recent clusterfuck by the same bodies.

If they aren't going to let an investigator bring John Mack in to talk about a little insider trading case, they certainly aren't going to bring him and his peers in to talk about melting down the financial system, unless their message is "can we throw any more free money at you?"

I agree with you here, but this doesn't detract from my main original point. All of the things which caused the problem were totally legal at the time they were done. So while side-issues like this are criminal and deserve to be punished, the actual things that caused the problems were completely legal. The Sec investigators couldn't prosecute for melting down the financial system, because it was being done within the law. The law was (and is) wrong, but that doesn't make most people on 'Wall St' criminals.

Among all the things wrong with the financial system, insider trading is arguably the least important. The publicly known conflicts of interests should be alarming all in themselves.

Auto theft goes on all the time, but if a car that was reported stolen on Monday showed up in my driveway on Tuesday, and a cop showed up to ask me a few questions, I wouldn’t be able to get him fired.

Good point, the fact that he went to a 4th level boss above the agent is telling. When a trader has a direct line to the top of the SEC, there is a real problem.

an industrywide scam that involved the mass sale of mismarked, fraudulent mortgage-backed securities

Sounds like he's calling the risk ratings "fraud." It would be a tough case to prove, though. There were two convenient mistakes that nobody wanted to stop making. First, the incorrect ratings, which were motivated by a conflict of interest: the folks selling the mortgage-backed securities paid the ratings agencies to rate their securities. Second, the fact that people bought the securities as if the ratings were trustworthy, despite the glaring conflict of interest.

To make a criminal case, you'd have to prove they weren't just stupid. (Sorry, Ivy League grads, that degree is not sufficient evidence by itself.) Somebody would have to find a paper trail that proved the criminals' state of mind, like an email saying, "Hey Joe, I just finished rating the latest mortgage-backed CDOs. The computer gave them all AA (LOL!) I wonder how long we can get away with using this stupid formula to overrate CDOs. Our customers love it so much, and we are getting mega rich. The people who buy these things are suckers, but they're probably getting rich selling them to somebody else LOL. Everybody gets rich except stupid grandma when her pension fund goes broke LMFAO"

In many cases, discovery of emails has shown that workers in the investment community privately believed that investment instruments were trash, while they told clients otherwise. That is fraud. We would know of more such cases if more discovery of company records had been done by government law-enforcement agencies. But unwillingness of those agencies to subpoena relevant records is precisely what the article is about.

They are also seemingly fraudulent in another sense. Many of these mortgage-backed securities are coming under scrutiny for not being properly "mortgage-backed" at all.

When created proper paperwork trails were not kept, and the notes and mortgages were split (which is a no-no in some states) and proper records were not filed at the county level. In a lot of cases county and state law was just wholesale ignored through the MERS system.

None of this is ever a problem unless you actually need to collect on the home that serves as collateral for your note. Apparently some in Wall St didn't think far enough ahead. This is beginning to work its way through the courts and will open a whole new bag of worms for those holding these notes at par.

Just one example (of many) :http://www.bloomberg.com/news/2011-01-06/foreclosures-may-be...

So not only did the 'system' encourage the writing of irresponsible mortgages and scummy sales tactics, the banks also defrauded their customers: state endowments, pension plans, universities and other purchasers of these improperly structured financial products.

Yet this is all a civil matter and nobody will go to jail. Chalk another one up to the 'best and the brightest' of Wall St.

The author is a bit sloppy, but their heart is in the right place. What recourse do people have when the government that is supposed to be enforcing laws on the behalf of the citizenry is completely controlled by the very industry ripping them off?

My favorite quote from those released emails:

"Let's hope we are all wealthy and retired by the time this house of cards falters."

Yep, no fraud here.

You present a chicken and egg problem, where is he going to get the evidence to cite if the SEC is covering it up for them. If they are burying cases then there is no evidence to be had. The fact that many of these firms have paid fines without admitting guilt is pretty telling. Not to mention the whole house of cards collapsed and it was still big bonuses to go around. It is evident that they play by a different set of rules and ignoring that due to lack of evidence (from an entity that can't be trusted to provide that evidence), Is just inviting more of the same abuses. The fact is all of these firms did bury losses a fact that is not in dispute, and in doing so they committed fraud for that they paid a fine and admitted no guilt and suffered no prosecution, that was the deal and they did break the law. As well the investigator that was poking around was let go and later awarded a large settlement for wrongful termination.

  > and it was still big bonuses to go around.

IIRC the particular example of this that was lauded around as Wall Street laughing at the common man wasn't exactly what the headlines made it out to be. The company had guaranteed those bonuses before the collapse. They were contractual obligations. Unless the company was in bankruptcy, I don't think there was anyway for them to escape paying them (and since they most likely technically count as payroll, even bankruptcy might not have been enough to avoid those payments). Putting these in the contracts was probably a bad idea, but once it's there, it's there. [Feel free to cite other examples, or refute what I've said. I'm not married to it. :)]

17 firms paid out bonuses, IIRC AIG was the only one that had that binding contract and for good reason, they where built to implode. I don't know if all of the firms had a similar structure, but the bonuses while Rome burned where by no means a one off case.

http://www.taipeitimes.com/News/biz/archives/2010/07/25/2003...

Articles like this can very rarely call out specific examples or name specific people without he risk of being sued for defamation. Besides, this is an editorial piece not a work of investigative journalism.

For a bit more background, I found Michael Lewis's book, The Big Short, enlightening about some of the dodgy actors in the subprime mortgage disaster.

Part of the problem in my opinion is that the financial industry is faster at creating financial instruments than the government is at creating regulations. Afaik there is little regulation in place for trading in dark pools, collateralised debt obligations and for what exactly constitutes conflict of interest.

Um, the fine minds of the Fed, Congress, and the Clinton and Bush administrations declared some of the instruments off limits from regulation.

Then they went off to Wall Street and collected their millions of dollars.

But don't forget that a lot of these instruments and strategies were also around in the 1920s. The fallout from the 1929 crash and subsequent depression was many changes in regulation. As these were gradually unwound, the products and strategies came to exist again, with the same consequences.

As much as I would like to agree with the article, I tend to agree with your statement that this seems to be a virtual lynch mob piece.

The little I have read about this situation puts a slightly different light/context on the situation and the SEC's actions. The SEC does not seem to have resources to tackle all their cases. So when it makes an announcement that its going after someone, it usually means that they have a case, and the evidence to back it up. Conversely, it means they go after only strong cases.

For example - the SEC's prosecution of Goldman. It was panned in the media, and Goldman even stated they would fight the case. The media actually posted it as SEC being irresponsible and hunting for scalps. On the other hand, one site pointed out that Khuzami wouldn't be bringing a weak case and that Goldman was most likely going to settle -

http://www.ritholtz.com/blog/2010/04/10-things-you-dont-know... http://www.ritholtz.com/blog/2010/07/who-steered-you-wrong-a...

Added benefit - those links mention a law which was broken - False representation to clients.

From the commentary there, it appears that in Street parlance - having the SEC go after you is a Big Deal. Goldman got fined about $500 mil iirc.

The problem is that settling a case seems to be the worst punishment that can happen on Wallstreet, Jail or larger fines are not.

PS: Another very interesting article by the big picture blog is posted lower in this thread - its regarding the housing foreclosure mess and is worth a read.

You obviously didn't read the article. The SEC didn't just turn it's back on insider trading. And that is not the only "crimes" here that Taibbi catalogues by the AIG, Goldman Sachs, Bear Sterns, Citigroup, Fanny Mae. There was widespread mis-reporting earnings to investors, using phony accounting techniques to jack-up bonuses, concealing billions of dollars in loans from their balance sheets like Lehman did. Those are crimes, and Taibbi gave example after example of such misdeeds.

Tons of specifics that I guess you missed. Great piece yet again by Matt Taibbi on the shameful practices of Wall Street banks while the SEC looked the other way.

Did you actually read the article? He gives several examples.

It seems that the majority of commenters here did not, in fact, RTFA.

Let's not have the facts get in way of a prevalent collective delusion, though: that when every incentive and opportunity for malfeasance exists, bankers will consistently "do the right thing" in spite of pitifully lax enforcement.

No, the pristine ideals of the ultra-rich financial engineering class are incredibly robust, and it's lazy self-serving government bureaucrats whom we should be most concerned about.

Did you miss the part about the revolving door? There are no legal issues because the ones that need to make sure everything is happening legally are bankers themselves or close friends of ones. So you standing there and saying "I see nothing legally wrong with this so therefore it's not criminal?" is one of the many reasons bankers continue to defraud common main street investors.

Look, I completely agree with you that the laws are written in favour of the bankers, and that is something that needs to change. But you cannot lock people up unless they have broken the law. When many people took action, they did so knowing they weren't breaking any laws. You can retrospecitvely lock them up. Change the law, if necessary, but to call people criminal is wrong.

Yeah, you pretty much need to change the laws, rebuild the regulatory bodies, and vastly increase the penalties for white collar crimes. Then do it all over again in 30 years.

I do think there should be a law that allows you to lock people up retrospectively though based on their degree of douchebaggery.

You don't need new laws for most of this stuff. Selling crap that you know is crap as AAA security's is simple fraud.

The government could stop insuring bank deposits and mortgages. If savers and investors truly thought they could lose their capital, they examine risks a lot more carefully.

Life is full of risks and we must consider them. Selecting a group of people who have no financial stake in the outcome to decide what risks should be taken seems unwise. Especially when they can be paid to look the other way.

Sure we can hand our thinking to other people. But that might lead to disaster. Oops.

agh - can retrospectively lock them up should be cannot retrospectively lock them up.

I wish I could blame iphone but just bad typing

Completely agree: (a) What laws were broken? Who broke them? (b) Why is there never any blame put on those on "main street" who took the loans that they couldn't repay?

What laws were broken? Who broke them?

For starters, fraud and perjury:

http://www.ritholtz.com/blog/2010/10/why-foreclosure-fraud-i...

The verification of the specific data that is mandated legally is not taking place by bank executives. Reviewing a file can take anywhere from, 20 minutes to well over an hour. Yet some bank employees are testifying that they have signed off on as many as 150 per day (Wells Fargo) or 400 per day (Chase).

It is impossible to perform that many foreclosure reviews and data verifications in a single day. The only way this could happen is via a systemic banking fraud that orders its employees to violate the law. Hence, how we end up with the wrong house being foreclosed upon, the wrong person being sued for a mortgage note, a bank without an interest in a mortgage note suing for foreclosure, and cases where more than one note holders are suing on the same property that is being foreclosed.

This is more than mere accident or error, it is willful recklessness. When that recklessness is part of a company’s processes and procedures, it amounts to systemic fraud. (THIS IS CRIMINAL AND SHOULD BE PROSECUTED).

The next step in our cavalcade of illegality is the Notary. Their signature and stamp allows these fraudulent documents to be entered into court as actual evidence (no live witness required). Hence, we have no only fraud, but contempt of court on top of it (BOTH OF WHICH REQUIRE PROSECUTION).

Law firms preparing the legal documents are not doing their job of further verifying the information. And, it seems certain states such as Florida have foreclosure mills who were set up from the outset as fraudulent enterprises. (EVEN MORE PROSECUTION NEEDED).

Lastly, some service processors are not bothering to do their job. This is the last step in the foreclosure proceedings that would put a person on notice of the errors (YET MORE FRAUD).

Agree that the above doesn't sound good and should be investigated. But to be fair, this is something that happened in the aftermath of the crisis, and had nothing to do with the greater causes.

Edit: A bit surprised at the thoughtless downvoting for not agreeing with the common narrative

this is something that happened in the aftermath of the crisis

Not quite. The fraud that is happening today is part of the attempt to cover up the fraud that happened during the crisis. (That's the thing about crime, as all the good dime novels say: Once you do the first one it just leads to another.)

I'm no lawyer, let alone a real estate lawyer, so I can't refute this to the extent that it probably deserves. But some things even I understand: If Bank A lent money to a customer, and then Bank A sold the mortgage to Bank B without properly transferring the paperwork (according to the very well established law concerning such things), and then Bank B sold that mortgage upstream to Bank C, and then Bank C sold Investor D a security that is "backed by actual mortgages"... someone committed fraud. Either Bank B lied to Bank C by selling something that they did not own, or Bank C happily paid Bank B for a thing that was not, legally speaking, a properly transferred mortgage ("Bank B hereby sells this IOU, written on a Post-It note, to Bank C") but then claimed to its investors that it actually owned mortgages. Post-It notes are not mortgages.

What is happening today is that the Bank Cs of the world, who are on the hook to their investors to pay off those supposedly "mortgage-backed" securities, are foreclosing on houses to try and recoup some money. But Bank C doesn't actually own the houses because someone messed up the paperwork. So they wave the Post-It notes around with great energy, committing more fraud and perjury (and stupid mistakes) in the process, and hope that nobody gets prosecuted.

EDIT: Note: these are not just alleged crimes, they seem like seriously embarrassing alleged crimes. They lost the papers! What a rookie mistake! If only they'd been a little less sloppy this wouldn't have happened!

But, once again: Where there is one crime there may well be others. It's quite possible that this level of sloppiness and fraud was not allowed to go on just by accident. It may well have served to disguise other frauds, like (e.g.) effectively selling a mortgage more than once as part of different securities.

“It’s not the crime; it’s the coverup.”

If the people who may have been complicit in the last meltdown are conspicuously not being punished for covering their tracks, then the people who have the power to trigger the next meltdown will not fear prosecution for “the greater causes”, either.

>had nothing to do with the greater causes.

It has everything to do with the greater causes. The reason it's happening is to try to cover up the fact that in many cases, mortgages were improperly transferred along the chain from the lender to the REMIC trusts. This means that (a) the banks selling MBS to investors lied when they said they had properly transferred the notes, and (b) in some states, the screw-ups jeopardize the securitization of the debt. Had there not been such a mortgage bubble, this probably wouldn't have happened.

Guess who makes the laws.

Copy a CD you own to an MP3 player you own and you're breaking the law. Sell a bad debt to a client and then bet on the same client failing and you get a bonus.

When banks sell "bad debt" they are acting as principals - this means that they explicitly state to their client that they have no obligation to look out for their interests.

Every security has a price, "bad" securities are just cheaper than "good" securities. Participants in the markets always have different views. A bank (or any other principal) is not obligated to make sure that you're aware of their view. By definition, the person selling a security thinks they are better off selling it, and the person buying it thinks they are better off buying it.

If you know they are bad and are intending to make money out of destroying your client and the client is relying on a rating agency that is prepared to give it a AAA in order to get more business from you - then I think someone is being a bit naughty somewhere.

There's no such thing as "knowing" they are bad. Everyone has an opinion, and the price people are willing to pay reflects that. For example, Lehman stock trades now. It has a price. I can sell it to you and feel perfectly fine about it, even if I think it's the biggest piece of crap in the world and I can't wait to sell it. I may end up wrong, because my opinion is just one of many, many. Lots of money is made by others by disagreeing with people who absolutely "know" something.

Going to have to agree with you here. Why does a share of Google cost more than a share of Illegal Online Pharmacy, Inc? Because the market has decided that Google is going to work out better than Illegal Online Pharmacy. The market could be wrong; that's not a crime, that's just losing at poker.

> There's no such thing as "knowing" they are bad.

So they put billions of dollars on that bet after doing a lot of research and yet they didn't really know anything? Or are you trying to convince me that the stock market is legalized gambling?

I'm confused here.

>the stock market is legalized gambling

It is. Buying a non-dividend-yielding stock is a bet that the price of that stock will go up, while selling a share is a bet that the price will go down. (yes, that's simplified) Doing all that research is like counting cards - you have a lot better information than the average investor, but you can't know for certain whether you should hit or stand on that 16, just what the best play is. So the GP's argument is that banks didn't actually know the securities would go south, but they knew it was more likely than the buyers thought.

The information that the originating banks had that many investors didn't was that the loans were lower quality than mortgage loans had been in the past. So the investors were making their pricing calculations based on historical default data, which would obviously underestimate the default risk, causing them to think that the securities were worth a higher price than they would be if priced with a more realistic default rate in mind. And it wasn't a small difference. It was like a 10x difference in the default rate, which would have made lower tranches nearly worthless and really cut into the value of higher tranches.

Let's use a car analogy. I want to sell my (hypothetical) 2005 Prius, and you're interested. You take a look at the car and it appears to be in good shape, so you're willing to pay roughly the Blue Book value for it. However, I know that the car is actually in need of serious maintenance costing thousands of dollars, and will probably break down on you before it's gone 10 miles. Obviously, I just withheld crucial information and sold you a lemon, with major penalties. Now, had you known it was in need of maintenance and offered a lower price knowing that (because you're a mechanic or something), then that's a different story.

But they are required by law to provide full disclosure. Something they where negligent to do with the mortgage backed securities.

What did they fail to disclose?

http://www.mcclatchydc.com/2010/04/30/93252/goldman-sought-t...

Viniar made no mention of Goldman's short bets or the $266 million gain. Instead, he said the market had seen "a little bit of nervousness" but the housing weakness had been "so far largely contained.

The did not disclose material analysis that they where using to hedge the company against mortgage backed securities and explaining to analyst and clients that the losses where "so far largely contained". That is cut and dry fraud. They knew it was not contained and that is why the where bailing as fast as possible.

You are confusing Goldman's prop desk and their sales desk. The prop desk is not required to inform clients of their positions.

The sales desk is required to disclose information on the composition of the security they are selling. I.e.: "Bond X is comprised of 523 loans from Florida, 247 loans from Texas, etc, all rated AAA".

Your link does not suggest they failed to do this.

In much the same way, if I think AAPL will tank, I am legally permitted to sell my shares.

I am not confused about anything they where fined for civil fraud. They should have been charged with criminal fraud because they where culpable in allowing the racket to be structured.

http://www.sec.gov/news/press/2010/2010-59.htm

from the article:

Tourre structured the transaction, prepared the marketing materials, and communicated directly with investors. Tourre allegedly knew of Paulson & Co.'s undisclosed short interest and role in the collateral selection process.

Goldman Sachs did not disclose Paulson & Co.'s short position or its role in the collateral selection process in the term sheet, flip book, offering memorandum, or other marketing materials provided to investors.

You are actually very confused. Your previous link asserted that Goldman shorted bonds which were about to tank, and this was fraud. (It isn't.)

Your current link claims Goldman defrauded themselves (for the benefit of Paulson and others) on a bond they took a long position on. Also, Goldman wasn't fined for fraud. Goldman paid the SEC to make the case go away, while admitting no guilt.

(The SEC also gained quite a bit from this. While they were making headlines chasing after goldman, the media mostly ignored their porno scandal. http://www.nydailynews.com/money/2010/04/23/2010-04-23_porn_... )

Fined settled your playing semantics, both articles where to show that their was material deception of investors taking place by Goldman. A case was brought against Goldman and Goldman had to pay an amount for fraud. Their is no confusion, they defrauded investors, failed to disclose their dealing at the back of the house and this is illegal. Both articles show that they engaged in it and the latter shows with no doubt that it is illegal to do so. You asked What did they fail to disclose and I provided you with references to show you what they failed to disclose. No confusion, we can argue in circles if you don't like the facts but there they are in black and white. The porn scandal is irrelevant to whether or not Goldman committed fraud.

Specifically from the first article, where the fraud was mentioned:

However, Goldman's limited disclosures in the offering circulars it gave the investors that bought its mortgage securities could cause legal problems.

At issue is whether Goldman's bets against the housing market were so "material," or relevant to investors, that their disclosures could have convinced them not to buy its products. Without purchasers for its risky securities, Goldman's exit strategy would have flopped.

No, the first article shows Goldman engaged in prop trading. That's not a crime, or fraud. That's what every single person in the financial markets does - they sell stuff to other people when they expect it to go down, and buy stuff from other people when they expect it to go up. Are you guilty of fraud if you sell AAPL before it goes down?

The second article showed Goldman didn't disclose something that no one has even been forced to disclose before (identity/motives of the counterparty). In fact, it's often illegal to disclose this. They did disclose the exact composition of the product they sold (and bought for themselves), and by the nature of a synthetic CDO, there was always someone betting against the bonds going into it.

But I'm really curious - can you explain to me why Goldman would defraud themselves? Remember, Goldman bought a piece of ABACUS and lost money on the deal as a result. Why would they buy a bond they knew was designed to fail?

The Stanford scandal and the Porn scandal are relevant to the SEC's motives - just by pure coincidence, they hit an unpopular company ("giant vampire squid") with a really weak case, alleging the company defrauded themselves, at the exact time they were about to get a bunch of negative media attention. I'm sure the two were completely unrelated.

As for fined/settled, it's not semantics. If the SEC had a solid case, they would have demanded Goldman admit guilt. Goldman just paid a bunch of money to get their name out of the media and avoid uncertainty.

It is fraud to materially represent information to clients. That is why Goldie got nailed. The rest of the stuff you are pointing out is a bunch of noise that is pretending to be signal.

For those who don't know the details of the case, heres a quick read -

1) A hedge fund which believed that mortgages were going to go south worked with Goldie to buy a portfolio of stocks which they were short on. They would make money if the stocks tanked. 2) Goldman turned around and sold the Long end of the trade to their clients. 3) Goldman is asked specifically by clients if a neutral third party was making the portfolio. CRITICAL information to a decision maker. 4) Goldman LIES and states that it was a neutral third party.

Watch this video - its the SEC enforcement directory talking about why they were going after Goldman. Do note this was at a time people were making the same assertions that yummyfajitas is making - its wrong illegal to disclose the identity/motives of the counterparty.

http://www.ritholtz.com/blog/2010/04/sec-khuzami-director-di...

I'm going to steal a comment from that page - "In response to the typical question as to “weren’t the investors sophisticated enough to do their due diligence and see for themselves that bla bla bla” Khuzami ( at 3:12 min) revealed a critical detail: “One of the investors specifically requested an independent and objective 3rd party collateral manager to assist in the selection of the portfolio. It was a foreign institution that wanted someone here is the US. It was one of the condition of the deal, and Goldman represented that is was what they were getting, when in fact, it was not the case.”

The subsequent ruling makes it clear that this is material information that is necessary to disclose when dealing with derivatives and CDOs. Do also note that till date derivatives and CDOs are the least regulated part of the entire market and that is why they are also weapons of mass destruction. Getting a legal case which makes it clear that you have to disclose stuff like this is BIG.

Whats really irksome is that the matter at hand is far more complicated and important to understand, yet the coverage of this matter is handled badly.

Funnier still - after the water is muddied it is made to look as if the SEC is forcing "Virtuous Bulwarks of Society TM" to disclose information that a 2 year old should know. WTF? People talk about the SEC going after Goldie like its a BAD THING. I just can not understand this.

There is a LOT of depth complexity to what is going on here. The porno scandal is a distraction. The Rolling Stones article, and the parents link, do not even begin to touch the surface of these issues.

well, you make the laws. that's the beauty. personal responsibility - I would have guessed that an entrepreneurial community would expect people to look out for themselves. sure, don't cheat people, but also don't expect that a system totally eliminates cheating. no free lunch.

Not everyone agrees on what makes a good entrepreneurial environment.

I'm starting to get disillusioned with the general community thoughts these days. When it's clear that the surest way to a popular article is to blame 'Wall St' for all your problems, to me this is a sign that the actual original thinking entreprenuers are being outnumbered by ordinary employees holding mainstream political views. Populism is a poor form of argument.

Note I'm not exclupating 'Wall St' from blame, merely expressing regret that 'piling on' takes more of a front seat to trying to work out what went wrong, where the opportunities now are, and what lessons can be learnt.

So I'm wondering: how can we hack this system? Because it's going to take something beyond "vote for brand A/brand B"...

For the record I am an entrepreneur have had 3 successful exits and now run a consultancy with quite a few employees and I blame wall st. I would never operate my business the way that they have and am appalled at their actions. Further if my company was responsible for great pain in America I would not pay bonuses to my employees. I have seen a lot of entrepreneur support this kind of action and I wonder if their is a deep seeded desire on their part to join the ranks of the abusive. For me I think it is reprehensible to act in this manner sometime honor is more important that a buck. Whether my view point is Populism or not, there is no honor in what Wall st. did and therefore I blame them as a citizen and as a entrepreneur. The evidence is overwhelming to ignore it is to have an agenda (not saying you do, but I am suspect of entrepreneur who make excuses for them).

Well, my point is not to say that Wall st is not guilty of many bad practices - it's just to say I don't like seeing a populist movement of blaming them for everything and calling for their heads, as if this will somehow fix current problems. The damage is done - lets look at ways to avoid this and stop it happening again.

I don't excuse Wall St, but I do think the government is as much, or more to blame. Individuals on Wall St were given a set of rules to work within, some broke them, many stayed within the law. The entire industry cannot be declared bad. It takes an entire economy to mess things up. Everyone is complicit, including the media and even some parts of the general public.

It's the aspect of finding a single scapegoat that I don't find comfortable. Because I feel that hunting down a responsible party and blaming them results in avoiding valuable life lessons. The valuable life lessons here are making sure you don't go along with the crowd, do your own critical thinking and don't for one minute believe the government has your best interests at heart.

I don't excuse Wall St, but I do think the government is as much

I absolutely agree, the problem is determining who is who, the relationship is so incestuous that who is the government and who private enterprise is sometimes vague when it comes to who they are acting for. When it comes to being weight in the balance I think the general public is the least wanting. By no means am I saying lets intact laws and retroactively throw these guys in jail, but the reality of the situation is that given the cozy nature of business and government in this sector nothing is going to happen until the general public starts calling for blood. They are embolden by all they have gotten away with it will not be reduced and no laws will be enacted until there is a fear of the general population. I think the mid-terms helped to stoke that fear. I don't want to get into the politics of the change but a mass flushing of Washington should send a signal. As well I think the general public has paid for their sins, I think the government has paid some with the mid-terms. I don't think the banks have covered their part of the tab yet. Which is why my tone reflects them being the most accountable.

(b): because things like personal responsibility and basic, common-sense personal finance were long ago replaced in our national culture by blaming the other guy and a sense of entitlement.

I'm actually on the side of putting more of the blame on the consumer than the banks, for that reason--but there's still plenty of blame left over for Wall Street.

I'm actually on the side of putting more of the blame on the consumer than the banks, for that reason--but there's still plenty of blame left over for Wall Street.

I don't know why, they are the experts who are supposed to know who to lend to and who not to lend to based on statistics and analysis. If they where incompetent at doing there job then that is on them, not the consumer. Further they are getting bailed out by the consumer so there is really little blame to put on the consumer we are paying the tab.

Blaming the consumer is akin to saying the consumer dressed too much like a hooker.

Accepting a variable-rate mortgage is taking just a big a risk as the lender lending it to you. If you accept one of those, you should be financially prepared for the rate to rise, even dramatically. And if the rate rises beyond what you can reasonably expect to pay, well then, your risk didn't pay off. Owning a house isn't a right, and just as you can make lots of money off them (and many did!), you can lose it all.

The difference between that personal risk and the bank's risk is that the government ended up saving the banks, while the commoners got foreclosed on. And that's certainly a good reason to get angry.

Edit: Great, downvotes for not blaming it all on those evil Wall Street fat cats.

Right I got no problem with people getting foreclosed on that is the deal you make. But typically in law one looks at who is the professional and who is the laymen. Generally the burden of responsibility falls on the professional so from a legal perspective and from a moral perspective blaming the consumer is kind of backwards, that was the only point I was getting at. It is not right that the banks got bailed out but the fact that they did, further reduces any moral responsibility that one could place on the consumer. They are loosing their house and footing the bill so in my opinion they have paid their dues. I personally don't feel that the banks have paid their dues for their part in the mess.

I will give you an up-vote because I think your point of view is valid and this thread is going to get political. No guarantee it is going to remain up though.

Often the mechanics behind the adjustable rate mortgages were not fully disclosed to the lendee. In many cases banks did very little due diligence to verify the income of the lendee, yet the would pass these mortgages off to other banks & wall street as sound investments - despite having no idea really how well the person could pay it back.

Additionally buying a house was considered a wise investment due to the ballooning home prices. This myth was perpetuated by the banks themselves. The only way to keep it going was to give everyone and their dog a mortgage & they practically did, knowing full well that most of the people would not be able to pay it back. Essentially fraud.

Additionally buying a house was considered a wise investment due to the ballooning home prices. This myth was perpetuated by the banks themselves.

It was also ingrained into the fabric of the American household. How many time has one heard, buy land they are not making any more of it or if you want to protect your money from inflation buy a house, they always go up. For 3 generations this has pretty much been a constant reality, one would have to go back to the depression to find wisdom that went against this reality.

I remember many friends saying we just have to get in before we get priced out of the market forever. People where so afraid of becoming renters for life that they where doing anything possible to secure a house before prices doubled again and they where permanently locked out of the market.

We are not talking about experienced investors here we are talking about people who just wanted to ensure they where not locked out of the American dream. Sure there where speculators, but the reality is speculators where only a fraction of the market and where some of the first to bail on their notes.

There where also many who used their house as an ATM, but with the shrinking job market can you really blame them many unwisely used it to maintain their standard of living and to put off the pain of adjustment to some point in the future, with the hope that better times would cover the call. which while unwise is not that out of the norm hell the government has been doing it for years.

To be clear, I am not making excuses for them but I think we are holding the consumer to a pretty high standard given the boom bust economy, the constant decline of jobs over the last decade, stagnant wages over the course of almost 2 decades, that has reduced real buying power and the financial shenanigans that have taken place. To blame the consumer after they have seen the middle class destroyed is really just rubbing salt in the wound.

Some people in our society are not fully equipped to properly evaluate all of the risks that they take (even on a daily basis). When you get into a car, you are placing a lot of trust in the 'professionals' (i.e. the engineers, the safety inspectors, the government regulators, Consumer Reports, etc) that the car is safe, why is a mortgage that much different? To many in our society the inner workings of mortgages (and personal finance in general) are just as transparent as how their car works. You can claim that if they should have educated themselves until you are blue in the face, but (1) we live in a society that doesn't exactly promote/reward that very well, and (2) the mortgage brokers probably pretty heavily tried to convince the consumers that there was no need to even 'shop around' to other brokers let alone spend the time to educate themselves on how their mortgage was going to work (hell, I'm sure some of the mortgage brokers probably didn't even know this; just how to fill out the paperwork to get the mortgage going).

> Why is there never any blame put on those on "main street" who took the loans that they couldn't repay?

They did repay them; they gave the bank their house back. In a non-recourse state (which California is), when you make a loan you the lender agrees that it will take the house at any time instead of the full value of the outstanding loan.

Given this, any sane lender wouldn't make a loan without a reasonable down payment to protect against any downside. The lenders however were giving no money down, no income, no asset loans where one didn't even have to pay the full interest (though it still accrued) for the first 5 years (and then selling them as quickly as possible to investors).

Don't forget selling the split up mortgage out of the back of the house before the ink was dry on the papers. So the people extending the note where not the people backing the note.

> Why is there never any blame put on those on "main street" who took the loans that they couldn't repay?

While I agree that people should have known better, I still blame the mortgage brokers, banks and realtors. The average American barely has the math skills for "12*12=144". There's a principal-agent issue here in my mind. The average American thought that the broker/bank wouldn't offer a clearly unpayable loan, because they would lose money on it. Not to mention that they don't look like sketchy auto body shops or something, but they look like legitimate businesses. So when this guy who's clearly a mortgage/finance expert says "Great news, because of assorted financial wizardry that's WAY, WAY over your head, we can put you in your dream home for about what you're paying in rent right now", people are going to believe him, because (a) they're primed to trust this guy, and (b) they badly want it to be true. There's a lot of resemblance to a con in that way. To add to this, Joe Schmoe is seeing his coworkers, friends, and neighbors getting into these deals as well - it can't be a trick if everyone's doing it, right? Not to mention that I've read standard MERs mortgage documents, and they are ludicrously opaque. So while I agree that "main street" people screwed up and should shoulder some blame, I can certainly see their perspective.

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