Comment by beloch | Hacker News Reader

Comment by beloch | Hacker News Reader

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“There’s a difference between incompetence or mismanagement or poor judgment or excessive risk taking from actually breaking the law,” Gorman said. “There’s nothing I’ve seen that would suggest that any of the major participants in the financial crisis should be in jail for their actions.”

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Misconduct of financial companies goes unnoticed and unpunished most of the time, and when it is caught the penalties are usually in the form of fines that are dwarfed by the gains accrued from misconduct. Morgan Stanley is typical of Wall Street firms in that it has been caught doing a variety of dirty deeds (which are probably just the tip of the iceberg) but has been forced to pay almost meaninglessly tiny fines in "restitution".

The city I live in collects train-fare on the honor system. There are no turnstiles, gates, etc.. There are machines to buy tickets and trains. Occasionally, transit officers will perform a spot-check on a train that's between stations and you get a fine if you don't have a ticket or pass. If, on average, you get spot-checked once a year, then a fine needs to cost your more than a year's worth of passes or it makes no financial sense to buy them. Not surprisingly, the fine is several hundred dollars. In the financial sector, the fine for being caught is a tiny fraction of buying a single one-way ticket!

Gorman is absolutely wrong. Penalties for financial misconduct need to be far harsher than they are now to achieve even a basic level of deterrence. This may be very difficult to achieve purely with fines. No matter how diligently the government works to "patrol the trains" and set fines high enough to encourage honest behavior in the financial sector, the financial sector will find ways to game the system. That's their core competency! Lasting personal consequences need to exist. Jail-time is probably not the best way to deal with these sorts of crimes, but confiscation of personal property and restrictions on the jobs convicted financial felons can hold would be a very good start.

Morgan Stanley and their ilk wasn't the cause of the financial crisis, it was those who trusted the stock market with our mutual funds. The largest monetary reserve in the world is the combined sum of all pension funds. It's not strange: you work 40 years and save so that you can live when you're to old to work.

Over the last 30 years all that money was gradually put in stocks. Which caused the stock markets to grow tenfold or something like that. It's a natural consequence of the law of supply and demand. The higher the demand for stocks the higher the price.

That money is the energy that keeps Morgan Stanley going. They can charge a hefty fee to manage your money because as long as more money is entering the market, the investments are profitable. Except sooner or later the pension funds will run out. When there is no more money to invest the stock market doesn't grow anymore with a predictable implosion as a result.

100% agree.

But like most things in life this is a two-way relationship. People who live off credit, buy homes they can't afford with +30 year mortgages, buy luxury cars with loans, etc., should also be penalised. The financial crisis was caused by a general misconduct by both financial institutions and consumers. Lets not forget that.

They are penalized. They declare bankruptcy, have the cars and homes taken from them and generally have a significant stain on their credit for a substantial time period.

Alternatively, financial companies, especially in the 2008 crisis, receive small wrist slaps in the form of tiny fines and public rebukes while now, 5 years later, they are returned to record profits.

These days, almost all of us, individuals and corporations alike, live off credit in some form. The difference between individuals and the banks is that when individuals mismanage their credit, something bad actually happens to them.

https://en.wikipedia.org/wiki/Bankruptcy_of_Lehman_Brothers

https://en.wikipedia.org/wiki/Washington_Mutual#Bankruptcy

etc.

Misconduct

That's where you and Gorman disagree. His point is that, yes, people screwed up; but no, they didn't do it deliberately. We don't throw people in jail for being bad at their jobs; we throw people in jail for deciding to do something wrong.

We absolutely do throw people in jail for being bad at their jobs.

If an engineer signs off on design work which then fails and injures/kills someone due to their incompetence they can and are charged with professional negligence and sent to jail.

Although financial incompetence doesn't kill anyone, it does effect a much much larger number of people, so I don't see why we shouldn't take the same approach and make the directors of financial firms personally liable for the outcomes of their actions.

> If an engineer signs off on design work which then fails and injures/kills someone due to their incompetence they can and are charged with professional negligence and sent to jail.

And medical misconduct and malpractice often involve federal investigations, that tells you it's not considered trivial.

It doesn't directly kill anyone, but it affects macro factors such that more people will die as a result.

Deliberately assumming a position in which you act and bet (yes, bet) with other people's money and in which you assume NO RESPONSIBILITY is an unjust position which you accept deliberately.

Yes, it is hard to say but no, you cannot behave unjustly even if other people want you to. You cannot get a slave even if the other person wants you to get him as a slave. You cannot harm an inocent person even if he wants you to.

The problem with Lehman was, essentially, that of lack of responsibility. And this is inherently unjust.

So: with the letter of the law, they "do not need to go to jail" (say Lehman's board of directors), but with a reasonable understanding of justice, they acted in an unjust way. Wittingly.

This argument is a good way of justifying systematic incompetence.

If you claim that an individual was just doing their job, their superior should be held responsible for creating that job (up to and particularly including the CEO).

The problem is that his claim just isn't very plausible. It takes a great deal of optimism to believe that everything that happened in (in particular) the origination, packaging and rating of US subprime mortgages (including the stated-income mortgages which industry types were referring to as "liar's loans", at the same time they were making and processing them) was a product of simple ignorance and incompetence.

Used to work on several trading desks. Bribing your risk desk wasn't just common - it was expected. I doubt anything has changed.

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