Hacker News Reader

Comment by rayiner | Hacker News Reader

I find it mind boggling that people start raving about the overly expansive criminal justice regime when a hacker does something, but turn around and demand jail time for Wall Street CEOs, none of whom provably did anything wrong.

People act as if the fact that there was a global financial collapse is proof that someone must have been criminally culpable. But who should be prosecuted for the last dot com bubble bursting? Or the next one?

Re: jail time, I think non-violent crimes should not get jail time period, whether you're a banker or a stoner or a malicious hacker.

View on HN

>none of whom provably did anything wrong

The idea that executives were unaware of the vast amount of fraud that was endemic in the mortgage industry is laughable. We even have documentary evidence from people inside who repeatedly raised these issues but were ignored or fired.

Being aware in general terms of widespread fraud in the mortgage industry and selling mortgage backed securities anyway does not arise to the level of a crime. Say everyone in the tech industry knows that those Instagram guys are sketchy as shit. But there's still nothing illegal about me turning around and then selling you Instagram stock while telling you it's a wonderful investment.

About 4 years ago the government tried to prosecute an employer for having illegal immigrants using that basic logic. The employer said he suspected that about half his employees had forged documents, but he obviously didn't know of any specific case. (The Feds trapped him by telling him they were doing a murder investigation and asking him for information about his employees. Don't talk to cops.)

IIRC the prosecution failed, although they did put the guy through the wringer in the meantime.

You are focusing on a very specific thing (selling mortgage backed securities) as if that was the only thing that went wrong before, during or after the financial crisis. Are you aware of how widespread foreclosure fraud was? Why were Chase executives (to pick an example) not made accountable for that? If I was caught defrauding people out of their homes I would see jail time.

Foreclosure "fraud" is when a bank cannot produced the signed promissory note in a foreclosure proceeding. Proving actual fraud requires proving, beyond a reasonable doubt, fraudulent intent: that the the bank intended to defraud the homeowner by foreclosing on a property it knew it didn't own. But in these cases it's clear that there was no fraudulent intent. It was careless filing of paperwork. In this electronic age, transferring a mortgage still requires handing over that signed promissory note. It's obvious to anyone that what happened is that when banks bought millions of mortgages from loan originators, the electronic records showed the correct transfers but a bunch of the paperwork got lost along the way. Certainly, that explanation is plausible enough that there's no way you're going to convince a jury, beyond a reasonable doubt, that it isn't what happened.

You don't want to call it fraud? Ok, what about criminal negligence then. These executives knew exactly what was going on, and by any reasonable standard should have known the harm they were causing. This is especially applicable if whistleblowers were ignored or silenced.

Software companies knowingly ship software chock full of bugs that results in millions if not billions of dollars of lost profits, lost time, etc. Does that rise to the level of criminally negligent?

it's the specific, core and obvious portion of not having the right one and only legal ownership piece of paper. not that somewhere a bug exists, somewhere a mistake was made, but the mistake was on the order of Microsoft shipping 1 in 1000 versions of word that you cannot print or save.

I don't doubt that the vast vast majority if these people did actually owe money on their mortgages but if you cannot prove it, the market then gets to sort out those companies who can look after the important things from those who cannot.

the market should winnow out fools and incompetents first, not have them compensated by the courts.

First, the software industry has done worse than ship 1 in 1000 versions of something that can't print or save.

Second, software companies often ship bugs knowing exactly what those bugs are.

Third, bringing a foreclosure lawsuit without the promissory note is not per se fraudulent. It's the homeowners job to raise the defense of asking the mortgage holder to show the document. It's only fraud if you intend to defraud the homeowner by foreclosing on a mortgage you know or suspect you don't own.

I'm not saying that banks fraudulently set out to make people homeless - I am saying they were incompetant in losing the certificates (or buying mortgages without them). and that I would favour allowing incompetence to have a market based effect on those who practise it - instead of using the law to protect the companies.

companies ship products with know bugs in in a calculated risk that firstly the bugs do not violate laws and contracts, and second the bugs have no market based effect. if a software company ships with those bugs then they display same levels of in ompetant e

and yes the ratio is probably wrong

A lot things that seem like terrible ideas are not necessarily fraud, at least, not in the legal, criminal sense of the word, because it's not always illegal to make bad decisions with money.

It's not illegal to loan money to someone who can't pay it back--which is the bulk of the documentary evidence that I've seen. If a bank knows I faked my income statement but lends me money anyway, that is a bad decision, but it's not criminal fraud (except maybe by me!).

It's not illegal to sell securities that might lose money. It's not illegal to buy securities that might lose money.

It would be criminally fraudulent to materially misrepresent the facts and risks--for example for a bank to say "we verified the income on all these mortgages", or "I guarantee this mortgage backed security will not fail."

But except for a few rare cases, that's not what happened. It was ratings agencies--3rd party companies--who decided to rate some mortgage-backed securities AAA without knowing what was in them. But again, that's not against the law because the ratings agencies are just private companies expressing an opinion.

NOTE - I'm not defending what happened because it was obviously stupid. And I'm not saying that no criminal fraud occurred, because some did.

I'm just an advocate for people understanding what is the actual state of the law, vs. what seems like it "should" be fraud.

There are thousands of documented cases of actual fraud, which were not pursued - almost as if the AGs don't want justice. They investigate practically nothing, and when the truth comes out (accidentally or by way of a whistleblower), they move quickly to close it with a slap on the wrist which is usually amounts to a fine far below the damage to 3rd parties.

Almost everything about the mortgage business is a fraud from one perspective: MERS. I don't have time to find the terse summary, but http://market-ticker.org/akcs-www?post=188061 should give you some idea about what the problem is.

The basic problem: without actually recording a transfer at the county registry, a mortgage cannot be given the preferential security treatment. Almost none of the mortgages sold had their title transfer registered -- this would need to be done every time the mortgage changed hands, and incurs a non trivial cost. Instead, the banks made their own law, created a corporation called MERS, which supposedly owns everything, and acts as an agent of the MERS-registered owner. However, this is not legal - not for foreclosing, not for the IRS, not for the counties.

Congress' way to fix it is to make it retroactively ok for the banks to make their own law. I'm not following closely, so I'm not sure if that has indeed happened - but I am sure that the whole MERS thing is illegal, and that AGs (except perhaps in Louisiana) try to fix it by ignoring it.

So basically, you want banking CEOs prosecuted because they constructed an alternate mortgage registry that has lower transaction costs than the existing system?

tl;dr; the financial crisis happened, here is something unrelated which might be technically illegal. Lets get em!

... an alternate mortgage registry that has lower transaction costs than the existing system?

More like "an alternate mortgage registry that has allowed entities to initiate foreclosures even if they don't hold the mortgages".

If you actually spend time reading, you'll see that they constructed an alternate mortgage registry that has lower transaction costs that the existing system, but violates (and fundamentally subverts) the law of the land, the tax code, and thus also defrauded investors because when (assuming it does) the IRS and the counties ask everyone to make things right, the investors are going to be the ones holding the bag.

And that's just one relatively minor aspect of the mortgage business. Everywhere you look, there's significant violations of laws (robosigning, co-mingling of assets) with essentially NO law enforcement interest in finding the responsible parties.

> might be technically illegal. Lets get em!

"Technically" illegal? At the very least, they defrauded counties on registration fees (adding up to a few hundred of millions, perhaps billions).

>The idea that executives were unaware of the vast amount of fraud that was endemic in the mortgage industry is laughable.

You can't prosecute someone on the idea something is laughable. You need some kind of evidence.

Engineers can be held liable if something they designed catastrophically malfunctions. Maybe people responsible for the economic well-being of, well, the whole damned world should too?

People tend to think it's wrong that a corporation can play fast-and-loose with their money, and then fuck up royally get government bailouts and generally speaking keep on like nothing happened.

I honestly don't know enough about these institutions and relevant financial laws to know what, if anything, could be done as punishment/retribution/revenge but then again I don't feel like anything was done. Therein lies the problem, a group of people can sink the economy through risky/reckless practices and skip out of it while the common folk lose their jobs/homes/savings and that just feels wrong. At the very least, it feels like a lack of rule of law.

Engineers are held liable for failures after an investigation that uncovers say an undersized bolt that led to the failure, plus a showing of negligence on the part of the engineer for undersizing the bolt.

The causes of the financial collapse, on the other hand, are systemic and amorphous. Lots of things had to go wrong at the same time for it to happen. People selling mortgages were not checking to see if people could pay, people where buying houses they couldn't afford, Wall Street sold mortgage-backed securities knowing both of the above. If any of these groups had acted differently, the collapse wouldn't have happened. Why should bankers be the ones to get put in jail? Because we don't like them?

> mortgages were not checking to see if people could pay

> Wall Street sold mortgage-backed securities knowing both of the above

Sounds like negligence then?

Quite possibly, but that's a civil issue, not a criminal one.

Since everyone is guilty to some extent, and we let go free the financial "team", let's apply the same logic to borrowers. They could not foresee the crisys coming... Now let them keep the houses and erase debt records. Maybe this will make financial team more responsible for their actions in the round 2?

> Maybe people responsible for the economic well-being of, well, the whole damned world

Do you honestly think your bank is responsible for your economic well-being? Or that bankers are responsible for every economically bad thing that happens?

Also: you don't feeeel that anything was done. So what? Feelings are misleading. Angsty teenagers often don't feeeel their parents love them, no matter how much they actually might. I didn't feeeel like getting up to go to work this morning, but I sucked it up and went anyway.

If our country were governed by feeeelings we'd in a deep, deep hole.

No, a bank is not responsible for my financial well being and I never made that assertion. In this case they more certainly are responsible for what happened.

And yes, Our country is governed by feelings and we are in a deep hole. If a member of the legislature feels we need a law for something, they will try to create one. They represent, or are at least supposed to, the collective interests (feelings) or their constituents.

And what is with the extra "e"s every time you spell "feel". I don't know if you intended it, but that most certainly reads to be very patronizing.

With that reasoning there is no need to pay these people excessive payments of millions. Since they are not culpable for bad choices (they were not keeping watch), how can they take credit for the good things?

These people in my view were negligent at their jobs. They chose a career which contained an inherent level of responsibility to society which they didn't live up to. The justice people are seeking is social justice, not perhaps prison time but more repayment of their ill gotten bonuses.

The US economy is built on the principle that people get to enjoy the gains of productive ventures, but suffer none of the losses of failures. Imagine that these executives had been working instead as executive consultants, each with their own company contracted to the firm they managed. In failure, those one-man consultancies would get your huge and "just" debts piled onto them--and then simply file for bankruptcy. This would not take back any of the salary or bonuses that those consultancies had already paid out.

This must be one of the great fallacies of the age: Nobody's been sent to jail, therefore no one's provably guilty, therefore it's crazy for people to be complaining they're not in jail.

The fact is, they're not in jail because nobody was committed enough to prosecuting them, and because the criminals are simply too powerful and influential, and have utterly co-opted elite opinion and the institutions meant to keep them in check.

Look at the Savings & Loans crisis - how many white collar criminals got sentences? How much bigger was this financial crisis? Just do the math (or read up on William K Black, a prosecutor who actually prosecuted, back in the day.)

You're making the illogical inference that just because there was a financial crisis, someone must have been provably guilty.

Comparing the latest crisis to the S&L crisis is comparing apples and oranges. First, most of the ~900 people convicted back then were not high level execs, but loan officers, branch managers and the like. Second, the frauds in those cases were much easier to prove. There was a lot of individual fraud and insider trading. It's easy to make a case to a jury that someone should go to jail for making up fictitious borrowers or trading on an inside tip. But look at the REPO 105 example someone mentioned above. You want to explain to a jury why someone should go to jail for treating a repurchase transaction as a sale instead of a loan, on advice from accountants? Third there was the practical ramifications arising from the fact that this crisis was a much bigger problem than the S&L crisis. The government was preoccupied with saving these institutions to keep the credit markets flowing rather than punishing people for the actions that led to the crisis.

exactly. The government doesn't want to prosecute these guys because if they go to trial, what will come out is that the government WANTED these outcomes, and the bailout was mostly an effort by the government to save face and patch over a mistake that they are significantly responsible for (this is not to excuse bank executives for not having the moral perspicacity to stop it).

You have got to be joking. They knowingly sold packages of crap as AAA, sometimes shorting the bonds they were promoting to idiot clients.

Reply on news.ycombinator.com