“Cheating teachers go to jail. Cheating Wall Streeters don’t. What’s up?”

Or building a bridge.

Or coding software for medical machines.

Or being a pilot or a bus driver.

Or construction.

You really want the surgeon who is only doing his best due to fear to be operating on you?

None of those listed professions at any time motivate their training due to fear of imprisionment. It is a complete non factor and it's only effect is to shovel more pain and tragedy on already tragic situations to the illusion of relief for a small porportion of the parties aggrevied.

People dying is not equivalent to people loosing money.

Can anyone verify that there are cases of criminal negligence where engineers have been imprisoned as a penalty?

The most relevant [ETA: US] case I can think of is the Hyatt Regency Walkway Collapse (http://en.wikipedia.org/wiki/Hyatt_Regency_walkway_collapse) in which over 100 people died and the engineers involved lost their licenses. No one went to jail, and this case was actually noteworthy for professional consequences being imposed for negligence.

That's not a 1:1 analogy. Civil engineering is a mature field, and the best practices in design / methods for analyzing structures are very well defined at this point. Effectively regulating the finance industry requires more than following the rules to the letter - also involves who you know, creativity in catching new kinds of misbehavior, and a bit of luck.

firing a public employee is like pulling teeth from healthy gums

Regulators can only make decisions based on the information they have, which ultimately comes from the people they're trying to regulate. Eventually the wheels come off, but you can give plausible numbers to the government for a long time before that happens.

Your assumption they were either bribed or incompetent is unwarranted.

On number (2), you forgot the other major (and very probable) option: the regulators were told, by the legislature, to shut up and stop doing their jobs like competent professionals, because Congress's friends don't need no regulation (♫ they don't need no bank control ♫). They were probably also defunded by Congress, leaving them with too small a staff to do their job well.

"Starve the beast", remember?

Invalid comparison. Failure to prevent something is not the same as personally perpetrating it.

That's wrong. That kind of regulation comes from the legislature. It's an outside force. The effects of a regulator's actions on their ability to join banks afterwards are measured independently of legislature regulation. What I'm talking about is the people whose job it is to enforce that regulation (the people we call "regulators"). Their incentive is to not enforce it as strongly as they could or should. They "adapt" their policy enforcement to fit what people believe in industry right now, which is why they let all these banks peddle bad loans and commit massive fraud. The reason they "adapt" is contained in my original post.

A friendly, helpful regulator will get job offers to work for the firms he is regulating.

A tough regulator will not.

See my response talking about legislature regulation versus regulators whose job it is to enforce that regulation (It is the comment above).

It is kind of like the prisoners dilemma. If a regulator defects(doesn't do his job) he gets a high paying bank job. If he doesn't defect (does his job right) then he is stuck as a government employee with shrinking budgets.

Any industry that gets regulated, has a strong motivation to take control of the regulation of their own industry. This process is called regulatory capture.

Once regulatory capture has happened, incumbents in the industry are incentivized to use regulations to create barriers to entry.

The result is a lot of regulation, lots of work around regulatory compliance, and very little that accomplishes the purported purpose of said regulation.

Every so often regulatory failures become so bad that government steps in, creates more rules, and we get more bureaucracy. But the status quo inexorably reasserts itself.

> "If nothing else they should get audited down to their grade school allowance to be sure they were merely grossly negligent."

That would not even be sufficient, because for all we know they were bribed with hookers and cocaine. It would not be the first time.

I dare say the majority of government waste and other problems are simply a case of 'you get what you pay for'.

I'm not claiming they were equally complicit in fraud. I'm saying the ratings agencies and the lenders are equally responsible for the collapse. The lenders knew they were giving out dubious loans. The ratings agencies bought into the mathematical models.

Frankly, I think it was simply stupidity and hubris. On both sides. It's amazing how stupid people are in the face of irrational exuberance. Which is why I say: they're equally complicit.

As are those folks who took the loans (though to a lesser degree, as they may have been poorly or actively misinformed by loan officers), and those folks who bought and sold the derivatives knowing full well what was in them (or at least were aware of the models the risk assessments were based on).

Which is where ultimately regulators and regulations are supposed to play a role: to counteract the market's tendency toward irrationality. IMO, if you want to lay the crash at the feet of anyone, it's captured regulators, toothless regulatory bodies, and elected officials who bought into Wall Street bullshit that they could mind their own playground.

And really, you could lay all that straight at the feet of that granddaddy of all corruption issues: money in politics.

Almost all those mortgages were insured by Fannie Mae and Freddie Mac, both of which have very strict documentation and qualification requirements to issue policies. If the big banks knowingly lied to them or to any other insurer about the mortgagees in order to obtain an insurance policy, and the insurer relied on these misrepresentations, they are guilty of fraud.

Honestly, I would be okay with plea bargaining if the only bargain that could be offer the DA could make is getting off completely, not a lesser sentence. Perhaps a reasonable fine would be okay if it were enough to teach someone the risk isn't worth the reward, but not so high that it screws them for life or bankrupts them. Either way plea bargains shouldn't involve lots of jail time vs less jail time.

The reason is that it was a systematic structural problem. Instead of picturing that chain of command (the one you just listed) inside one organization. Imagine EACH step of that chain is actually a different organization that handles one part of that chain of command. Its like if people want euthanasia in Spain, they distribute the task of getting the arsenic among 20 people so none of them can be prosecuted for a crime. One person takes the vial from 20th street to 15th street. One person enters the building. One person walks up the stairs. etc. Their individual part is so small and they have no knowledge of other parts; it's hard to prosecute them for murder. Finance is kind of like that too. They split everything up; it's hard to prosecute.

Who profits? The banks that just issued risky loans, packaged them into CDOs and held onto the risky tranches?

(Typical names in that space were WaMu, BofA, Countrywide and Citi.)

Being told by an authority results in people going against their morals for the majority of people. Look up the Milgram experiment.

1. Cheating on some childrens exam should not even be a criminal offence. If people went to jail for fluffing up their progress we would all be in jail.

2. Disobeying your boss is usually not a good career move. This is not an ethics issue this is a "do you want to pay rent this month" issue.

3. Why not quit? A software engineer in the valley could go downstairs and work for another software company, a teacher would have to relocate to find another employer because the local district controls 95% of the local teaching jobs.

That's what I was wondering. I know a couple that were both loan officers before the market crashed. If they were making (individually) six figures I'll eat my hat.

I live in SF, but it's any midsize market (or larger) really. Loan officers are effectively sales people, they eat what they kill. The better ones have teams working for them in a sales-support capacity.

Its the same with real estate agents, a good one can be very wealthy. Some LOs hit annual comp > $1M, though that is rare. I found it pretty shocking when I first found this out.

Send me an email if you want to make the market more efficient, I'm working to build a modern mortgage bank :)

http://www.marketwatch.com/story/this-is-the-last-photo-well... South, not north, my bad.

I'm not assuming anything, merely making a statement about punishment.

Is there any direct, actionable evidence that individual CEO's willingly were involved with illegal activity related to the 2008 finance crisis? Most of what happened at the time was not technically illegal thus a large complex system with many participants makes prosecuting people very hard.

How many teachers do you actually know? I ask because both my parents were teachers and most of their friends are teachers and it's a lot of hard work for not much reward if any, whether financial or otherwise.

Students arguing about their grades. Students refusing to write papers or read articles about subjects they cannot handle intellectually (because it "conflicts with their religion or politics"). Many students who simply don't care about the subject material or education in general. Poor pay and long hours spent gradings papers and tests. Administrative duties outside of their teaching duties. Low pay and patronizing moronic administrative staff. Pensions reduced so that state legislatures can give ill-advised tax breaks to the wealthy and corporations (but I repeat myself).

Teaching is something done out of passion and while I can understand the passion I've seen derived from touching one life, it sure isn't the cake-walk you're alleging.

> The difference between a legal transaction and an illegal one is often what was in the person's head, not just things you can deduce from a paper record.

From my understand of how a straddle works, that describes it quite well.

Not to mention that the volume of discovery materials is so huge that it costs a fortune in both hourly wages and time to comb through it, and lack of resources has often been a problem at the DoJ; plus, with such a huge volume of evidence to sift through, the procedural arguments over what is admissible and so on and can be strung out for years on end.

I think a lot of commenters here don't appreciate that prosecuting a large bank involves sifting through literally tens of millions of documents looking for patterns of intentionality, which as you say is very hard to prove, and where the subjects of the investigations in question know it's hard to prove. Nobody gets anywhere in the financial industry without a very good knowledge of securities law, whereas it's highly unlikely the teachers in Atlanta didn't cover up their malfeasance very effectively and their defense could almost be summed up as 'what's the big deal?'.

That said, I think the lack of prosecutions was partly political. If the administration had gone nuclear on Wall Street as soon as it came into office (which was when anti-financial sentiment was at its peak) then it would have laid waste to the US financial industry and could have caused a far worse financial and economic collapse than the one we experience. It's no good pointing to things like the S&L crisis as many people do; that was a different, and much stricter regulatory environment. The reason (IMHO) that the financial crisis was so severe was that we deregulated the financial industry heavily in the late 1990s, and so a great many of the systemically risky activities that eventually proved unsustainable were not illegal. It was assumed when Glass-Steagall was dismantled that the market would flush out excessively risky players because too much risk is bad for business. But in a classic case of the market remaining irrational longer then any one participant can remain solvent, the big banks became so leveraged, and their retail and investment arms so entangled, that allowing market forces to operate in late 2008 would have meant the collapse of the payments system. A similar problem obtained after the Great depression; hardly anyone went to jail because although everyone agreed it was a massive disaster, it was a product of hubris rather than malice. See http://www.pbs.org/wgbh/pages/frontline/business-economy-fin... for a simple overview of the situation.

There was a lot of bloodletting in the government - not in terms of people going to jail, but in terms of agencies being dismantled or massively reorganized. Agencies like the Office of Thrift Supervision, whose income derived entirely from regulatory fees and so had every incentive to keep as many banks in existence as possible, were shut down completely. Instead we have the Consumer Financial Protection Bureau, and a mass of new investment compliance requirements under the Dodd-Frank legislation...a bit like the way national security was massively reorganized after the 9/11 incident so that we got the Department of Homeland Security and a ton of new anti-terrorism legislation. Unfortunately I don't think these reorganizations have made us significantly safer; they were well-intentioned but IMHO simply shifted the risk around and substituted elaborate and very expensive compliance regimes for true structural reform. With hindsight, it would have been a lot better if Obama's administration had a) siezed the political momentum that swept him into office to reinstitute the relatively simple Glass-Steagall regulatory regime, b) required the megabanks like Citi, BofA etc. to demerge their retail and investment arms in short order, and c) encouraged large numbers of bankers to take early retirement and leave ethe industry forever or expect 4 years of legal harrassment - and no, I don't think the last suggestion is good law, but it might nevertheless have been an appropriate exercise of political power.

The thing is, if you look at how the industry has been treated from a right-wing standpoint, the administration is engaged in an apparently never-ending shakedown of Wall Street motivated by the President's ardent desire to destroy capitalism. There are lots of people out there who think the financial crisis was just good capitalism and so what if a lot of people wound up losing their homes, they didn't deserve them anyway because they were losers - asin Rick Santelli's (in)famous rant fromt he floor of the Chicago Mercantile Exchange that's often credited with launching the Tea Party movement: http://opinionator.blogs.nytimes.com/2009/02/20/rick-santell... Let's not forget that this was in February 2009, after Obama had been in office less than a month. His administration has faced angry and arguably militant opposition towards its reform efforts from the very beginning, because there's a large reactionary contingent that considers the Democratic party in general and Obama in particular as agents of communism (there's a kind of reactionary foolishness on the left too, that thinks it's OK to just jack up taxes, confiscate wealth, and hold show trials - but IMHO that's a smaller and less powerful demographic). So arguably, the current regulatory regime is the result of an attempt to minimize political as well as fiscal instability.

You think that because those are the stories you're aware of.