Shoot The Bastards Instead


Posted on : 9/12/2011 10:00:00 AM | By : Dann | In : ,

The NYTimes has this recent report indicating that the government charges of fraud against some of the architects of the 2008 fiscal meltdown.

The federal agency that oversees the mortgage giants Fannie Mae and Freddie Mac is set to file suits against more than a dozen big banks, accusing them of misrepresenting the quality of mortgage securities they assembled and sold at the height of the housing bubble, and seeking billions of dollars in compensation.

The Federal Housing Finance Agency suits, which are expected to be filed in the coming days in federal court, are aimed at Bank of America, JPMorgan Chase, Goldman Sachs and Deutsche Bank, among others, according to three individuals briefed on the matter.
I have been contemplating a much larger essay on the causes of the 2008 meltdown.  There were many.

It is now patently clear that the size and scope of the meltdown would have been far less were it not for outright fraud on the part of elements of the banking industry.  I read a piece in Vanity Fair a couple years back that made it clear that Goldman Sachs, innovator of the credit default swap form of securities, had the internal position that those securities were bad risks while simultaneously selling those same securities [to] investors.

Were I of a less temperate nature, I might suggest that stringing Goldman Sachs executives and managers up by the balls and letting the crows feast on their rotting flesh is a fit punishment.  Similarly, I might suggest that distaff Goldman Sachs executives and managers be subjected to forcible sex change operations so that they can be strung up by their balls so that crows might feast on their rotting flesh.

I am too much of a lesbian to ever want to hurt a vagina.

Unfortunately, securities fraud cases are notoriously hard to prove.  The second difficulty is that many of the more obviously instances of potential fraud were committed by companies that no longer exist.  Via Megan McArdle:

Securities cases are hard to prove in the best of circumstances--even Eliot Spitzers' famous crusade against Wall Street consisted of getting fairly minor settlements from most of the big fish he went after . . . and losing every case he took to court.  The first mortgage securities case to go to trial, with two Bear Stearns bankers, likewise returned a "not guilty" verdict.  Many of these same banks got themselves in serious financial trouble by gorging on their own toxic mortgage securities, which dims the fraud angle.  Unfortunately, being arrogant idiots with the risk appetite of a coked-up skydiver is not a crime.

On the issuance side, most of the knowing, obviously provable fraud seems to have been at the mortgage broker level, or in mortgage mills that are now out of business.  Proving that someone ought to have known that they were being scammed is harder--especially since they can argue that if they ought to have known, so should the GSEs.
Shooting them where they stand seems a cleaner solution.  I am open to suggestions involving tar and feathers.

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