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It wasn't just "overlooking issues" many loan officers directed borrowers to lie on their applications and in some cases falsified income on loan docs themselves [1]. There was also falsification of appraisals [2], not to mention the robosigning debacle.

[1]: http://www.nytimes.com/2015/02/13/upshot/how-mortgage-fraud-...

[2]: http://www.bergermontague.com/blog/index.php/countrywide-whi...

Yup, I agree with that.

But:

In the example you gave, the people most closely committing fraud are regular Americans. Not the banksters.

A) A loan officer hinting to people to lie on their applications does not absolve the loan applicant from fraud.

B) A few loan officers here and there does not an economic failure make. It took failure all the way up and down the system.

But to the point - it's not the CEO's and Wall Streeters committing fraud in that circumstance. Sure, they bear responsibility for not locking down their front-line staff better ... but those examples don't indicate they committed anything near a crime.

Lying to other banks about the quality of assets they were selling to them - if we could prove it - might actually be 'Wall Street fraud'.

Wait, don't they huge fines paid by Chase, Goldman, and others, indicate that there was some criminal activity involved in how the banks assembled and sold the CDOs?

Why would the boards approve the settlements if there wasn't some kind of legally culpable behavior?

I'm not one to advocate for prosecuting people for political reasons.

But given how people from lesser socio-economic classes are incarcerated far too often for property crimes involving much smaller amount, it's hard not to perceive a hypocritical double standard at work here.

The Big Short makes the accusation that the ratings agencies took an insane amount of time between the discovery of the nature of the catastrophe, and their actual ratings adjustment.

More specifically, it suggests that corruption was used to buy the banks holding bad loans time to discharge them as fast as they could to protect themselves.

Not quite. The particular delay you are referring to in the movie was banks not correctly repricing illiquid assets when it would hurt their own position.

The accusation against the ratings agencies was arguably worse, it was that they wouldn't give bad ratings because the banks would go to a different agency.

I watched the movie and read the book, this is a very poor deflection.

What deflection are you talking about? I just pointed out that the movie did not emphasize the ratings agency delay at all. Your comment was incorrect.

> and they paid the price.

Who paid? Seems to me the taxpayers did.

"Who paid? Seems to me the taxpayers did"

The thousands of bankers that lost their jobs.

Major banks collapsed.

Entire divisions were shut down.

Banks did not concoct their near-death demise, even though it was self-inflicted.

Yes, arguably taxpayers 'paid' as well with unfair bailouts, but there's no case to be made that the banks 'won' in this one. They would have preferred to avoid that crash altogether.

I'm not suggesting that they are not mostly 'at fault' - but they were not criminal, is my point.

It would be unwise to seek to blood when really what is needed is some smarter regulatory conditions.

Would the taxpayers have received a payout if the banks bets went as planned? The taxpayers absorbed the risk from the banks, they won.

Taxpayers seem to have received excessively good deals on mortgages.

People who had mortgages received benefits perhaps, not taxpayers in general.

>So this was a conflict of interest that led to a really bad outcome, but it's not outright fraud.

Interesting. Is there a strict legal difference? I guess I perceived it as a spectrum and the flagrantness of the conflict of interest and the profit derived from it seemed like it approached what I imagine as "fraud" in my head. But then again, I'm not a lawyer, or a banker, or an economist.

Thanks for the reply, I'm now doing some more reading on this myself.

"Is there a strict legal difference?"

Yes, definitely.

If you're a banker selling bundled mortgages and say to a ratings agency: 'I'm going to give you some money, and I want you to lie on your credit rating report that you make of my financial product'. This is fraud.

If you get keep getting bad credit ratings from some agencies, but some others give you good ratings - and you start to spend all of your budget on the agencies that give good ratings ... and then the ratings agencies that are losing business realize they are going out of business, and those agencies start to 'loosen criteria' (say for example, they stop doing extra diligence like physically visiting places and checking up on random selections of mortgages) ... then their credit ratings become less valid ...

Then you don't have anyone committing fraud - but a cynical failure of the system.

It's the same thing with Forrester and the other firms that give 'grades' on products.

I worked at an F50 and we paid for tons of research from firms like that. They also would review our products and put them in the 'magic charts' of 'winners/leaders and losers'.

It's a tricky conflict of interest ... if you don't buy their products, maybe you won't get good reviews.

Now - that is almost fraud - if there is internal decision making that outlines this, i.e. research sales guys saying 'if you don't buy our research we will give you a bad review' or internal practices to that regard - it's probably illegal - or certainly highly unethical.

But it never got to that. We just bought a lot of research.

It's an issue wherever there is a conflict of interest and it's hard to manage.

This is where the SEC could possibly have more impact/influence - in terms of specifying 'what must be done' in a rating.

Ultimately, the market should correct itself - the 'ratings agencies' should have basically had their credibility completely blown up. They didn't. This is bad.

Do you remember Enron? Arthur Anderson did their books. When Enron blew up - there was no 'regulating' needed. Arthur Anderson lost all of their business, because nobody wanted to have their books 'ok'd' by a company that has no integrity, when what they are selling is 'integrity'.

It would be nice if bankers basically demanded good ratings. The Germans and Japanese lost 10's of billions because they never, ever imagined that Americans would lie about this stuff. Surely they have changed their ops a little bit ... but possibly not enough.

Anyhow - I don't think there was a lot of fraud or malice. Just greed, laziness and stupidity, others are clearly more to blame than others.

Arthur Andersen was convicted of obstruction of justice. That's why they went out of business. The market didn't correct this inefficiency all by its lonesome. The legal system prosecuted this crime.

http://www.wsj.com/articles/SB1023469305374958120

And FWIW, that conviction was later overturned by the Supreme Court.

AA's conviction does not put them out of business.

AA's loss of customers put them out of business.

That said - they may possibly have lost their legal ability to sign off on books, in which case, that could have done it, but even if they didn't, customers would run for the hills.

There are handful of 'big accounting firms' that are basically the same. Why use the one that is criminal when you can use the next one over for the same price that is not? The whole point of AA is integrity of being an 'independent' auditor. If they don't have that, they don't have anything to sell, so no customers.

Anderson had been the accountant for Waste Management and Sunbeam. They'd been fined for those cases and they expected to be fined again for Enron. Cost of doing business. They didn't lose their customers because of those cases. They lost customers with Enron because they were convicted.

And they went out of business costing 10s of thousands of jobs.

Not sure if you realize this but Arthur Andersen "the company" was convicted, not some individual named Arthur Andersen. The discussion was about whether individuals would get prosecuted or if there are personal qualifies which allow some people to escape criminal prosecution.

You know who did commit fraud and was never, ever prosecuted? The millions of homeowners who applied for mortgages they had no way of paying back.

I agree so long as you start at the top and work your way down.