Walt Laws−MacDonald | Show Me The Money!
Questionable? Sure. Illegal? Questionable.
Published: Wednesday, March 13, 2013
Updated: Wednesday, March 13, 2013 02:03
Walker Bristol, my fellow op−ed columnist — he’s the crazy lefty that will be on this page tomorrow — and apparent Twitter arch−nemesis, called me out on a line from last week’s column that I honestly hadn’t given much thought to. “‘CEOs put on trial.’ Wait what Wall Street execs exactly have been put on trial except Bear Stearns?”
Though I presented him with a few examples, Bristol makes a valid point: with trillions of dollars lost in the recession, why have so few “orchestrators” of the collapse been punished for what many Americans would consider crimes against humanity?
In the case that Bristol alluded to, two hedge fund managers at Bear Stearns allegedly lost their clients $1.6 billion, when they knew their funds would tank. Though a federal jury acquitted the pair in 2009, the SEC later “won” a laughable settlement of about $1 million. Even more ridiculous was the settlement’s terms: neither man admitted any wrongdoing.
In my reply to Bristol, I mentioned the cases of former AIG CEO Maurice Greenberg and former Barclays CEO Bob Diamond.
Former New York attorney general Eliot Spitzer accused Greenberg of hiding losses at AIG from 2001 to 2004, in addition to several counts of fraud. Though Greenberg remains on trial for some of these charges, he too settled with the SEC for a paltry $15 million and has since counter−sued the federal government for what he calls “unconstitutional bailouts.”
Diamond testified before British parliament regarding the international LIBOR−fixing scandal, but no criminal charges have been brought against him.
The most prevalent cases of anyone going to jail for finance−related crimes usually have to do with insider trading, a practice that gives individuals an unfair advantage but does not necessarily cause others harm.
So why will Raj Rajaratnam serve an 11−year jail sentence and pay a $150 million fine when the wrongdoings of much larger and more important institutions have gone largely unchecked in the years following the housing collapse and credit crisis?
The short answer is that the questionable practices of these big banks are just that: questionable. Nothing explicitly prohibits a bank from doling out home loans like spare change on one end, and betting that those same loans will collapse on the other. Furthermore, banks can bet against these investments and still maintain that they are “hedging,” not actually shorting, the product.
Some banks — and courts — make the ludicrous assumption that their customers know as much as they do. Because my grandfather investing in a retirement fund clearly has as much research and experience available to him as the financial analyst whose entire job is to study these products.
In my first column freshman year, I discussed the inanely outgunned Securities and Exchanges Commission (SEC) and its inability to do anything of importance following the Credit Crisis of 2007. Perhaps I just wrote myself out of a financial regulations job ten years down the line, but it is true. The SEC simply does not have the teeth to affect a change on financial practices when these banks can hire the best legal teams in the country.
The Volcker Rule, the major result of the comprehensive Dodd−Frank financial reform bill, now runs more than six months behind its scheduled implementation, and Paul Volcker himself calls the 530−page bill “much more complicated than I would like to see.”
But the banks did not burn millions of Americans — the government watchdogs did. Despite Mitt Romney’s assertion that “corporations are people too,” banks do not feel bad making a buck off you, and unless it is illegal, they will.
Walt Laws-MacDonald is a sophomore majoring in quantitative economics. He can be reached at Walt.Laws_MacDonald@tufts.edu.