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September 19, 2014

"The Most Senior Wall Street Official: Evaluating the State of Financial Crisis Prosecutions"

The title of this post is the title of this notable new article on SSRN authored by Todd Haugh. Here is the abstract:

This September marks six years since the collapse of Lehman Brothers and the height of the financial crisis.  Recently, a growing debate has emerged over the Justice Department’s failure to criminally prosecute Wall Street executives for their role in creating the crisis.  One side of that debate contends the government has failed to bring to justice individual wrongdoers — primarily the heads of banks operating in the mortgage-backed securities market — instead preferencing enforcement decisions that target corporations, resulting in punishments that are “little more than window-dressing.”  The other side argues that cases against individuals are precluded by the realities of the federal criminal justice system, and that “corporate headhunting” will only inhibit meaningful regulatory reform.

It is difficult, however, to evaluate these competing claims without proper context.  This Article explores the recent conviction and sentencing of Wall Street executive Kareem Serageldin as a means of providing that context.  Although Serageldin has been trumpeted as the “the most senior Wall Street official” to be sentenced for conduct committed during the financial crisis, and his conviction was framed as a victory in punishing those accountable for the financial collapse, a critical look at his case reveals he committed only a mundane white collar crime marginally related to the crisis.  This disconnect creates a unique lens through which to understand and evaluate the current state of — and debate surrounding — financial crisis prosecutions.  And it ultimately highlights the merits, and shortfalls, of each camp’s arguments.  The Article concludes by offering something largely absent from the current debate: specific proposals for how we might go about prosecuting individuals so as to prevent the next crisis.

September 19, 2014 at 10:20 AM | Permalink

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Comments

The author is a lawyer, of course. He will not tell the truth.

Black federal thug lawyers threatened to pull the charters of banks who failed to lend to irresponsible ghetto dwellers.

So underwriters would gather in a hotel meeting hall. One would raise his hand and say, this mortgage application could not sustain loan payments. The roaming supervisor then told him to sign it anyway or lose his job. If the loan was turned down, the bank could lose its charter.

In a sharp business practice, the lenders bundled these risky loans, and sold them to sophisticated funds in Europe and in the US. No one could assess their viability because of the remoteness and pile up of paper work generated by the lawyers of the banks. Because their yields were substantially higher, the purchase of these bundles became the standard of due care for fiduciaries and mutual funds.

So the borrowers began to default, and the entire bubble burst, including that of the re-insurers.

If you want to arrest people, start with that Harvard Law grad Barney Frank. Then arrest the former head of a federal loan re-insurer, a pipeline from productive taxpayers, to tax sucking ghetto parasites, and the federal thugs threatening the banks with the loss of their charters for redlining ghetto areas due to bad credit scores.

A review of how it went down, and the role that lawyer Barnie Frank played.

http://aei.org/article/economics/financial-services/housing-finance/hey-barney-frank-the-government-did-cause-the-housing-crisis/

Posted by: Supremacy Claus | Sep 20, 2014 1:33:02 AM

Prof. Berman:

Thank you for posting this article. I appreciate the time you take curating everything that is out there and then sharing it with us.

Posted by: Fred | Sep 20, 2014 10:41:58 PM

Fred. To be charitable, Prof. Berman is not curating everything that is out there. Likely 90% of the items are Democratic Party talking points. As an academic person, he would be doing the public and specialist a huge favor, and I would even be willing to donate a substantial amount for him to retrieve and post a more balanced mix of articles. One has to rebut most of the center left propaganda, all promoting lawyer rent seeking. The articles are often repetitious, and one has to make the same points over and over.

To his credit, he allows substantive dissent, even from very serious insiders like Bill Otis. In person, Prof. Berman is 10 times sharper and more perceptive than appears here. Only a comment parry and repost displayed that aspect, with Bill Otis, and I enjoyed those. I hope a more conservative licensed former official someday resumes that dissenting role. Bill was a grad of a top tier school, and could not see the self evident points I was making from down here on planet earth. Points like, there is no mind reading. There is no future forecasting of human behavior. And standards of conduct should not be based on a fictitious character, one stealthily taken from a religious text, violating the constitution of our secular nation. No clue what I was trying to say. But he advocated a lot of the self evident policy I supported.

Posted by: Supremacy Claus | Sep 22, 2014 7:00:28 AM

Without reading minds, Prof. Berman allows substantive dissent, as a hedge, in case, it is true that the system if in failure, and has to be redone from top to bottom. Again, he cannot face the fact there are 20 million FBI index felonies a year, and 2 million prosecutions, allowing massive criminality to hit the poor and black population. No discussion of that topic, ever, total failure of Job One and and Job Last of government, to protect the public.

This forbearance and protection of the violent criminal by the lawyer hierarchy to generate government make work jobs is a passive crime against humanity. No discussion of the death penalty for thousands a year, when the number of murder victims has 5 numbers in it, and possibly 6, if the 100,000 people in unresolved missing person reports a year have come to foul play.

He also probably also believes in free political speech, and the enrichment of his blog by dissent. Most left wing people cannot tolerate disagreement. For example, all comment disagreeing with an editorial writer on the Huffington Post are removed. Zero tolerance there.

Posted by: Supremacy Claus | Sep 22, 2014 7:12:02 AM

@Supremacy
I assume by this comment, you mean the Community Reinvestment Act (CRA): "Black federal thug lawyers threatened to pull the charters of banks who failed to lend to irresponsible ghetto dwellers."
Banks covered by the CRA originated a small share of subprime and other problematic loans. Financial institutions like Countrywide, one of the worst in originating bad loans, was not covered (they have no deposits from customers, thus no obligations to try to make such loans).
http://www.ritholtz.com/blog/2011/11/examining-the-big-lie-how-the-facts-of-the-economic-crisis-stack-up/

AEI - your source - takes money from financial institutions, so their account of the financial crisis will not include financial deregulation and less policing of financial institutions leading to irresponsible and criminal behavior.

Posted by: Paul | Sep 22, 2014 8:10:58 AM

SC:

The link to the article in your comment on September 20, 2014 at 1:33:02 AM is correct - the government did cause the financial crisis, but just one small part of it. Government actions going all the way back to the Carter administration incrementally created the conditions where a handful of criminals could become fabulously wealthy while almost blowing up the national/global economy. Both parties are responsible, as both are and have been completely owned by the financial services industry. So this isn't about left v. right or liberal v. conservative or D v. R. or about the personalities of particular government enablers, such as Barney Frank. Trying to frame the crisis in this fashion just let's the criminals get away. They're all responsible.

So can you try to answer the question posed by the article to which Prof. Berman links in his post - why have there been virtually no criminal prosecutions (much less investigations) of the crimes committed in the mortgage securitization process?

Posted by: Fred | Sep 22, 2014 9:24:25 AM

I agree in part. Those roaming supervisors and their leaders forcing underwriters to attest to unworthy loan applications should be fined and face licensing sanctions. If they committed any crime, it was under duress from the federal government. Duress is an excuse. However, they just obeyed government orders. I agree they should have resisted and enjoined the government from pressuring them. But everyone was doing it and making money, their primary duty being to the shareholders, and to not to destroy the business by fighting the government.

They then bundled the loans in very opaque packages, not amenable to analysis by even sophisticated buyers. That was sharp, smart business practice, and the buyers knew, no higher interest without higher risk. They gave into the herd mentality of everyone else making 7% instead of 4%, and felt compelled as a duty to their clients to get on the train.

So who should go to prison? Barney Frank and his left wing cohorts. However, they are absolutely immune for the devastation done during their government work.

So there is no one to imprison. I would still prosecute the government officials, to generate legal fees, and uncertainty. Even if thrown out on first pleading, the prosecution would condemn them and deter future such officials.

Posted by: Supremacy Claus | Sep 22, 2014 6:33:25 PM

Lawyer question.

A government regulator orders an action. A judge and jury later find the action to be tortious or criminal. Is an official written regulatory order an absolute shield to liability?

Posted by: Supremacy Claus | Sep 22, 2014 6:41:08 PM

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