Who Should Go to Jail?

As the nation’s collective temper flares, we’re all beginning to consider tossing the people responsible for today's financial mess in the slammer and throwing away -- no, melting -- the key. And with our economy in disarray and major banks like Citigroup (NYSE: C  ) and Bank of America (NYSE: BAC  ) potentially on the brink of collapse, it's tough to fight that sentiment.

On Thursday, Rep. Barney Frank once again brought this issue to the forefront, pushing for state and federal authorities to chase down the bad guys and acquaint them with nice, cold concrete walls. "Rules don't work," Frank said, "if people have no fear of them."

Sounds good to me. But who do we lock up?

Incompetence isn't enough
Sometimes it just doesn't matter what your IQ is, what school you went to, or what position you hold -- idiocy can creep up and slide into bed with you. Even more irresistible is an idiocy that is supported by seemingly everyone around you.

"What? Home prices never go down? That sounds fishy, but everyone else seems to think it's true." Remember when your mother asked whether you'd jump off a bridge if everyone else did it? Some people, even smart ones, have been jumping off that bridge their entire lives.

My guess is that a heck of a lot of the problems that we're facing today were born of people doing dumb things. Building a financial model that assumes housing prices will never fall? Dumb. Buying a $500,000 house with 2% down and a three-year interest-only loan? Dumb. Giving a mortgage loan to somebody putting nothing down? Yup, that's dumb too.

Last I checked, stupidity is not a crime, but that doesn't mean there aren't people who fully deserve to be behind bars.

The easy ones
When the market is going up and investors are optimistic about the future, running an investment fraud can be a cakewalk. When the market falls 50%, though, and investors are clamoring to get their money back, the wheels can come off very quickly.

Bernie Madoff and Allen Stanford are poster children for the greed that's led to a lot of today's problems, but they're far from alone. Head over to Google and do a news search for "fraud" or "wire fraud" -- even the "smaller" schemes that are now being uncovered are in the millions or hundreds of millions of dollars.

It's pretty clear that not only do these unsavory players need to be jailed posthaste, but the regulatory agencies that have apparently been playing a lot of Minesweeper over the past few years need to get on the ball.

The high-profile ones
Executives at major financial institutions like Goldman Sachs (NYSE: GS  ) , Morgan Stanley (NYSE: MS  ) , JPMorgan (NYSE: JPM  ) , and the two mentioned above, along with the once-mighty Bear Stearns, Lehman Brothers, Washington Mutual, Merrill Lynch, and Countrywide, were unquestionably in the middle of this whole mess. They were loaning, they were structuring, they were reselling, they were buying and holding -- and now they are either going belly-up or writing down billions while a government IV pumps in fresh funding.

In some cases, the best we can probably do is to say that leadership at these companies was incompetent. Investigations, though, seem like a good idea. If there is an industrial chemical accident, there will be an investigation into the root cause of that accident. We've just had the equivalent of nuclear meltdowns at multiple financial organizations, so I think some extensive digging is in order.

At the same time, the ratings agencies -- Moody's, Fitch, and Standard & Poor's -- were slapping high ratings on what we now know is, in many cases, complete junk. Incompetence across the board will be tougher to argue here, given that internal communications from S&P have already been recovered that suggest the company was rating anything and everything that was put in front of it. As one analyst reportedly said, "We rate every deal. It could be structured by cows and we would rate it."

There was a lot of money riding on the work that the investment banks were doing -- and the ratings that the ratings agencies were providing. Would anyone be surprised if there was more than plain old stupidity involved in all cases? If we want to keep from playing this same tape over again, it's important that those who were more than incompetent are dealt with.

Don't forget the little guy
No politician wants to call out Average Joe Middle-Class -- after all, that's the bread and butter of elections. But I'm no politician, so I'll head right for that third rail.

While some politicians have made some vague references to borrowers who were unscrupulous, I've yet to hear anyone talk about aggressively going after the fraud that was taking place on the ground floor of the housing market. Lying on your mortgage application? That's fraud. Appraisers inflating home values? Bam! Fraud. Cracking down at this level is just as important as taking down higher-profile cases.

The greed factor
In all the criminal fallout that comes from our financial mess, there will be a lot of different names for what people have done. At the end of the day, though, it all really falls under one big, bold banner: greed.

Sure, there are those who think that the mess was caused by low interest rates, or the government pushing lenders to give loans to lower-income folks, or any of a number of other reasons. But I disagree. Those things may have enabled the problems, but greed was the ultimate cause.

When greed is good
This isn't to decry greed entirely. Greed drives people to invent things and build businesses, and I expect that it will continue to bear fruit for a long, long time. Without the potential to profit in a big way, would Sergey, Larry, and the early Google (Nasdaq: GOOG  ) investors have pushed to make the company what it is today? Would Johnson & Johnson (NYSE: JNJ  ) have come up with a fraction of its life-saving treatments? But just like nuclear weaponry, greed in the wrong hands or out of control can do a heck of a lot of damage.

Arresting the out-and-out criminals of the last five years will be an important step in cleaning up and moving on. Recalibrating regulations that keep greed on a productive path will be even more crucial in preventing future meltdowns.

Further financial Foolishness:

Johnson & Johnson is a current Motley Fool Income Investor pick. Moody's and The McGraw-Hill Companies (which owns Standard & Poor's) are Motley Fool Inside Value selections. Moody's is also a Motley Fool Stock Advisor selection. Google is a Motley Fool Rule Breakers recommendation. JPMorgan Chase and Bank of America are former Motley Fool Income Investor picks. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Matt Koppenheffer owns shares of Bank of America, but does not own shares of any of the other companies mentioned. The Fool’s disclosure policy has never once been caught with its pants down. Of course, it doesn't actually wear pants …


Read/Post Comments (46) | Recommend This Article (46)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 06, 2009, at 3:34 PM, mrwizard555 wrote:

    jail is too good for some of the people who got us into this mess. flogging maybe. i excuse none of the players, business, bankers, borrowers, government.

    i have been a good little boy for the last 30 plus years. paying my bills, mortgage, credit cards, etc. now i am paying for the excesses of others(again). it may have been an unfortunate concatenation of events that caused it all, but there are ways out, that do not cost a bazillion dollars, that nobody is considering.

    the biggest headache for banks is not mark to market or a reduction in value of the crap on their books. the headache is NO MARKET for the crap. at quarterlies time, CFO's have to guess. they are less likely to guess wrongly(according to SEC regs) if they underguess.

    two articles of note appeared this week. one indicated that 5% of mortgages were in default proceedings or 60 days behind. the other indicated that 90% of mortgages were totally current. neither of those two data points indicates 50 cents on the dollar intrinsic value for all mortgage based securities. but we are stuck with the old adage that something is only worth whatever somebody will pay for it.

    on an income cash flow basis, a pile of mortgage securities should be worth around 90 cents on the dollar, but the rules do not allow them to be valued there.

  • Report this Comment On March 06, 2009, at 3:36 PM, paldad2000 wrote:

    The fall of Citigroup wasn't due to incompetence. It was due to a group of Senior Managers treating Citi as their personal ATM. Look at the insider activity the past 5 years. These guys awarded themselves billions in stock grants and options then cashed them in! All the while, they were laying people off, reducing benefits and limiting compensation for most.

    They didn't care for the employees, shareholders, or customers. They only cared for how much that can grab for themselves. This is a joke that they don't go to jail.

  • Report this Comment On March 06, 2009, at 4:06 PM, whereaminow wrote:

    George Bush

    George H.W. Bush

    John McCain

    Rudy Giuliani

    Barney Frank

    Barack Obama

    Nancy Pelosi

    Harry Reid

    Fred Thompson

    Ben Bernanke

    Hank Paulson

    Tim Geitner

    Chris Dodd

    Alan Greenspan

    Rush Limbaugh & Barbara Walters (just so they can share a cell)

    The Board of Directors of The Federal Reserve

    The CEO's and managers of Bear Stearns, JP Morgan, Bank of America, WaMu, AIG, etc

    The complicit media

    That should be a good start, but I'm open for more ideas.

  • Report this Comment On March 06, 2009, at 4:33 PM, McCrikey wrote:

    Jail is too good for them. Let's try them on charges of treason and exterminate them.

  • Report this Comment On March 06, 2009, at 4:35 PM, drievisjes wrote:

    There is definitely enough blame to go around. Your article prompted me to look into my perceptions that CRA (along with Gov. hard handedness) was the major culprit and I have found articles that show that a majority of the lenders did not fall under the CRA rules as far as lending (which I am willing to accept) and others that suggest that even if they didn't fall under CRA they had to show that they complied to CRA if they wanted to merge (which wouldn't suprise me either). I agree, that if nothing else Government was an enabler. The Gov was the pusher giving them their first tastes and encouragement, then greed took over from there.

    The thing that bothers me is that one of the people who argued that Freddie and Fannie were fine and did not need to be audited is the person calling for investigations. I would want him along with all the other politicians from either party who contributed this to get the same scrutiny as those in the private sector. I won't hold my breath though.

  • Report this Comment On March 06, 2009, at 4:45 PM, JeanDavid wrote:

    <I>Last I checked, stupidity is not a crime, but that doesn't mean there aren't people who fully deserve to be behind bars.</I>

    Perhaps stupidity is not a crime, but failure to do your fiduciary duty is.

  • Report this Comment On March 06, 2009, at 5:56 PM, liftbigski wrote:

    I agree these execs could all use a good kick in the...

    Would like to add to the fire. Spansion just announced 3000 layoffs. In truth they fired 300 with no severance but offered bonus to their executive group to stay on board.

    I would like to see the regulators attempt some method of control over executive greed in publicly traded companies. I am all for earnings. I have my own company. But bonuses for failure at the helm is no earning anything.

    Anyone else have an opinion on controlling compensation for poor performance?

  • Report this Comment On March 06, 2009, at 6:04 PM, tonester2k wrote:

    Sadly enough, we should probably ALL go to jail for being stupid enough to fall for all the BS spread around by "financial advisors", politicians, fools, Wall street etc.

    The recent "bull" (14,000?? - ridiculous!) market was just a way for a few pretty darn smart thieves to steal a butt-load of cash and run for the horizon. They got away with it at our expense. In a very politically incorrect and sad way I kind of admire them - as opposed to all the sheep that were lead to slaughter anyhow.

    In the meantime, consumers and investers are totally pi**ed off, and not likely to revive any time soon - more to the chagrin of the con-men, politicos and the economy.

    Oh, and my money? What's left was converted mostly to cash since early 2008, but my "financial advisor" at the time was still pushing me towards more financials and real estate even then - and he's a banker! I hope he did well... I was just guessing and lucked out.

    I'll survive, and wish good luck to you all.

  • Report this Comment On March 06, 2009, at 6:09 PM, dpbEsq wrote:

    Chris Dodd. What deal with the devil has he made to not only dodge responsibility, but enjoy a book deal chronicling his purported attempt to "save the economy"?

    Well, we know the answer to that one.

    Rather than a major player in its recovery, Obama is quickly (within 60 days) becoming a major player in the demise of the economy and capitalism in general. He too will be on most person's short list for flogging.

    Controlling compensation for poor performance? The control should be in the hands of the shareholders.

  • Report this Comment On March 06, 2009, at 6:10 PM, AustinAndy wrote:

    So, Rep. Barney Frank wants to put the people responsible for this financial mess in jail? My comment to him, "You, first!"

  • Report this Comment On March 06, 2009, at 6:24 PM, Factrender wrote:

    AustinAndy is right. There is room in the cell for Chris Dodd and Rheins too. 58% of defaulted loans restructured in 2007 are back in foreclosure. 30% of the subprime loans that were restructured in 2008 were back in foreclosure by year end. (source: Mortgage Bankers Association). Two regulatory corrections will do more to right the ship than any bail out schemes: 1) Suspend the "Mark to Market" rule (It only works if there is a market for the securities), and; 2) Reinstate the "Up Tick Rule" in short selling stock (short sales should not be permitted to cover until the declining stock shows an increase in price). Wild short selling has been disruptive to the stock market and has led to rampant speculation.

  • Report this Comment On March 06, 2009, at 6:25 PM, dpbEsq wrote:

    Also, I applaud Mr. Koppenheffer on taking on the unscrupulous individuals who lied on their mortgage applications and convinced themselves that they deserved $1million homes when they couldnt afford to make 1 payment. We're in this mess because of entitlement, from all levels.

  • Report this Comment On March 06, 2009, at 6:36 PM, CIGA wrote:

    Just watch CNBC -- lots of guys on that station that should go to jail:

    (PS -- 'R' rated clip so watch at your discretion)

    http://dealbreaker.com/2009/03/cc-box-ahover-cc-homebackgrou...

  • Report this Comment On March 06, 2009, at 6:38 PM, whtwtr123 wrote:

    This mess lies squarely in the lap of government. Consider this, if Barney Frank and Chris Dodd worked in the private sector having done the things they've done (i.e. recommending investing in Freddie and Fannie prior to their crash), where would they be now? In front of a senate committee having their a___s reamed...and they should be. I'm sick of the comments about all the greed. That's capitalism. It's good. It's why we read the Fool. Government forcing of behavior does nothing but cause problems and they need to be held accountable.

  • Report this Comment On March 06, 2009, at 6:52 PM, rookiex wrote:

    I'd start with the executives and employees from the rating agencies who rated the mortgage backed securities AAA. Next I'd go after the executives and employees at Fannie & Freddie who decided to buy "exotic" mortgage products that were designed to fail. With no one to buy them, they would not have proliferated. Next I'd incarcerate the mortgage bankers who originated these exotic mortgages--they knew better but were making money, and lots of it. Next, I'd go after the executives and employees from the oversight organizations who failed to prevent this from happening. Finally, I'd incarcerate the legislators who enacted legislation that led to the deregulation that enabled all of this to happen. Failure to do this will inevitably result in a repeat of this situation in the future after the recovery. I'm betting on the repeat vs us waking up as a nation....

  • Report this Comment On March 06, 2009, at 7:15 PM, tonester2k wrote:

    CIGA! How true... I watch that channel on occasion and have to just laugh my ass off at the "80's & 90's relics" at the table telling me how to invest my money... give me a break. If they were the gurus they claim to be, they would be on a beach in Fiji, eating shrimp and drinking margaritas... right?????

    A great comedy channel.

  • Report this Comment On March 06, 2009, at 7:34 PM, stan8331 wrote:

    It's scary to me that there are quite a few folks out there who believe (or profess to believe) that financial deregulation is the SOLUTION to the economic situation we now face.

    Capitalism is the best form of socio-economic organization the world has yet discovered. However, history has shown us over and over again that totally unregulated capitalism - or totally unregulated anything else - leads to a house of horrors. All games require some basic rules and vigilant referees who don't have an axe to grind.

    It's hard to imagine how our regulation of the home mortgage system could have failed more completely. First, loans were allowed to be given to unqualified buyers in massive numbers. Then these highly questionable loans were allowed to be underwritten by supposedly sober insurers. Finally, that insurance paper was chopped up and sold off as supposedly ultra-high-grade investment instruments. The loans themselves were bad enough, but the massive leverage that was introduced downstream is the reason we're skirting the edge of a new Great Depression.

    Yes, there were some government shenanigans involved and Fannie Mae and Freddie Mac had a part to play in this, but the root cause of the problem is that we didn't have either adequate rules or adequate regulators in place to prevent the insane leveraging of investments that were very bad to start with.

    What happened with the investment banks is the Wall Street equivalent of the steroid years in baseball. Everyone on the inside knew that the numbers were artificial, but as long as everyone was making lots of money, nobody amongst the principals had the courage to make a stand.

  • Report this Comment On March 06, 2009, at 8:25 PM, cautiouswillie wrote:

    The politicians who penalized banks for not lending to marginal house buyers, thereby sending a message that Government wants to put those marginal people in houses, and if they default, Government will pick up the tab.

    But then I wake up, smell the Starbucks, and realize: how will politicians (mostly lawyers) get prosecuted by fellow lawyers, and found guilty by judges (more lawyers)?

    All we can do is throw tea parties and feel good. Kinda brings back memories of Vietnam war protests, doesn't it?

  • Report this Comment On March 06, 2009, at 8:54 PM, Bruhoo1 wrote:

    I agree with most of the people listed above, but I want highlight Mr. Barney Frank and Mr. Charles Schumer in particular. Where is the accountability for people who absolutely irresponsibly and intentionally misled - let's be blunt, lied to - the ordinary shareholders of Fannie Mae and Freddie Mac about the true condition of those companies even as they were headed rapidly to insolvency? Independent advisors who shamelessly talked up the stock of failing companies would be facing enormous lawsuits - at a minimum. The value destruction to which they very directly contributed vastly exceeds that of WorldCom's Ebbers and Enron's Skilling. And where are those guys now? Frank's and Schumer's only credible defense is mental incompetence.

  • Report this Comment On March 06, 2009, at 9:03 PM, realitycheck1 wrote:

    I agree with those that point the finger right back at Barney Frank and Chris Dodd, among others. Talk about the pot calling the kettle black. I'm sick of seeing those guys on TV acting like they're on top of this on behalf of the american public. How do they keep their jobs in the first place? They are unwittingly pushing us to socialism and complacency. Or are they a little smarter than we give them credit for? Either way, shame on us for allowing these guys to run our country.

  • Report this Comment On March 06, 2009, at 9:13 PM, xetn wrote:

    whereaminow very eloquent. I could not have said it much better, but I think you missed the rest of the house of reps and the senate, except for Ron Paul who has repeatedly voted against every single spending bill and tax increase.

  • Report this Comment On March 06, 2009, at 9:18 PM, bob402 wrote:

    Guys and Gals - If you want to know why we are in the fix we are in you need look no further than the United States government. Between the Community Investment Act of 1977 (Jimmy Carter) and the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 along with modifications of the CRA made in 1993 (Bill Clinton)

    The CRA [Community Reinvestment Act] was

    passed by the 95th United States Congress and

    signed into law by President Jimmy Carter in 1977 as

    a result of national pressure for affordable housing

    . . . The CRA mandates that each banking institution

    be evaluated to determine if it has met the credit

    needs of its entire community… In 1992 the United

    States Congress passed the Federal Housing Enterprises Financial Safety and Soundness Act requiring the Federal National Mortgage Association, commonly known as Fannie Mae, and the Federal Home Loan Mortgage Corporation, commonly known as Freddie Mac, to devote a percentage of their lending to support affordable housing . . . In early 1993 President Bill Clinton ordered new regulations for the CRA which would increase access to mortgage credit for inner city and distressed rural communities.

  • Report this Comment On March 06, 2009, at 9:22 PM, bob402 wrote:

    (Continued)

    These changes in the law made it manditory that backs issue sub prime loans...and alot of them.

  • Report this Comment On March 06, 2009, at 9:59 PM, hikerdude7088 wrote:

    George Bush and Republicans who voted for the Zero Down Payment Bill.

    In June 2002, President Bush announced an aggressive homeownership agenda to remove the barriers that block American families from achieving homeownership with the goal of creating 5.5 million new minority homeowners by the end of this decade. The Zero Down Payment Program would move the nation significantly closer toward crisis.

    http://www.hud.gov/offices/cir/test032404.cfm

  • Report this Comment On March 06, 2009, at 10:03 PM, hikerdude7088 wrote:

    Homeownership Month

    For Release

    Wednesday

    June 2, 2004

    WASHINGTON - Thousands of low-income families will be able to realize the 'American Dream' and purchase their first home because of $161.5 million in funding announced today by Housing and Urban

    George Bush!

    Development Secretary Alphorns Jackson.

    "During the Bush Administration, a record number of new homeowners, specifically minority families, have achieved a home of their own," said Jackson. "I encourage Congress to fully support the President's request to continue this important new homeownership tool so even more families can realize their American Dream."

    http://www.hud.gov/news/release.cfm?content=pr04-050.cfm

  • Report this Comment On March 06, 2009, at 10:04 PM, hikerdude7088 wrote:

    George Bush!

    Zero-down mortgage initiative by Bush is hit

    Budget office says plan likely to spur more loan defaults

    By Chris Reidy, Globe Staff | October 5, 2004

    http://www.boston.com/business/articles/2004/10/05/zero_down...

  • Report this Comment On March 06, 2009, at 10:08 PM, dgmennie wrote:

    THE CASE FOR A SELF-HEALING ECONOMY

    By Don Mennie

    The US economic model works fine so long as the trend remains basically inflationary and most assets (as well as most salaries, stock values, home prices, etc.) keep going up year after year. A small, occasional downward nudge in one or more sectors is fine so long as the general upward trend remains unbroken.

    But now everything of consequence has taken a negative hit at the same time. This has induced panic where once there was unbridled confidence. If you are retired, or thinking about retiring soon, what do you invest in that will pay you a decent return for the next 20-30 years? A year ago you could call your local financial planner and he/she would decorate your coffee table with stacks of investment options that promised financial bliss and security. Now, nobody has even the hint of a workable answer.

    If you are a student making critical decisions about career and college options, do you use family assets (or go into debt) at the rate of $20-50K/year to "prepare" for a job that may well not exist when you graduate? Or if the job does exist, will Corporate America soon ship it to India or Taiwan?

    Unfortunately, the familiar steadily-growing economy greased by a polite amount of inflation has disappeared. In its place is a black hole that swallows huge segments of "presumed" value and spits out pennies. It is unlikely that any type of bail-out or stimulus can come close to "making up" for the "presumed wealth" that has already been decimated.

    Yet the basic assets of the US are no different now than they ever were in decades past. No physical infrastructure has been destroyed or stolen and our native, well educated, able, and intelligent work force remains available for hire. Business opportunities still beckon the ingenious among us (if they could only get financing).

    While it has become tempting to target a few scoundrels for blame, it would be far more productive to re-invent the US economy in such a way that a handful of players can no longer wreck havoc on everyone. This would mean FAR LESS consolidation and bigness in key industries than is presently permissible. Why not five or ten domestic auto makers instead of three? Why are our banks allowed to merge themselves into hugeness beyond comprehension? Do we really need 90+ percent of our computers and software tied to just ONE vendor?

    In the future, a diversity of such vendors would be the key to righting things once again. An ongoing, intelligent analysis could probably spot most potential problems involving size. And no key product or service would be allowed to consolidate around just one or two sources. Individual business failures would once again become tolerable since NO ONE BUSINESS in any key sector would ever again be permitted a "too big to fail" free pass.

    Likewise, consumers should not have the option of racking up debt beyond any reasonable expectation of payback. The go-go days of making loans, collecting up-front commissions, and dumping the result as an "investment" must end. And credit card companies (of which there would now be very many) would simply have to swallow the results of overly-aggressive or predatory lending among those least able to pay.

    We can never eradicate charlatans, thieves, ignorance, or stupidity. But we can remake the economic infrastructure such that even when the worst screw-ups occur, the consequences are of manageable size.

  • Report this Comment On March 06, 2009, at 10:10 PM, dgmennie wrote:

    THE CASE FOR A SELF-HEALING ECONOMY

    By Don Mennie

    The US economic model works fine so long as the trend remains basically inflationary and most assets (as well as most salaries, stock values, home prices, etc.) keep going up year after year. A small, occasional downward nudge in one or more sectors is fine so long as the general upward trend remains unbroken.

    But now everything of consequence has taken a negative hit at the same time. This has induced panic where once there was unbridled confidence. If you are retired, or thinking about retiring soon, what do you invest in that will pay you a decent return for the next 20-30 years? A year ago you could call your local financial planner and he/she would decorate your coffee table with stacks of investment options that promised financial bliss and security. Now, nobody has even the hint of a workable answer.

    If you are a student making critical decisions about career and college options, do you use family assets (or go into debt) at the rate of $20-50K/year to "prepare" for a job that may well not exist when you graduate? Or if the job does exist, will Corporate America soon ship it to India or Taiwan?

    Unfortunately, the familiar steadily-growing economy greased by a polite amount of inflation has disappeared. In its place is a black hole that swallows huge segments of "presumed" value and spits out pennies. It is unlikely that any type of bail-out or stimulus can come close to "making up" for the "presumed wealth" that has already been decimated.

    Yet the basic assets of the US are no different now than they ever were in decades past. No physical infrastructure has been destroyed or stolen and our native, well educated, able, and intelligent work force remains available for hire. Business opportunities still beckon the ingenious among us (if they could only get financing).

    While it has become tempting to target a few scoundrels for blame, it would be far more productive to re-invent the US economy in such a way that a handful of players can no longer wreck havoc on everyone. This would mean FAR LESS consolidation and bigness in key industries than is presently permissible. Why not five or ten domestic auto makers instead of three? Why are our banks allowed to merge themselves into hugeness beyond comprehension? Do we really need 90+ percent of our computers and software tied to just ONE vendor?

    In the future, a diversity of such vendors would be the key to righting things once again. An ongoing, intelligent analysis could probably spot most potential problems involving size. And no key product or service would be allowed to consolidate around just one or two sources. Individual business failures would once again become tolerable since NO ONE BUSINESS in any key sector would ever again be permitted a "too big to fail" free pass.

    Likewise, consumers should not have the option of racking up debt beyond any reasonable expectation of payback. The go-go days of making loans, collecting up-front commissions, and dumping the result as an "investment" must end. And credit card companies (of which there would now be very many) would simply have to swallow the results of overly-aggressive or predatory lending among those least able to pay.

    We can never eradicate charlatans, thieves, ignorance, or stupidity. But we can remake the economic infrastructure such that even when the worst screw-ups occur, the consequences are of manageable size.

  • Report this Comment On March 06, 2009, at 10:32 PM, steveherb wrote:

    "Rules don't work," Frank said, "if people have no fear of them."

    Decide to grow pot in your home? Your home and assets are seized and sold. Face fines. Jail time.

    Drink and drive? You know the consequences.

    It's the people of ....... against Average Joe Middle-Class

    BUT!

    Commit or assist in fraud? There is no People Against anyone.

    From the realestate agent, to the lenders, to the brokers, to the bankers. Break out the guillotine.

    I know of one realestate teacher asking me if I got out in time as she cashed out a cool million and is currently renting. They all new from the start.

    And PLEASE. Lying on your mortgage application? Are you still trying to tell me 10 million home buyers walked into the office with two years tax returns and bank statements telling their lenders. " Hey. I'm here to pay you a huge commission. Lets you and I sit down and come up with a risky plan to screw myself. And I'll even throw in a down payment."

    Average Joe Middle-Class first time home buyer inquired with trust. The lender created the loan.

    This article answers every question to every other article posted.

    "Rules don't work if people have no fear of them."

  • Report this Comment On March 06, 2009, at 11:02 PM, jbromet wrote:

    There is a lot of blame to go around in the mess we've found ourselves in. Much of what's happened is due to greed. The mortgage writers, the mortgage insttitutions, the banks, the institutions that were supposed to monitor the financial market place. But if you want to go to the driving force that encouraged the above to take advantage of the situation, you must indict several administrations, both Democrats and Republicans. At least since Clinton, all administrations have coerced Fannie and Freddie, et all, to keep interest rates low and provide homes for every American, whether they can afford it or not. This they did by threatening law suits agianst banks and mortgage houses. This ill advised political stand has brought us to this. When our financial institutions were encouraged to take greater and greater risks by the "government", all normal restraints went out the window. So, if I were asked whomto put in jail, my first choice would be Barny Frank, the head of the banking committee. Since there's no accountability in government, he will skate on this. But there's no doubt that he, more than anyone in government, has brought this meltdown upon us. He publically denies any responsibility in this matter. Like anyone who has committed a crime, he declares his innocence. If he were an honorable man, he would at least say he helped to facilitate it. But, then he's a politician...

  • Report this Comment On March 07, 2009, at 8:33 AM, Forrest47 wrote:

    Lets start wit the fools in congress that blocked shutting down the errors of freddie mac and fannie mae -

    Barney Frank, Chris dodd, Chuckie Schumer. Now Barney wants to reinfuse freddie to fix the mortgage problem. When is some one gonna get this idiot out of the position he continues to abuse and waste billions of tax payer monies.

    these programs need to die now and let the capital markets take care of them selfs. In 1921 there was an even bigger depression than the thirties, and you know what it is not even a blip on the economic radar screen. The government stayed out of it and it fixed it slef!

  • Report this Comment On March 07, 2009, at 9:24 AM, EBerg13 wrote:

    Why isn't Bernie Madoff in the slimiest cell in some New York jail. If he were a crack addict with a knife who robbed a convenience store, he'd be locked up. He robbed thousands of billions and if he serves more than a couple of months of jail time - in some plush federal prison - I'll be amazed. It only goes to show how much we coddle our rich white-collar crooks.

    I fully believe in the efficacy of greed, when it is tempered with ethics, which sadly is lacking today. But it is impossible to totally fault execs when the stockbuyers expect double digit gains year after year and companies that do not produce them may be targets of takeovers. Everytime I get one of the e-newsletters promising 50% profits in the next two months or some such, I cringe.

  • Report this Comment On March 07, 2009, at 10:10 AM, burrowsx wrote:

    The problem is a tax structure which encourages grand theft by poorly performing executives. At the height of American economic power in the 1950's, Croesian compensation was minimized with 90% marginal tax rates, and the gift of a vicuna coat was considered criminial. Today, Thane's 3 million dollar office remodeling is only considered regrettable.

    We need business ethics (not an oxymoron) and perhaps business laws which place limits on the highest/lowest compensation of full-time employees. We need tax laws which allow for the reward of excellent performance, while discouraging poor performance.

  • Report this Comment On March 07, 2009, at 10:51 AM, VEttariPEPC wrote:

    The author wrote: Greed drives people to invent things and build businesses, and I expect that it will continue to bear fruit for a long, long time.

    I disagree. Necessity, not greed, is the mother of all invention.

    Moreover, the desire to make a profit is not greed. Rather, greed is excessive love of money which causes people to engage in uncharitable, illegal, and anti-social acts.

    When Johnson and Johnson develop a product, they are filling a need (necessity) and hope to make a profit based on the invention.

    To call that process "greed" is to undermine the criminal charges which will be brought against many of the perpentrators who brought this mess down around us. Lying on a mortgage application so that one can by a bigger house is greed. Work hard to make a profit and better one's life is virtue.

  • Report this Comment On March 07, 2009, at 11:21 AM, jtpaul wrote:

    I would reiterate Barney Frank, Chris Dodd, Harry Reid and Nancy Pelosi. while these politicians were slyly (not thoughtfully) pursuing their individual agendas they essentially let the market run amok and at the same time strategically placed themselves in a position to blame evryone else. And while there is plenty of blame to go around the American public can certainly start with them.

    Chris Dodd was holding back from appointments knowledgeable people who would have added to the conversation of how to assess and fix the problems before and during the market eruption. "In an Article Fed Governor Mishkin Will Step Down, Wall Street Journal – May 29, 2008, Vacancies May Offer Rare Opportunity For Next President, By Damian Paletta And Greg Ip, Page A3

    The next president could have a rare opportunity to redraw the Federal Reserve's leadership by immediately nominating four of its seven board members, quickly putting fingerprints on regulatory policy… Senate Banking Committee Chairman Christopher Dodd (D., Conn.) has blocked three nominations sent up from the White House last year, including the renomination of Mr. Kroszner. Among other things, Sen. Dodd cited the length of Mr. Krosnzer's 14-year term. Several months ago, Senate Democrats offered to confirm one of the nominations but only until the end of President Bush's term. The White House refused.

    Experts say the makeup of a new board would have little impact on monetary policy, that is the setting of interest rates, which has generally been nonpartisan in recent decades. The more likely impact is on the rules affecting bank supervision and consumer protection.

    "Four new governors will make a difference, there's no doubt about that," said Susan Phillips, a former Fed governor who now heads the George Washington University School of Business, adding that "the places that people tend to differ on political lines tend to be in the regulatory area."

    Among the areas the Fed is expected to review are policies that impose restrictions on investments in banks by private-equity firms and other companies. That issue is becoming more significant as financial-services companies continue building capital in the wake of the credit turmoil. Fed officials also will have an important say in next year's debate about whether the central bank needs broader powers over investment banks.

    The three board members with terms that extend beyond 2009 are Mr. Bernanke, Vice Chairman Donald Kohn and Fed Governor Kevin Warsh." Chris Dodd further introduced a bill that passed bailing out AIG that will be a perpetual spending program once the crisis passed that allowed organizations like ACORN to benefit from the crisis that had been created initailly by legislation, executive order and lawsuits like the lawsuit Barak Obama prosecuted against Citicorp.

    Nancy Pelosi has spent U.S. tax dollars in an increasingly irresponsible way that has added to the debt burden of the United States. She treats our treasury like it is a limitless credit card and she can go out and use it as if we never have to pay.

    A case in point, Nancy Pelosi’s house of representatives had just passed a bill “bailing out” Freddie and Fannie and sending “mortgage relief” knowing this country was having fiscal difficulty and she is bragging about how the Democrats joined with Bush this summer on one of his initiatives, he wanted to double U.S. aid for fighting AIDS in Africa and other poor countries. The Democrats instead used our tax money and apparently tax money that our Children and Grandchildren will be paying and tripled it, to $48 billion over five years. Bush went along with it. (See http://www.thedenverdailynews.com/article.php?aID=1409 ) What kind of responsible represenatative brags about increasing the money we send abroad when the people in our own country are suffering? I am not saying stop sending money abroad, but we should certainly not be increasing it while we are trying to work through these trying times.

    Barney Frank, Chri Dodd, Harry Reid and many others in our government were complicit in allowing the issuance of mortgage securirties and building up

    Fannie Mae and Freddie Mac even after they knew or should have known the inherent dangers of the policies they were promoting. A great article regading this subject can be found at http://www.americanthinker.com/2008/10/what_really_happened_... . This article was also published in its entirety in Investors Business daily.

  • Report this Comment On March 07, 2009, at 11:32 AM, chas84 wrote:

    People, the Federal Reserve is and has been the issue since it's inception. All the current issues spoken about are the manifestation of Fed policy since 1913. Let's get to the root of the problem and abolish the Fed. Take Action!!

  • Report this Comment On March 07, 2009, at 12:06 PM, MORK000 wrote:

    I get a kickout of everybody that knows how to straighten out our Country especially the pundits that aresaying that Obama"s plan won't work. Thesesame pundits did'nt say anything 6 or 8 ysr, ago when we were going under. Thes pundits are our elected people in Congress. They are saying to Us the American people YHANK YOU ! SUCKERS

  • Report this Comment On March 07, 2009, at 1:40 PM, lucas1985 wrote:

    All the current issues spoken about are the manifestation of Fed policy since 1913.

    Then how do you explain the bubble in railways, the creation of arcane debt instruments and other events which led to the Depression of the 1873?

    Also, can we set the record straight on the CRA? The CRA didn't force banks to lend to everyone with a pulse, most mortgage originators associated with subprime/liar lending weren't/aren't subjected to the CRA and CRA-type loans perform as well or better than loans made in higher income neighborhoods.

    http://www.ccc.unc.edu/documents/RiskyBorrowers_RiskyMortgag...

    http://www.federalreserve.gov/newsevents/speech/kroszner2008...

    Can we stop blaming the poor? Instead start blaming those who shifted the tax burden away from land, real state and capital gains onto labor and production and those who deregulated the financial system allowing the creation of "too big to fail" institutions which leveraged to insane levels the average man savings into junk derivatives. Blame Greenspan, an objectivist. Blame woodoo/supply-side/trickle-down/monetarist/free lunch economic theories and academic models based on flawed statistics. Blame regulators who actually are lobbysts and insiders of the financial industry.

  • Report this Comment On March 07, 2009, at 3:31 PM, effinayright wrote:

    By refusing to mention thre pivotal role of Freddie and Fannie, of the criminality of Franklin Rhaines and other bigwigs who falsified the books and profited to the tune of hundreds of millions of dollars, by not even mentioning Frank's public statemens pooh-poohing the Freddie/Fannie deback, by not mentioning how Emmanuel, Garelick and Barne's butt-boy-of-the week made gobs of money while Freddie/Fannie were bilking the public. while denying that Clinton FORCED banks to make bad loans -- this author has shown himself to be nothing more than a suck-up to the Dems.

    Another reason I will not give a penny to MF and its newsletters. It's in the tank for the Left.

    p.s. to Lucas1985: when half of wage earners pay no income tax at all, it's hard to argue that "labor" is being unfairly taxed.

  • Report this Comment On March 07, 2009, at 3:57 PM, effinayright wrote:

    Perhaps Mr. Koppenheffer

    should see this video and, shall we say, "revise and extend" his remarks as to who the crooks are in this mess.

    http://tinyurl.com/b9uajj

    In any case, no journalist worth the name would overlook the Freddie/Fannie contribution to this crisis.

    NOR would he give Frank and Dodd a pass. They both should be in shackles and manacles, in orange prison jump suits, doing a perp walk for the cameras.

  • Report this Comment On March 07, 2009, at 4:31 PM, lucas1985 wrote:

    By refusing to mention thre pivotal role of Freddie and Fannie

    Freddie and Fannie should have remained as government-owned entities. Privatizing their profits created moral hazard and oportunities for cronyism and corruption. That said Fannie and Freddie were late to the party of liar/shark/subprime mortgages (which weren't allowed when they were public entities) initiated by private lenders which were crowded out of the prime market by the GSEs. Try to understand that: private lenders (most not subjected to the CRA) couldn't generate profits lending to prime borrowers so they went to the subprime/liar niche. This was noticed by Wall Street and the orgy of securitization, junk derivatives, phony risk analysis, structured investment and side bets began. Subprime lending is very profitable (even Warren Buffett recognizes this) and it's even more profitable when lending standards are a joke, interest rates are very low (fat spread) and bad loans end in someone else portfolio. So, please stop parroting soundbites.

    denying that Clinton FORCED banks to make bad loans

    Extraordinary claims require extraordinary proof. Where's the proof? Clinton's big mistakes were the aceptance of Reaganomics and the repeal of Glass-Steagall. The repeal of Glass-Steagall has caused systemic risk and moral hazard (too big to fail banks)

    this author has shown himself to be nothing more than a suck-up to the Dems

    Because the Republicans/right-wingers can't be wrong and the Dems are socialists who want to spread the wealth.

    It's in the tank for the Left

    What's the relationship between investment advice and political/ideological leanings? Are you suggesting than leftists (of any flavour) can't make sound investment decisions? Only neocons and libertarians are right?

    when half of wage earners pay no income tax at all, it's hard to argue that "labor" is being unfairly taxed

    Wow, a right-winger who doesn't advocate tax cuts as the cure for every illness. Before making bold claims, try to educate yourself:

    http://www.michael-hudson.com/interviews/080701HeartAmericaC...

    Now compare what you've said with the reality: low incomes which can't be taxed, paying interest as a tax deduction strategy, the really low tax rates on capital gains, monopoly rent, windfall profits, land speculation, the concentration of wealth.

    You're free to choose. You can be smart by doin your own due diligence or you can pretend to be smart by repeating nonsense like Big Government is the evil.

    http://counterpunch.com/hudson03152008.html

  • Report this Comment On March 08, 2009, at 8:40 PM, sideone47 wrote:

    I just wanted to commend Mr. Koppenheffer on his insight into this "greed" made mess we are all in. It touches everything we thought was "safe". I

    It's easy to sit on the sidelines & throw potshots & play devils advocate, but most of us are not going to be asked to help solve this downward spiral of sewage. I just hope & pray that there are minds out there that can & will. I

    If you don't think you've been affected, just look around at the mall parking lots & empty stores & lack of car commercials on television. Even COSTCO is easier to check out of. The lines are shorter & thinner. Scary.

    My only "potshot" is that I feel that the main contributors of this disgraceful escapade, should have all their assets & bank accounts etc., confiscated & sold & the money should be put into an account to help reestablish companies that were not involved but are paying the price of someone elses greed.

    I'm not really sure how many houses you need to live comfortably, or how much money it takes to enjoy life, but I think those men & women that have taken us to this precipice, are a bit unrealistic in their importance in this world. Money & power do corrupt. Even the late President Nixon said "If the 'President' does it, then it's not illegal." It seems to me that there is at least one other President that thought that way & we are just now having our eyes opened to the extent of his power. Most of us will pay the price in some fashion. Unfortunately, the men & women that created this crisis, will remain comfortable & not forfeit anything.

  • Report this Comment On March 09, 2009, at 5:01 PM, RobTAK wrote:

    If negligence or fraud can be proven, the simplest and starkest sentence that could be imposed is to sieze the wealth of those whose behavior landed us in this mess. They were greedy for wealth so their wealth should be the first at risk. Let the robber barons learn to live as poor, homeless people.

  • Report this Comment On March 12, 2009, at 11:31 PM, healthpicker wrote:

    This article contains a lot of emotion and I agree with most of the sentiments.

    But let us deal with facts.

    We all know the greed and fear bit.

    The thing that was missing from the whole sorry mess worldwide was "CONTROL".

    In the USA blame the "REGULATOR" the SEC. USA democracy allowed Bush to be elected for two terms? Deruglation of financial institutions was encouraged.

    The SEC now has a new head and now we are in the post Madoff in jail era (instead of a New York penthouse) so ENFORCEMENT is now the order of the day.

    So the question is how many bad horses bolted before the stable door was closed. People have named a lot of them bad horses and I have some of them on my list.

    Let's leave the ponzi fraudsters to the criminal courts. Pleading the fifth is going to help that Texan lunatic and his cronies (Madoff living the rest of his life at the cost of the tax payer has some irony to it!)

    So the answer is? Yes REGULATION and ENFORCEMENT is needed to balance of the excesses brought on by greed and fear - we need to get back in BALANCE.

    I fully expect Directors of any company that breaks fundamental rules "breach of fiducary duty" to be persued by the SEC and stakeholders alike. We are only just moving to the round up stage on them horses but I feel that there are some corrals waiting for when they get brought in.

    The type of illegal behaviour of some of them horses is not so easy to prove. Not many people know what a breach of fiduciary duty means anymore. But being honest with Shareholders and Bondholders is a key part of this. Some Board Directors (in this post Enron SOX era) didn't get it.

    Expect to see significant prosecutions that will mean huge personal financial loss (and a hard time in with Madoff) to some really big names from recent Financial Services company failures.

    Just one comment on Greenspan - he advised this country for the main part very well over many years and he did warn on Fredie and Fannie and he did point out correctly that variable rate mortgaes are not in themselves a bad thing. UK ran on these loans for years and still do. Fixed rate loans are relatively new in UK.

    Its up to individual consumers to work out how to manage RISK.

    CAVEAT EMPTOR.

    How many intelligent people did not do due dillengence on Madoff? Really give me a break!!

    Everyone needs to manage risk.

    If you think renting is better than buying then thats fine - depends on individual circumstances and I have done both - been nice to have the CHOICE. If you think leaving equity (not working for you in a property) is good then that's what you will do - don't make sense to me but we each have a choice. i don't recommend you spend that equity but to invest it very wisely.

    So if you want to find them bad horses you better make sure that the ENFORCERS get their act together and gets them horses rounded up tried fined and locked away asap.

    Regards

  • Report this Comment On June 08, 2009, at 5:23 PM, MyDonkey wrote:

    Three months later...

    ...and none of these people are in jail. Instead, they're well on their way to completing another successful pump-and-dump. Obviously, they didn't make enough money on the last one.

    Is anyone going to do more than just talk about the biggest financial fraud in history?

    http://www.nytimes.com/2009/06/07/opinion/07cohanWEB.html

  • Report this Comment On November 08, 2010, at 10:40 PM, williammason wrote:

    Officially as of 2010 the answer to this question is "THE JAILS ARE FULL" since a good chunk of our <a href="http://1-inmate-locator.blogspot.com/" target="_blank">jail</a> system is so surpopulated that inmates actually end up sleeping on floors.

Add your comment.

DocumentId: 846198, ~/Articles/ArticleHandler.aspx, 7/28/2014 3:34:00 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement