
Ireland jails three top bankers over 2008 banking meltdown - randomname2
http://www.reuters.com/article/us-ireland-banking-court-idUSKCN10912E
======
appleflaxen
I don't understand how bankers in the US haven't been criminally investigated
for their roles in making loans that had no good faith data behind them.

~~~
Lazare
Probably some mixture of the fact that:

1\. The bankers you probably are hoping to net had no role in "making loans".

2\. "making loans that had no good faith data behind them", once translated
into concrete legal terms, turns out not to be a crime.

The punishment for lending someone money they can't pay back is, historically
and legally, that you _don 't get paid back_. If I work at a bar, and I let
one of my customers run up a $800 bar tab and it turns out they're not good
for it, I might be an idiot, but I'm not a criminal and I'm not going to jail.

~~~
SturgeonsLaw
> 2\. "making loans that had no good faith data behind them", once translated
> into concrete legal terms, turns out not to be a crime.

Aren't we really talking about junk rated mortgage back securities being
packaged and sold as AAA? If so, how is that not straight up fraud?

~~~
Lazare
> Aren't we really talking about junk rated mortgage back securities being
> packaged and sold as AAA?

Yes. But I suspect you don't understand precisely what that means:

First: A large number of mortgages were made, grouped into pools, and sliced
into "tranches", where losses were assigned to the most junior tranches first,
and the most senior tranches last. Thus, a junior tranche might stop paying
out if 5% of the loans in the pool were defaulted on, while a very senior
tranche might only stop paying out if 80% of the loans in the pool went bad.
(Or whatever; numbers for example only.)

Second: These tranches were submitted to ratings agencies, who constructed
models where they said "well, the chance of 5% of the loans defaulting is X%,
the chance of 20% is Y%, the chance of 60% default is Z%...", then based on
this model they assigned ratings to the tranches, reflecting the models
estimation of their likelyhood of paying out, _which is the entire job of a
ratings agency_.

Third: Tranches rated AAA were sold as AAA securities, _because they were_.
The model said that Random Senior Tranche was 99.5% likely not to default,
which is enough for a AAA rating from whomever was giving the ratings, so
that's what it got. We've later come to question some of the models used, and
in particular, it's been suggested that the ratings agencies incorrectly
assumed default risk was less correlated than it was, and systematically
undervalued the chance of a "black swan" event. But that's hindsight.

> If so, how is that not straight up fraud?

How is it even sort of fraud? Or if it is fraud, who do you think committed
it, and what should they have done differently to avoid it?

~~~
YZF
What about robo-signers? (
[https://en.wikipedia.org/wiki/2010_United_States_foreclosure...](https://en.wikipedia.org/wiki/2010_United_States_foreclosure_crisis#Robo-
signing_controversy) )

EDIT: Also the scenario described could still be fraud. The rating agencies
could have been defrauded and if people sold those while not really believing
they were of the rated quality IMO it's still fraud. If someone did this for
their personal benefit while the company they were running took a loss then
they would also be defrauding share holders.

So it's a lot more complicated than simply saying the instruments were AAA
rated by the rating agency and they were simply sold like any other AAA rated
instrument. It could have all been innocent but it certainly smells and
warrants investigating.

~~~
Lazare
The robo-signing stuff is straight up illegal. But that falls under my
original point 1: The people doing that were tiny, tiny fish, who had nothing
to do with the CDOs.

> The rating agencies could have been defrauded and if people sold those while
> not really believing they were of the rated quality IMO it's still fraud.

Legally that's a harder question than you might imagine. However...

...there's absolutely zero evidence of this on a systemic basis. Banks
overwhelmingly made it clear that _they believed the assets were good_. The
bailouts went primarily to institutions that had originated utter crap and
then held on to it because they thought it was a great investment. Studies
have been done to look at the personal investments of bank executives; it
turns out they were closely correlated with their job; the more you knew about
CDOs and MBSs, and the more closely linked to the system you were, the more
you thought CDOs were safe as houses, and the more willing you were to have
your retirement invested in it.

Conversely, the small handful of Cassandras were utterly ignored by the world
in large part because they were complete outsiders who had no inside
knowledge. The arguments boiled down to: "What do they know? The people who
know the most about CDOs are all in; these people must just not understand the
models."

(There are exceptions in specific cases. One that springs to mind is Fabrice
Tourre[1]. But he was very much the exception to the rule, and it's probably
not a coincidence he worked at Goldman...)

> It could have all been innocent but it certainly smells and warrants
> investigating.

And it was. Unfortunately (or fortunately, depending on your view) no smoking
guns emerged.

[1]: [http://www.reuters.com/article/us-goldmansachs-sec-tourre-
id...](http://www.reuters.com/article/us-goldmansachs-sec-tourre-
idUSBREA2B11220140312)

~~~
YZF
Wouldn't any economist be able to say that the assumption that house prices
will not move in a correlated way across the united states is patently false?
It happened before during the great depression, and to some degree in the 80's
and 90's. It was also clear house prices were in bubble territory by any sort
of economic measure. While no one can accurately time the burst of bubbles
there's enough historical data to be able to have an idea of whether things
are over valued by various metrics.

What I'm saying it that I don't think that claims that bankers, who are
sophisticated players and experts in their field, didn't know what they were
selling. They should have known those instruments were not of the quality they
represented them to their customers. I don't think shifting the blame to the
rating agency holds water. At the same time they were giving mortgages to
people who wouldn't "normally" qualify and where the risk was obviously very
high they were selling pieces of those mortgages as AAA rated securities.
Doesn't pass the red face test in my books.

~~~
Lazare
> They should have known those instruments were not of the quality they
> represented them to their customers.

You're not wrong! And yet it seems very clear they did not know this. Which is
pretty stupid, really...but being stupid isn't a crime.

(Plus...I mean, you were alive back then right? Did you make a ton of money
betting against the housing market? If not, why not? Or if you were too
young/poor, then do you know anyone who did?)

~~~
camelite
> And yet it seems very clear they did not know this.

And therein rests your case. But you appear to be simply taking them at their
word on this, to me. Unsophisticated observers will say, "Why would they do
something so colossally stupid that it'd bankrupt their firm". But the person
is not the firm. The person quite often can permanently enrich himself on the
path to firm-wide dissolution.

------
yummyfajitas
I recently read Rene Girard's "Things Hidden Since the Foundation of the
World".

He postulates the following theory of collective violence in the world. First,
people form mimetic desire - they want things before other people also want
and have them. Second, this mimetic desire results in a crisis - the
collective actions of virtually everyone result in bad circumstances. Finally,
in order to resolve this crisis, a scapegoat must be identified and subjected
to collective violence. At this point, society can return to normal.

He wrote this book in 1978. I find it quite amazing how well it describes the
financial crisis, and the post-crisis search for a scapegoat/villain.

~~~
arcadeparade
Sounds similar to "the theory of the leisure class".

~~~
yummyfajitas
Based on the wikipedia summary, Girard's mimesis seems similar to Veblen's
conspicuous consumption. But Girard generally doesn't go too much into the
economic details of any specific era - he is more focused on traditional
religion. I may need to read Veblen.

I'd also be curious to see a modern update of it - Veblen's theory of a
leisure class driving conspicuous consumption and a worker class partaking of
it doesn't reflect modern reality at all (these days the poor form the leisure
class). Yet the consumption/Girardian mimetic behavior persists.

------
trhway
Iceland sent 29 bankers to prison for the 2008 crisis.

~~~
bmmayer1
On what charge? "Being banker during a financial crisis" is not a crime.

~~~
ddebernardy
On charges of holding them accountable for the rampant fraud that occurred in
the run up to the crisis.

~~~
joekrie
Was the fraud uncovered by the crisis, or was it known about and tolerated
until it turned into a crisis?

~~~
ddebernardy
It was uncovered by the crisis. It was laid bare when the assets banks were
booking as tier-1 capital turned out to be illiquid or worthless, and often
both; and when off balance sheet losses revealed they were swimming naked for
the same reasons.

------
prirun
The financial scams continue even now. In 2011 I sold my deceased mom's house.
The buyer was financing it through Chase. Appraiser comes out to do the
appraisal for the loan approval. Since the deadline for closing was coming up
fast, I asked when he'd have the appraisal finished. He said he'd be done in a
couple of days, but when he submits the appraisal to "the middle man between
him and the bank" via email, the MM always has changes. This goes on for a
couple of weeks. Why is a middle man who has never seen the house forcing an
appraiser to make changes to his appraisal? It's nuts. The mortgage industry
was rife with fraud in the 2000's because appraisers were inflating home
prices at banks' request to justify stupidly overvalued loans. Some government
agency made a rule that appraisers couldn't talk to banks to avoid this
problem, but now there is some other "middle man" involved who is cooking
appraisals.

Here's my suggestion on how to prevent fraud in the financial industry:

1\. Keep investment banks and deposit-taking banks separate, as was done
successfully for years.

2\. When an investment bank fails, let them fail.

3\. If there is fraud, try executives and put them in prison.

Instead, we have a revolving door between govt regulatory agencies and big
banks.

------
misiti3780
Great start - now how about sending Dick Fuld, Jimmy Caynes, and a few other
top bankers in the US to jail.

~~~
saryant
What law did they break?

~~~
cmdrfred
[https://en.wikipedia.org/wiki/Libor_scandal](https://en.wikipedia.org/wiki/Libor_scandal)

------
scandox
Just to be clear Ireland's bankers for the most part have so far escaped
anything harsher than public censure.

These guys committed the unforgivable sin of actually thinking they were doing
the morally correct thing, encouraged tacitly by a hapless regulator and a
terrified government.

They did something so obvious and so transparent exactly because they felt
they had the assent of the establishment.

They just literally lent another bank 7.2 billion so it could say all was well
and thus "save" the country from financial meltdown.

~~~
garrettheaver
Now now scandox, not sure if you're trolling with this one? I don't for one
second think "the green jersey" was a factor in their thinking at all.

------
carsongross
It's a start.

------
jazzyk
To the audience in the US:

NOT coming to a theater near you.

:-)

------
ben_jones
It's funny because Ireland had a real estate problem.

