
Why Isn't Wall Street in Jail? - kongqiu
http://www.rollingstone.com/politics/news/why-isnt-wall-street-in-jail-20110216
======
brc
Who doesn't love some popular culture - a virtual lynch mob piece?

I would have less issues with writing like this if they actually cited some
exampes where laws were broken, and which laws were broken. I'm not pretending
that the whole thing was always on the right side of the law - I'm not - but
you can't just say 'they're all criminals, lock them up!'.

Because from what I've read, most of what caused the issues were not only
legal, they were government backed up and sanctioned.

They might have been a bad idea, some morally wrong, some the result of some
very poor judgement or influence by the wrong lobbyists. But criminal in the
popular sense is vastly different from criminal in the law sense.

I'm right behind locking people up for breaking the laws. But if it's going to
happen, someone needs to cite specific examples where specific people (or
companies) broke specific laws.

Because all I've seen is a case where the government relaxed regulations
regarding speculating with depositors money, opened up the monetary taps to
let debt flow freely, and then guided that money into questionable lending for
social and political purposes.

Completely unlike the insider trading accusations from the 1980's most of all
the obscene money that was taken off the table was done in plain view of the
regulators, and backed up by politicians convinced they'd found the magic cure
for endless economic growth.

~~~
EugeneG
Completely agree: (a) What laws were broken? Who broke them? (b) Why is there
never any blame put on those on "main street" who took the loans that they
couldn't repay?

~~~
kjhgfhjkhgfv
Guess who makes the laws.

Copy a CD you own to an MP3 player you own and you're breaking the law. Sell a
bad debt to a client and then bet on the same client failing and you get a
bonus.

~~~
EugeneG
When banks sell "bad debt" they are acting as principals - this means that
they explicitly state to their client that they have no obligation to look out
for their interests.

Every security has a price, "bad" securities are just cheaper than "good"
securities. Participants in the markets always have different views. A bank
(or any other principal) is not obligated to make sure that you're aware of
their view. By definition, the person selling a security thinks they are
better off selling it, and the person buying it thinks they are better off
buying it.

~~~
kls
But they are required by law to provide full disclosure. Something they where
negligent to do with the mortgage backed securities.

~~~
yummyfajitas
What did they fail to disclose?

~~~
kls
[http://www.mcclatchydc.com/2010/04/30/93252/goldman-
sought-t...](http://www.mcclatchydc.com/2010/04/30/93252/goldman-sought-to-
shed-risky-mortgage.html)

 _Viniar made no mention of Goldman's short bets or the $266 million gain.
Instead, he said the market had seen "a little bit of nervousness" but the
housing weakness had been "so far largely contained._

The did not disclose material analysis that they where using to hedge the
company against mortgage backed securities and explaining to analyst and
clients that the losses where "so far largely contained". That is cut and dry
fraud. They knew it was not contained and that is why the where bailing as
fast as possible.

~~~
yummyfajitas
You are confusing Goldman's prop desk and their sales desk. The prop desk is
not required to inform clients of their positions.

The sales desk is required to disclose information on the composition of the
security they are selling. I.e.: "Bond X is comprised of 523 loans from
Florida, 247 loans from Texas, etc, all rated AAA".

Your link does not suggest they failed to do this.

In much the same way, if I think AAPL will tank, I am legally permitted to
sell my shares.

~~~
kls
I am not confused about anything they where fined for civil fraud. They should
have been charged with criminal fraud because they where culpable in allowing
the racket to be structured.

<http://www.sec.gov/news/press/2010/2010-59.htm>

from the article:

 _Tourre structured the transaction, prepared the marketing materials, and
communicated directly with investors. Tourre allegedly knew of Paulson & Co.'s
undisclosed short interest and role in the collateral selection process._

 _Goldman Sachs did not disclose Paulson & Co.'s short position or its role in
the collateral selection process in the term sheet, flip book, offering
memorandum, or other marketing materials provided to investors._

~~~
yummyfajitas
You are actually very confused. Your previous link asserted that Goldman
shorted bonds which were about to tank, and this was fraud. (It isn't.)

Your current link claims Goldman defrauded themselves (for the benefit of
Paulson and others) on a bond they took a long position on. Also, Goldman
wasn't fined for fraud. Goldman paid the SEC to make the case go away, while
admitting no guilt.

(The SEC also gained quite a bit from this. While they were making headlines
chasing after goldman, the media mostly ignored their porno scandal.
[http://www.nydailynews.com/money/2010/04/23/2010-04-23_porn_...](http://www.nydailynews.com/money/2010/04/23/2010-04-23_porn_among_daily_duties_of_top_sec_honchos_sez_report.html)
)

~~~
kls
Fined settled your playing semantics, both articles where to show that their
was material deception of investors taking place by Goldman. A case was
brought against Goldman and Goldman had to pay an amount for fraud. Their is
no confusion, they defrauded investors, failed to disclose their dealing at
the back of the house and this is illegal. Both articles show that they
engaged in it and the latter shows with no doubt that it is illegal to do so.
You asked _What did they fail to disclose_ and I provided you with references
to show you what they failed to disclose. No confusion, we can argue in
circles if you don't like the facts but there they are in black and white. The
porn scandal is irrelevant to whether or not Goldman committed fraud.

Specifically from the first article, where the fraud was mentioned:

 _However, Goldman's limited disclosures in the offering circulars it gave the
investors that bought its mortgage securities could cause legal problems.

At issue is whether Goldman's bets against the housing market were so
"material," or relevant to investors, that their disclosures could have
convinced them not to buy its products. Without purchasers for its risky
securities, Goldman's exit strategy would have flopped._

~~~
yummyfajitas
No, the first article shows Goldman engaged in prop trading. That's not a
crime, or fraud. That's what _every single person_ in the financial markets
does - they sell stuff to other people when they expect it to go down, and buy
stuff from other people when they expect it to go up. Are you guilty of fraud
if you sell AAPL before it goes down?

The second article showed Goldman didn't disclose something that no one has
even been forced to disclose before (identity/motives of the counterparty). In
fact, it's often illegal to disclose this. They did disclose the exact
composition of the product they sold (and bought for themselves), and by the
nature of a synthetic CDO, there was _always_ someone betting against the
bonds going into it.

But I'm really curious - can you explain to me why Goldman would defraud
themselves? Remember, Goldman bought a piece of ABACUS and lost money on the
deal as a result. Why would they buy a bond they knew was designed to fail?

The Stanford scandal and the Porn scandal are relevant to the SEC's motives -
just by pure coincidence, they hit an unpopular company ("giant vampire
squid") with a really weak case, alleging the company defrauded themselves, at
the exact time they were about to get a bunch of negative media attention. I'm
sure the two were completely unrelated.

As for fined/settled, it's not semantics. If the SEC had a solid case, they
would have demanded Goldman admit guilt. Goldman just paid a bunch of money to
get their name out of the media and avoid uncertainty.

~~~
intended
It is fraud to materially represent information to clients. That is why Goldie
got nailed. The rest of the stuff you are pointing out is a bunch of noise
that is pretending to be signal.

For those who don't know the details of the case, heres a quick read -

1) A hedge fund which believed that mortgages were going to go south worked
with Goldie to buy a portfolio of stocks which they were short on. They would
make money if the stocks tanked. 2) Goldman turned around and sold the Long
end of the trade to their clients. 3) Goldman is asked specifically by clients
if a neutral third party was making the portfolio. CRITICAL information to a
decision maker. 4) Goldman LIES and states that it was a neutral third party.

Watch this video - its the SEC enforcement directory talking about why they
were going after Goldman. Do note this was at a time people were making the
same assertions that yummyfajitas is making - its wrong illegal to disclose
the identity/motives of the counterparty.

[http://www.ritholtz.com/blog/2010/04/sec-khuzami-director-
di...](http://www.ritholtz.com/blog/2010/04/sec-khuzami-director-discusses-
gs/)

I'm going to steal a comment from that page - "In response to the typical
question as to “weren’t the investors sophisticated enough to do their due
diligence and see for themselves that bla bla bla” Khuzami ( at 3:12 min)
revealed a critical detail: “One of the investors specifically requested an
independent and objective 3rd party collateral manager to assist in the
selection of the portfolio. It was a foreign institution that wanted someone
here is the US. It was one of the condition of the deal, and Goldman
represented that is was what they were getting, when in fact, it was not the
case.”

The subsequent ruling makes it clear that this is material information that is
necessary to disclose when dealing with derivatives and CDOs. Do also note
that till date derivatives and CDOs are the least regulated part of the entire
market and that is why they are also weapons of mass destruction. Getting a
legal case which makes it clear that you have to disclose stuff like this is
BIG.

Whats really irksome is that the matter at hand is far more complicated and
important to understand, yet the coverage of this matter is handled badly.

Funnier still - after the water is muddied it is made to look as if the SEC is
forcing "Virtuous Bulwarks of Society TM" to disclose information that a 2
year old should know. WTF? People talk about the SEC going after Goldie like
its a BAD THING. I just can not understand this.

There is a LOT of depth complexity to what is going on here. The porno scandal
is a distraction. The Rolling Stones article, and the parents link, do not
even begin to touch the surface of these issues.

------
beoba
Rich people don't go to jail.

Example: <http://www.thedenverchannel.com/news/26164101/detail.html>

~~~
expertio
Yes, they've got the money. They can do whatever they want.

Jail is prepared for poor people.

------
stretchwithme
The bigger problem is why our politicians are underwriting irresponsible risk
taking, why they believe bubbles are the only way to prosperity, and why they
simply cannot stop spending money we don't have.

~~~
mkr-hn
This is one of those rare times that I agree politics should be avoided on HN.
This comment is simplistic and seemingly driven by emotion. There's no
development to any of the points. You lay them out as a given without any
support.

And people are upvoting you.

~~~
BarkMore
> our politicians are underwriting irresponsible risk taking

The government is underwriting risk by bailing out various institutions
(Fannie, Freddie, Citi, AIG, ...).

> why they believe bubbles are the only way to prosperity

This is over the top by saying that they believe that bubble blowing is the
only way to prosperity.

Bubble blowing is part of the agenda. The artificially low interest rates set
by the Federal Reserve is one example of bubble blowing.

> why they simply cannot stop spending money we don't have

Politicians from the two major parties talk about the need for spending
reductions, but it does not look like they will make a significant dent in the
problem.

~~~
stretchwithme
A great many people are enthralled with Keynesianism, feel its government's
job to create jobs regardless of other consequences, and have put forth
policies designed to re-inflate bubbles, such as in housing and autos. And got
them passed.

Not to mention the low rates, which will be as successful as they have been in
Japan.

Yes, that may be changing and no, they don't call them bubbles, but that is
what they are.

And I too will hold my breath to see if they can actually rein in spending. I
hope they can. Shopping for a country with a future is a task I'd like to
avoid.

------
mech4bg
The problem with Rolling Stone pieces if even when they have a good point to
make, they're far too emotional and devoid of details. There's a real bias to
how they attack their stories, and rarely seem to do much fact checking.

I wish more places reported like the New Yorker.

~~~
Cadsby
People tend to get emotional when they see such despicable behavior with
absolutely no consequences.

------
tzury
single page link [http://www.rollingstone.com/politics/news/why-isnt-wall-
stre...](http://www.rollingstone.com/politics/news/why-isnt-wall-street-in-
jail-20110216?print=true)

------
xcjamie
What about all the people living above their means with the mortgages they
couldn't afford. Didn't they play a part? Should they go to jail too? Plus
what they did was unethical, not illegal, and therefore not punishable through
jail-time...

------
danenania
Wall Street owns the jails.

~~~
michaelty
<http://www.correctionscorp.com/>

<http://www.thegeogroupinc.com/>

Yes, you can buy stock in them.

------
ljordan
Because the bottom line in life is power, not laws or beliefs.

------
ebaysucks
Because what they did was unlawful, but legal.

------
juddlyon
He with the gold makes the rules.

------
maeon3
Money is power, and with power you can manipulate the system around you for
your own purposes. Simple as that. It provides additional incentive to do a
good job, provide superior goods and services so you can get a few "get out of
jail free" cards.

I propose we formalize this so everyone in the working world has an equal shot
at getting out of jail. Earn 20 million dollars, you get a pass for 2
premeditated murders, earn only 2 million and you get a pass for 1 hit and
run.

The system is unfair as it is. We might as well make it not fair equally for
all exceptional wage earners.

------
Pooter
Cause they're able to get laws written to suit them, cause they're richer and
more motivated than you are.

~~~
grav1tas
The presence of wealth and the presence of motivation do not entail the
existence of the other in a person.

