The crisis was fueled by people showing up and doing their jobs. Think about that.
The hunt for the criminals is a waste of time. People were acting aggressive, not criminal--with notable exceptions that could happen in any era. In fact, finding scapegoats will make the problem worse. It leaves the system intact and fools everybody into believing the problem is fixed.
Credit and risk has always been a problem of information. In this era we have more tools than ever to manage them. However the rules require a major rethink to get the right information circulating.
Now, if you believe it is a systems problem, what's the solution? Here's one: Transparency. Not the SEC's version of quarterly accounting quibbles. Just tell me the the end-of-day positions of every "large" participant. 20 years ago that would be too much information to process. Now it would be no problem. Lots of little agencies could process the information.
The impact would be enormous. The informational advantages of large institutions and so-called speculators would simply disappear. Nobody would be able to grow to be too big to fail, simply because they would have a harder time trading. If you are starting to feel sorry for banks having to supply this type of formerly proprietary information, just remember, they have the corresponding information on you and you don't complain.
When an investment bank packages up securities to sell and doesn't communicate material information to potential buyers (e.g. "the bonds are junk"), that's fraud. People committing fraud as part of doing their jobs are criminals.
When an S&P manager tells one of his professional credit raters not to request information on the loans underlying the instruments he's supposed to rate, what would that be?
I think you have a point even though it is a gray area. However, I think that having the government focus on Real Transparency (TM) as a prevention instead of criminal enforcement would be a far more effective systemic reform. Not that I believe it likely to be implemented anytime soon.
Suppose a hair dresser buys a house for $750k, the interest payments alone consume 50% of family income, clear title has not been established for the house, and the signed mortgage document is filed into a dumpster. Suppose hundreds of similar mortgages are piled together into a mortgage-backed security.
The criminals were rating that festering bond as AAA (highest rank) and stuffing it into pension funds. The rating fee was on the order of $500k, but the raters did not even pick a single private eye out of the phone book to verify that the house even exists, nor a CPA to see that if the paperwork exists.
The whole thing was a fraud from beginning to end. Thousands of people need to go to prison, and pay trillions in restitution.
> Just tell me the the end-of-day positions of every "large" participant.
Bernie Madoff Investments had stellar numbers. The whole point of a financial fraud is that the numbers are cooked.
The hunt for the criminals is a waste of time. People were acting aggressive, not criminal--with notable exceptions that could happen in any era. In fact, finding scapegoats will make the problem worse. It leaves the system intact and fools everybody into believing the problem is fixed.
Credit and risk has always been a problem of information. In this era we have more tools than ever to manage them. However the rules require a major rethink to get the right information circulating.
Now, if you believe it is a systems problem, what's the solution? Here's one: Transparency. Not the SEC's version of quarterly accounting quibbles. Just tell me the the end-of-day positions of every "large" participant. 20 years ago that would be too much information to process. Now it would be no problem. Lots of little agencies could process the information.
The impact would be enormous. The informational advantages of large institutions and so-called speculators would simply disappear. Nobody would be able to grow to be too big to fail, simply because they would have a harder time trading. If you are starting to feel sorry for banks having to supply this type of formerly proprietary information, just remember, they have the corresponding information on you and you don't complain.