And when the feeling that the public has too much bloodlust come over you, just replay the tapes of the Enron traders joking about the Californians freezing in the dark because of their power supply manipulations. How many of the traders ended up doing jail time anyway?
I testified at the Enron hearings.
Again, zero sympathy for the Enron traders, it was appalling. But was it illegal? I don't know. Being an asshole and a shark isn't illegal. There was no reason not to go after the Enron traders if there was illegal activity.
FTR, a guy with whom I went to undergrad was a high executive at Enron and did go to jail.
You should read Sheia Bair's memoir. It pretty well documents the level of understanding at the top of what the sellers of the mezzanine tranches knew. The dispute is really about the difference between criminal conspiracy and criminal negligence. I'm sure that the operations were segmented so that some individuals in the middle management levels could have been unaware of the overall monster they were creating, but too many at the top frankly confessed that they knew the collapse was inevitable, but either did not time their exit right, or more often felt they could not get off because there was "too much money still on the table".
I was at the 2007 Berkshire Hathaway AGM in Omaha. Warren Buffett was asked if he thought there would be a collapse in the financial markets. He said that he thought housing was over-valued and there would be a subprime collapse, but the financial system wouldn't come down. That's Warren Buffett. I talked to a LOT of people during that time who thought the same thing.
I thought it was crazy. I was short commercial real estate going into the financial crisis. I was up 20% YTD going into Lehman, then covered, went long, lost all my gains and would up being down a bit for 2008. So I fucked up. But it was obvious to me that "something bad" was going to happen, though I had no idea just how far reaching it would be. But few people whom I talked to believed it. And I don't believe that the executives did either, at least until the end. Merrill Lynch bought a mortgage originator a year before the end. When the board of Merrill was told several months later subprime defaults were 10x higher than they modeled, Stan O'Neil turned white, and he was gone within several weeks. People simply don't drive a car 200 mph towards a cliff hoping they'll either stop on time or jump out before they go over.
Where you may have a case is near the end. In 2008, defaults started to rise yet the price of the structured products didn't move. Nor did the stock price of some of the originators, i.e. Countrywide. The stock price of Countrywide went sideways for 7-8 months, though defaults started to accelerate. (So much for markets being efficient!) Were the banks dumping their prop inventory and lying about it? Maybe. It wouldn't be the first time. But that happened at the end. In all due respect to Ms. Blair, I doubt it was obvious to those people until the end. From everything I have heard, almost everyone drank the kool-aid. That doesn't excuse anyone if there was fraudulent misrepresention, but we still would have collapsed even if everyone was 100% honest.
Remember that this was other peoples' money. There was a fiduciary duty. These decisions were made with firm's proprietary investments when the firms were lobbying for insane levels of capitalization under Basel II, making them all insolvent in a crisis. What made Bear Stearns and Lehman Brothers less capable than Citigroup?
They have a fiduciary duty to the shareholders, not to guys like me. They are performing their fiduciary duty by dumping their shit on me.
You lobby for less stringent capital requirements if you drink the kool-aid and think housing prices can't appreciably fall. That's what most people thought. They thought that the housing market would either keep going up or would move sideways. There was an IMF study that looked at several dozen overvalued housing markets over many decades and concluded that 2/3s of the time, prices corrected by moving sideways for an extended period of time. Home prices hadn't fallen in 70 years in this country. If you don't think home prices will go down, you can take on as much mortgage debt as you want.
As for managing other people's money, Bear Stearns managed a leveraged structured products fund that went to zero. The principals, Ralph Cioffa and Matt Tannin, were found not guilty by a jury in a court of law. I agreed with the jury from what I followed in the trial. Bad decisions are not criminal.
