Wall Street Crimes: President Obama is "effectively encouraging future financial fraud"

[girl gone mad]

50. Sorry, but fraud is still illegal.

Read it and weep for the lost opportunities:

http://neweconomicperspectives.blogspot.com/2011/12/president-obamas-view-of-fraud-from.html

ETA excerpt:

But the President asserts: “I can tell you, just from 40,000 feet, that some of the most damaging behavior on Wall Street, in some cases, some of the least ethical behavior on Wall Street, wasn't illegal.” Kroft, sadly, did not follow up on this incredible and, if true, extraordinarily important assertion. Obama’s statements about fraud and ethics are inaccurate on multiple levels.
Obama’s factual assertions about the failure to prosecute fraud are unresponsive to the question, false, and logically inconsistent. Note the artful manner in which Obama evaded answering Kroft’s question. Kroft asks why there are no prosecutions of the Wall Street frauds that drove the crisis. Obama answers that “some” unethical Wall Street actions were not illegal. Obama’s answer implicitly admitted that most Wall Street actions that caused the crisis were criminal. He simply argues that some highly unethical behavior by Wall Street that was not illegal contributed to that crisis. As David Cay Johnston emphasized in his column about Obama’s response to Kroft’s question, Obama’s answer is a non-answer. Why has he failed to prosecute any of the criminal conduct by Wall Street that drove the financial crisis? The (alleged) fact that “some” destructive Wall Street conduct was highly unethical, but not illegal, obviously provides no basis for not prosecuting what Obama concedes was primarily criminal conduct.

Obama claims that the purported legality of Wall Street’s (unspecified) “least ethical behavior” is “exactly why we had to change the laws.” He then describes the two specific changes in the Dodd-Frank law that he asserts make illegal that “least ethical behavior” for the first time. Obama claims that Dodd-Frank makes it illegal to “take wild risks with other people’s money” and for bankers to “expect a taxpayer bailout.” Obama is a lawyer and former law professor, so these are matters as to which he is capable of precision. Dodd-Frank does not make it illegal for bankers to take “wild risks.” Banks inherently take risks “with other people’s money” so that bit of rhetoric is superfluous.

Dodd-Frank does not make it illegal for a banker to “expect a taxpayer bailout.” Dodd-Frank does not make it illegal (and could not constitutionally do so) for bankers to lobby for a bailout. We have all seen the success of such lobbying with the Bush and Obama administrations. Both administrations have refused to order an end to the “systemically dangerous institutions” (SDIs) (inaccurately referred to as “too big to fail”). Both administrations asserted that when the next SDI failed it was likely to cause a global systemic crisis. (It is a matter of “when”, not “if” they will fail, or more precisely, when we will admit that they failed.)

(snip)

What Obama missed, and Kroft failed to call him on, is that “wild risk” by banks are typically frauds. I have explained these matters at length in previous posts, so I will provide the ultra short version here. Honest home lenders do not make liar’s loans. In particular, honest lenders do not make subprime liar’s loans. Honest home lenders do not make such loans because they create intense “adverse selection” and create a “negative expected value” (in plain English, they will lose money). No government (here or abroad), required any lender or other entity (i.e., Fannie and Freddie) to make or acquire liar’s loans. In fact, the government repeatedly criticized liar’s loans. The FBI warned of an “epidemic” of mortgage fraud in September 2004. The mortgage lending industry’s own anti-fraud body (MARI) warned every member of the Mortgage Bankers Association (MBA) in writing in the 2006 that “stated income” loans were “an open invitation to fraudsters,” had a fraud incidence of 90 percent, and deserved the term the industry used behind closed doors to describe them – “liar’s” loans. Despite these warnings, lenders massively increased the number of liar’s loans they made. [/div[\]