Bear Verdict Should Please Wall Street

Ralph Cioffi and Matthew Tannin aren’t the only ones letting out a big sigh of relief.

All across Wall Street, anyone who played a role in the financial crisis is cheering yesterday’s acquittal of the former Bear Stearns hedge fund managers.

The quick verdict by a federal jury in Brooklyn will send a chilling message to other prosecutors looking to hold Wall Street executives responsible for the events that sparked the Great Recession.

Somewhere out there, Joe Cassano, former top executive of AIG Financial Products (AIG), must be chuckling to himself. That’s because it has just gotten that much harder for federal prosecutors to argue that his group’s peddling of tens of billions of dollars of credit default swaps — insurance on subprime-backed securities — was some kind of fraud on the market.

Now one can argue that the criminal case against Cioffi and Tannin was dealt a blow when the judge in the case refused to let prosecutors introduce some potentially damaging emails into evidence. But the biggest problem with the case against Cioffi and Tannin is that they committed the same sin as everyone else on Wall Street: They bought into the magic surrounding esoteric securities built on a mountain of subprime mortgages.

Cioffi and Tannin were no different than the folks at Merrill Lynch (BAC), Citigroup (C), Lehman Brothers (LEHMQ.PK) and Bear Stearns (JPM) itself — all of whom got greedy on the easy money that was made off of collateralized debt obligations and other subprime-related securities.

Of course, Cioffi, Tannin and everyone else deceived themselves in believing the housing party would never end. And none of them had a plan for surviving a downturn in the housing market, nor a sudden freeze in the market for all those securities cobbled together from those iffy mortgages.

But bad judgment and greed aren’t necessarily crimes.

Going forward, prosecutors will have to make sure they really have the goods on Wall Street executives before trying to criminalize sheer stupidity.

Comments

[dingding:]

So you are finding it acceptable to pay stupid people horrendous amounts of money?

Nov 11 06:37 AM

[Robespierre:]

"But bad judgment and greed aren’t necessarily crimes.

Going forward, prosecutors will have to make sure they really have the goods on Wall Street executives before trying to criminalize sheer stupidity."

So interesting that their "bad judgment and greed" always produces millions of dollars to them and loses to tax payers. I would like to see for once one of these executives lose ever single penny of THEIR own wealth because of what you call : "bad judgment and greed"

BTW every year 100s of people are set free for many different crimes such as theft, homicide etc. I guess other criminals should feel very safe if we follow your logic of: "The quick verdict by a federal jury in Brooklyn will send a chilling message to other prosecutors looking to hold Wall Street executives responsible for the events that sparked the Great Recession."

Nov 11 08:23 AM

[Robespierre:]

BTW the S&L crisis "produced" 100s of investigations and 100s of successful criminal sentences and as far as debacle it was orders of magnitude smaller that our current crisis. Of course the current one has an SEC that refuses to investigate and an FDIC/FED who allows bankers to lie with impunity : "Banks are moving quickly to restructure commercial mortgages under new U.S. guidelines that are more forgiving of battered property values and can help banks avoid bigger losses.

Citigroup Inc., regional bank Whitney Holding Corp. and other lenders around the country are planning to review loans now considered nonperforming to determine if they can be reclassified under the guidelines announced Oct. 30 by bank, thrift and credit-union regulators, according to bank executives and people familiar with the matter. The moves could help the banks absorb fewer losses on troubled real-estate loans and preserve capital.."

Of course being able to hide loses means that these banks will show a fake profit that will produce very REAL bonuses for them. Funny how "greed and stupidity" works so well for the individual bankers and so badly for the banks and tax payers!

Nov 11 08:38 AM

[AndrewBaker:]

Bad judgment and greed aren't crimes: agreed, but the mentality that these people have is no better than that of a criminal, only they don't break laws that will make them that.

The difference between breaking in and stealing someone else's goods, and taking their money in, high risk gambling with it, and telling them it's been lost in a bad investment, is not one of criminal or not criminal but one of morals and ethics. These financial workers have as low if not lower morals and ethics than a criminal when it comes to regard for others and their possessions, and the effect that depriving them of such has on people and their families.

One big difference is a criminal goes to jail, whilst a stupid financier languishes in his expensive home, leaving it only to laugh all the way to the bank.

Nov 11 08:58 AM

[Robespierre:]

Agreed on all except they will never "take all their money to the bank". They are greedy and sociopaths but not fools


On Nov 11 08:58 AM AndrewBaker wrote:

> Bad judgment and greed aren't crimes: agreed, but the mentality that
> these people have is no better than that of a criminal, only they
> don't break laws that will make them that.
>
> The difference between breaking in and stealing someone else's goods,
> and taking their money in, high risk gambling with it, and telling
> them it's been lost in a bad investment, is not one of criminal or
> not criminal but one of morals and ethics. These financial workers
> have as low if not lower morals and ethics than a criminal when it
> comes to regard for others and their possessions, and the effect
> that depriving them of such has on people and their families.
>
> One big difference is a criminal goes to jail, whilst a stupid financier
> languishes in his expensive home, leaving it only to laugh all the
> way to the bank.

Nov 11 09:19 AM

[Graham and ...:]

"It is better to fail conventionally than to succeed unconventionally." (Keynes).

Unfortunately, the essence of Prudent Man Behavior, is "Everyone else is doing it." That's something most parents don't want to hear from their kids.

Nov 11 09:59 AM

[BerkeleyBob:]

I thought this was a surprising jury acquittal, based on the news reports I read. It is quite similar to the scandal which led to Henry Blodgett's change in career. It is misrepresentation and probably actionable fraud to assure your clients that in your opinion an investment is "safe" and "profitable" if your private communications to your fellow thieves is to the contrary.

Nov 11 03:02 PM

[robert.b.fe...:]

Unfortunately the very government that employs the regulators is complicit in the activity they are now trying to prosecute. They (government officials) have morphed from referee to major player. Good luck getting any convictions in this environment. Now, where is that rabbit hole? I need to follow a bank regulator.

Nov 11 03:36 PM