December 14, 2013
Floyd Norris has a good discussion of the continuing hostility toward the big banks, pointing out that it has a real basis in their behavior. However, toward the ends it includes the strange line:
“We have the giant banks and must live with them.”
Actually, we don’t have to live with the big banks. The Justice Department could pursue anti-trust actions to break them up, the Financial Stability Oversight Council could act to break them up, or Congress could pass new legislation. There is no obvious reason that we need keep the big banks if there was enough political support for downsizing them.
Norris also makes the comment:
“That no top bankers went to jail may be proper — it is not a crime to make stupid mistakes, and much of what happened in the years before the financial crisis was more foolish than venal.”
It is almost certainly true that the bankers were foolish and failed to recognize the housing bubble, but that does not mean that they were not also venal. It is likely that Kenneth Lay and other top executives at Enron really believed in their business model, but that didn’t mean that they were not also committing a wide variety of crimes to keep the company going.
In the case of the banks, while they may have thought that ever rising house prices would make all mortgages good mortgages, this doesn’t mean that they didn’t knowingly pass along fraudulent mortgages in mortgage backed securities and misrepresent their quality to buyers. These acts are crimes, even if the banks may have thought they would have no consequence since the growth of the housing bubble would have ensured that any losses were minimal.
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