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This story by Forbes points that the only bank chiefs in the financial crisis that engulfed the Western world in 2007/8 were from Iceland:

This is where the worlds only bank chiefs imprisoned in connection with 2008 financial crisis are serving their terms. Kviabryggja is home to Sigudur Einarsonn, Kaupthing Banks onetime chairman and Hriedar Mar Siggurdson, the banks former chief executive officer, who were convicted of market manipulation and fraud shortly before the collapse of what was Icelands No.1 lender ... in sentencing these financiers to serve terms upto 5 & 1/2 years the Icelandic courts have done something what authorities in the two great banking capitals, New York and London haven't: They've made bankers answer for the crimes of the crash.

The emphasis is in the original article.

Given the experience that New York and London have with finance one would have expected this to be the reverse. That they would have been the first to locate, charge and imprison those responsible.

When was the last time that the UK & US had the political will to prosecute serious and systemic financial wrong-doing at the highest levels that resulted in prison sentences and not just fines. How many were put in prison, for how long and from what institutions?

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A person has to be convicted of committing a crime before they can be sent to prison. "Wrongdoing" is not enough, even when combined with arrogance, incompetence and consequences for billions of other people. So Fred Goodwin may have lost £24 billion, but that doesn't by itself mean his acts were criminal.

In the UK criminal proceedings were brought against those bankers involved in the LIBOR fixing case, 5 of whom were convicted and sent to prison. Two more bankers were convicted of rigging Euroibor.

In the US SIGTARP investigations had, as of Nov 2017, put 222 former bankers in prison. That number will have risen since then. However this could include some in the wider investigation, and TARP was principally about misuse of bailout funds after the crash, rather than criminal activity leading up to the crash.

  • "Wrongdoing" is usually synonymous with breaking the law. Otherwise this is a good answer. You might also mention that while prosecutors might have suspicions that a CEO knew what is underlings were up to, finding a smoking email to prove it can be a much harder challenge. – Paul Johnson Aug 12 '18 at 10:15
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    Wrongdoing can imply moral or ethical wrongs. Some moral wrongs are also legal wrongs, but they need not be. It seems likely that Fred Goodwin et. al. were careful to only act legally, but I would not say that they were morally "right". – James K Aug 12 '18 at 10:31
  • Instead of "wrongoing", I'd suggest something like "unsound business decisions". As for example it would be perfectly legal for me to cash out my retirement accounts and take the money to Las Vegas, but it wouldn't be a sound business decision. – jamesqf Aug 12 '18 at 17:34
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    @jamesqf Why whitewash it? These were not "unsound business decisions" by any stretch of the imagination. These were intentional actions taken to enrich themselves at great risk to others. An unsound business decision is investing in a business without paying attention to their business model. Wrongdoing is when you screw others over to benefit yourself. – zibadawa timmy Aug 13 '18 at 2:56
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    Note that the TARP investigations were not for the underlying mortgage and mortgage securities fraud, rather misuse of bailout funds to these same bankers. Obama expanded the program to include autos, solar panels, and cronies, so some of these might not even have been bankers. The article didn't say. – K Dog Aug 13 '18 at 10:44
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Basically the US & UK banks were much bigger than Iceland's... which makes the issue of diffuse responsibility more significant.

It's a matter of diffuse responsibility said James Cox, a professor at the Duke University Fuqua School of Business.

"These people are pretty darn good at what they say on the phone and what they say in emails, so that it doesn't come back to haunt them," he said. "My reading between the lines in all of these cases is that the government doesn't believe that it can put together enough knowledge by particular people about the violations that are being committed."

"It's very difficult to establish, and the bigger the organization the more people who touch a transaction," he added. "So you might have a collective knowledge, but it's not enough individual knowledge for the government to launch a prosecution."

So it's a lot easier to fine a corporation, particularly in the US, where a deferred-prosecution deal can be struck (in exchange for a fine) than to go through with full-blown case. Furthermore, the consolidation of the banking sector in the US has exacerbated this trend, leading to prosecutorial skittishness compounding the difficulty:

In 2013, Eric Holder, then the Attorney General, acknowledged that decades of deregulation and mergers had left the U.S. economy heavily consolidated. It was therefore “difficult to prosecute” the major banks, because indictments could “have a negative impact on the national economy, perhaps even the world economy.”

Prosecutors came to rely instead on a type of deal, known as a deferred-prosecution agreement, in which the company would acknowledge wrongdoing, pay a fine, and pledge to improve its corporate culture. From 2002 to 2016, the Department of Justice entered into more than four hundred of these arrangements. Having spent a trillion dollars to bail out the banks in 2008 and 2009, the federal government may have been loath to jeopardize the fortunes of those banks by prosecuting them just a few years later.

So basically "too big to fail" had as consequence "too big to jail", or al least that's a fairly widespread view.

There's one other case, Ireland where some top bankers wes jailed, but...

Ahead of the sentencing, Mr Drumm acknowledged the "huge error in judgement" in arranging the transfer of €7.2bn (£5.4bn) to inflate the imploding bank's balance sheet in 2008.

Judge Karen O'Connor said: "This court is not sentencing Mr Drumm for causing the financial crisis. Nor is this court sentencing Mr Drumm for the recession which occurred.

"This offending did not cause Anglo Irish Bank to collapse.

"This court will sentence Mr Drumm only for the two specific offences for which he has been convicted."

So possibly with the exception of Iceland, no bank leaders were held individually accountable for the events leading to the crisis. The US SIGTARP convictions were for misusing bailout money, not for causing the initial crisis:

The US government set up the Troubled Asset Relief Program (TARP) in October 2008 to buy toxic assets from financial institutions – initially injecting $700 billion into the market.

But within a few years, some analysts had started to raise concerns that the TARP money wasn’t being used for its intended purposes. The office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) began looking at alleged misuse of funds.

I did find a case of US bank CEO convicted for TARP fraud, but it looks like a pretty small bank:

Darryl Layne Woods, the former CEO of a Missouri bank, admitted in court yesterday to using financial crisis bailout funds to purchase a luxury waterfront condo in Florida, Dealbook's Peter Lattman reports. In November 2008, Woods, 48, who was the head of Mainstreet Bank and the bank's holding company Calvert Financial Corporation, applied for TARP money on behalf of his bank, a press release states.

In January 2009, his bank received $1,037,000. A month later, he used $381,487 of it to buy a place in Fort Myers, Florida.

He pleaded guilty to misleading federal investigators about how he used the TARP money.

In Iceland's case, all the three big banks that were involved in the crisis (Kaupthing, Landsbanki, Glitnir) had their leadership or at least high-level management convicted. So that is a qualitative difference.

But there's another difference, from an in-depth analysis, most of the convictions on the 3 big Icelandic banks (which accounted for 95% of its banking sector at the time), were for reasons pretty similar to the Anglo Irish Bank case:

One of the motivations for a bank to fund its own shares was market manipulation. Once the liquidity crisis started in the summer of 2007, the banks’ share prices came under severe pressure. The banks all reacted in the same manner: They purchased about 50 percent of all trades with their shares that came through the stock exchanges. [...]

In total, the banks purchased their own shares on the stock exchanges for over €3.5 billion in the last 20 months before their failure, while they only sold less than €0.5 billion of their shares on the exchanges. The banks could not own these shares due to rules that limited ownership of own shares, so they sold them over the counter, outside the stock exchanges, to holding companies, which were often owned by insiders or large customers. These sales were frequently coupled with a loan amounting to the full purchase price of the shares. The only collateral for the loan were the shares themselves (SIC, chap. 12). [...]

As the crisis intensified, it was clear that these loans were not handled like loans for unrelated shares. For instance, the banks repeatedly waived margin calls (SIC, chap. 12, p. 17). The SIC report goes step by step over a number of these deals, which were obviously made in an attempt to manipulate the banks’ market price. Additionally, this process increased systemic risk, as the equity of the banks became fictional, and thus it lost its loss-absorbing capacity. The managers of two of the three banks have been found guilty by the Icelandic Supreme Court of market manipulation, and the third case is now being prosecuted.

This practice of a bank lending for its own shares was not limited to Icelandic banks. In Ireland, for instance, there was a high-profile case about lending to the so-called Golden Circle, or Maple 10. Anglo Irish Bank lent €450 million to 10 investors for them to reinvest in the bank’s shares to bolster its share price (Crimmins, Gergely, and Saul 2009). This amplified the Irish government’s loss from the banking crisis. Similarly, Britain’s Serious Fraud Office (2017) charged four senior executives of Barclays for extending loans to investors to buy its own shares so as to prop up its stock price. The investor, who was not accused of wrongdoing in this case, was also involved in a similar market manipulation trade with Kaupþing.

So Iceland's top/main bankers went to jail for stuff (mostly market manipulation) that also sent to jail (or at least brought charges against) bankers elsewhere.

  • I'm honestly not sure how far up the banking hierarchy LIBOR convictions and prosecutions go to talk about that here; see my own question on that: politics.stackexchange.com/questions/32874/… – Fizz Aug 12 '18 at 16:33
  • Holder is an unscrupulous liar. Kind of weird that you insert him in this as a defense of why no bankers went to jail. His level of self-interest is high, and his level of believability is low. – K Dog Aug 12 '18 at 20:05
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    @KDog It's not my intention to defend anything. "How come something did or didn't happen?" is a question asking for reasons; these can be good or bad from some moral lens, but I just listed them here without attempting to pass much judgment, although calling it "skittishness" was bit of that, I admit. – Fizz Aug 12 '18 at 20:10
  • For an excellent analysis of the systemtic problmes afecting Iceland's banks (leading to their crash) see uti.is/2018/06/… – Fizz Aug 13 '18 at 2:33
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TLDR, first the government incentivized borrowing to low income borrowers, adding to the pressures to an oversold mortgage market, then the Obama administration made official policy to make sure Wall St interests were put first. Finally, the Democrats came up with a scheme to profit from the mess they created. Being part of the problem all along, how could they jail those that at the end of this affair were funding them?

I am an Accredited Mortgage Professional by the Mortgage Bankers Association with over 19 years experience in the field.

Government exacerbated an oversold market

As the market was heating up, the Feds kept on requiring making more substandard loans.

For 1996, HUD required that 12% of all mortgage purchases by Fannie and Freddie be "special affordable" loans, typically to borrowers with income less than 60% of their area's median income. That number was increased to 20% in 2000 and 22% in 2005. The 2008 goal was to be 28%. Between 2000 and 2005, Fannie and Freddie met those goals every year, funding hundreds of billions of dollars worth of loans, many of them subprime and adjustable-rate loans, and made to borrowers who bought houses with less than 10% down.

First passed in 1977, the CRA was "strengthened" in 1995, causing an increase of 80% in the number of bank loans going to low- and moderate-income families.

While Fannie and Freddie and the CRA were pushing up the demand for relatively low-priced property, the Taxpayer Relief Act of 1997 increased the demand for higher valued property by expanding the availability and size of the capital-gains exclusion to $500,000 from $125,000. It also made it easier to exclude capital gains from rental property, further pushing up the demand for housing.

Obama Admin makes it official policy to favor Wall Street Over Main Street

It was Tim Geithner's, Treasury Secretary under Obama, official policy to assist and favor Wall Street over the taxpayer and mortgage consumers. .

As Treasury Secretary Tim Geithner orchestrated a plan to help the nation's largest banks purge themselves of toxic mortgage assets, Citigroup and Bank of America have been aggressively scooping up those same securities in the secondary market, sources told The Post.

And from the Huffington Post

Oh, by the way, some people will get very rich off the Geithner plan. Some hedge and equity fund managers could make hundreds of millions or even billions off the Geithner plan. And, under current law, they will pay a lower tax rate on this money than a schoolteacher or firefighter. Are you sold yet?

And the Financial Times reports that Geithner helped his old firm, Citibank at the expense of American taxpayers.

Democrats find a way to monetize mortgage crisis

In the United States, the Democratic Party came up with a scheme that banks could fund left wing causes, circumventing the legislature appropriation process in it's entirety. The Justice Department would reach a "settlement" with a bank that had fines levied, if paid by the bank to a left wing cause would be measured at some multiple of the original fine. Hundred of billons of dollars in fines were recorded with a significant percentage of the amount going to fund left wing causes.

A sample of the left-leaning organizations benefiting from the largesse include the National Council of La Raza, the National Community Reinvestment Coalition and the National Urban League. ... When big banks are sued by the government for discrimination or mortgage abuse, they can settle the cases by donating to third-party non-victims. The settlements do not specify how these third-party groups could use the windfall. So far, investigators have accounted for $3 billion paid to “non-victim entities.”

Critics say banks are incentivized to donate the funds to non-profits rather than giving it to consumers.

Bankers had a vested interest in keeping the scam going because it meant none of them were going to jail. They underwrote that position by giving directly to Hillary Clinton a shameful amount of money.

  • "Being part of the problem all along, how could they jail those that at the end of this affair were funding them?" Thanks to the principle of separation of powers, Judges are not bound by any (alleged) governmental policy. – Evargalo Aug 14 '18 at 12:51
  • @Evargalo Judges, of course, can not bring actions before courts. That's the responsibility of the DOJ, SEC and other parts of the executive. And your assertion only holds water to the extent that judges haven't been politicized and do not subscribe to ideology over judicial independence and fealty to the rule of law. One could examine a certain segment of the Court over the last few decades and search in vain for a heterodox opinion emerging. – K Dog Aug 14 '18 at 12:58
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Bernard Madoff, a former chairman of NASDAQ, was the chairman of Bernard L. Madoff Investment Securities until December 11, 2008.

He was arrested on that day and charged with 11 felonies for having built the biggest known Ponzi Scheme in history:

Prosecutors estimated the size of the fraud to be $64.8 billion

The scale of the scam and the losses for numerous clients and institutions have contributed to expand the financial crisis that was already ongoing for a few months.

On March 12, 2009, he was sentenced to 150 years of prison, of which he still has 141 to serve.

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    Downvoter, care to explain ? – Evargalo Aug 13 '18 at 11:44

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