Monday, March 25, 2013
Bradley Borden (Brooklyn) & David Reiss (Brooklyn) have posted Cleaning Up the Financial Crisis of 2008: Prosecutorial Discretion or Prosecutorial Abdication? on SSRN. Here's the abstract:
finance professionals play fast and loose, big problems result. Indeed,
the 2008 Financial Crisis resulted from people in the real estate
finance industry ignoring underwriting criteria for mortgages and
structural finance products. That malfeasance filled the financial
markets with mortgage-backed securities (MBS) that were worth a small
fraction of the amount issuers represented to investors. It also loaded
borrowers with liabilities that they never had a chance to satisfy.
Despite all the wrongdoing that caused the financial crisis, prosecutors have been slow to bring charges against individuals who originated bad loans, pooled bad mortgages, and sold bad MBS. Unfortunately, the lack of individual prosecutions signals to participants of the financial industry that wrongdoing not only will go unpunished but will likely even be rewarded financially. Without criminal liability, we risk a repeat of the type of conduct that brought us to the edge of financial ruin.