The Financial Crisis and the Law

Seriously good piece on Bloomberg explaining why we shouldn't expect any of the execs involved in Wall Streets great crash to be put in gaol.

Of course, it has appeared in a financial news source and could be accused of pandering to its audience. It also at times relies a little too much on the distinction between civil and criminal offences, and the standard of proof of the latter.

But the case is well made that the execs were not actively defrauding anyone, and that risk taking that proves wrong should not be punished as a crime.

These points are both valid. However, there is a case to be made about the diligence of the executives and boards of most of these firms. It is abundantly clear that none of them accurately understood the level of risk they were exposing their firms to and there is ample evidence that they failed on the duty to inquire.

These would be civil not criminal actions, and they could be brought as class actions by shareholders or creditors who suffered loss as a consequence. But it should not require individuals to organise these actions, this is the role of corporate regulators.

Personally I don't think these execs deserve to be in gaol - it was the system that was guilty (by which I mostly mean the irrational faith in markets). But it does irk me that they all still have the money they got paid in salary and bonuses for supposedly how well they ran their businesses.

Novae Meridianae Demetae Dexter delenda est