What you don't know may shock you

Five years ago today, Lehman Brothers went bankrupt.

Instantly and inevitably, the house of cards otherwise known as Wall Street collapsed.

But after getting bailed out by the American taxpayers, Wall Street is doing just fine.

The people of Main Street? Not so much.

Here are some numbers to think about this Sunday morning.

• Amount the crash cost the U.S. economy: $22 trillion

• How much everyone would get if that $22 trillion were divided equally among the U.S. populace: $69,478.88

• Assets of the four biggest banks in America — JPMorgan Chase, Bank of America, Citigroup and Wachovia/Wells Fargo — when they were “too big to fail” in 2008: $6.4 trillion

• Assets of those four banks today: $7.8 trillion

• Of the 63 former Lehman Brothers employees identified by a bankruptcy examiner as being aware of an accounting scheme Lehman used to mask its true finances, number who are employed in senior financial services positions today: 47

• Number of the 25 banks responsible for the bulk of risky subprime loans leading up to the crash that are back in the mortgage business: 25

• Chances that an American voter thinks that regulating financial products and services is “important” or “very important”: 9 in 10

• Chances that an American knows the Earth orbits the sun: 8 in 10

• Amount spent in 2012 by Wall Street and other finance industry behemoths on lobbying to roll back, water down and weasel out of the Dodd-Frank Wall Street Reform and Consumer Protection Act: $487 million

• Number of registered financial industry lobbyists in 2012: 2,429

• Number of lawsuits filed as of April of this year by Eugene Scalia, son of U.S. Supreme Court Justice Antonin Scalia, to hold up implementation of Dodd-Frank rules on legal technicalities: 7

• Rank of finance industry among all corporate election spending by sector in 2011 and 2012: 1

• Amount the industry gave to political candidates in 2011 and 2012: $664 million

• In 2012, rate at which revenues of JPMorgan Chase, the largest bank in the U.S., matched Public Citizen’s operating expenses for the entire year: Every 80 minutes

Undeniably, these numbers are shocking, infuriating, damning.

See how our Judicial really works - Not for you and me.

Not One Top Wall Street Executive Has Been Convicted Of Criminal Charges Related To 2008 Crisis

  Posted: 09/13/2013 7:50 am EDT

By Sarah White

LONDON, Sept 13 (Reuters) - Will top bankers' behaviour ever land them in jail? Or are bad business decisions even a crime at all?

Five years on from the bankruptcy of Lehman Brothers, the debate over how to hold senior bank bosses to account for failures is far from over, but legal sanctions for top executives remain a largely remote threat.

Even as laws evolve - in Britain, the government wants to criminalise recklessness in banking - a repeat of the global financial crisis and near-collapses of 2008 would not necessarily result in many more prosecutions today, lawyers say.

At issue is the difficulty in pinning the blame on any one person for risks and decisions taken throughout a firm - one of the main obstacles to building such cases so far.

"It's a case of the confused lines of responsibility and accountability," said Judith Seddon, director in law firm Clifford Chance's business crime and regulatory enforcement unit in London. "When you're pursuing an individual, if they've delegated responsibilities ... it's much more difficult in a big organisation."

Regulators the world over stepped up their scrutiny of banks and cracked down on financial crime in the wake of public anger over costly bailouts and subsequent scandals. But that has so far translated into relatively few attempts to bring charges against those in the highest echelons of banking.

In the United States, home to Lehman Brothers, no top executives at large Wall Street or commercial banks have been convicted of criminal charges relating to the 2008 crisis.

Across Europe, the implosion of Iceland's financial sector five years ago has resulted in some of the most prominent convictions so far, with the former chief executive of failed lender Glitnir among those sentenced to jail time.

In Germany and the Netherlands there have also been isolated high-level convictions, and some landmark cases could yet materialise. The entire former executive board of German lender HSH Nordbank is being put on trial over actions taken in the run-up to the crisis.

But in Britain, where Royal Bank of Scotland and Lloyds were bailed out to the tune of 66 billion pounds ($104.37 billion), no senior bankers faced criminal charges.

Three executives at Ireland's failed Anglo Irish Bank face trial in 2014, five years after the probe into the lender began, while in Spain, around 100 people are being investigated by courts over failings at banks devastated by a property market crash, though none have gone on trial.

RECKLESS BANKERS?

The low rate of convictions partly stems from the fact that in some countries laws which could have addressed the way that banks were run simply did not exist.

Britain's Finance Minister George Osborne said in July he would adopt recommendations made by an influential body of lawmakers that bankers should face jail for a new offence of "reckless misconduct in the management of a bank".

"The regulator has got to be holding people personally accountable for their actions. They need to be frightened of the regulator, which certainly wasn't true in the past," said Mark Garnier, a Conservative member of the Parliamentary Commission on Banking Standards.

In the United States, federal prosecutors are still exploring new strategies for criminally charging Wall Street bankers who packaged and sold the bad mortgage loans behind the financial crisis, including using an old law intended to punish individuals for scamming commercial banks.

Britain's push to create a "recklessness" offence could in theory make it possible to punish senior executives for taking misguided decisions. But proving that such decisions were made recklessly at the time could still be tough.

"Board level meetings are carefully minuted and you might therefore have detailed evidence, but however reckless someone appears with the benefit of hindsight, will it stand up in court?" said Gregg Beechey, a London-based partner at law firm SJ Berwin. "You wouldn't get the whole board to vote for an acquisition if the case wasn't reasonably convincing at the time."

U.S. regulators' approach since the crisis has reflected some of these challenges. Although the Securities and Exchange Commission has charged over 150 firms and individuals in relation to the financial crisis, critics have still said it has not done enough to go after high-level bank executives.

"We go where the evidence leads," former SEC enforcement director Robert Khuzami has said in the past, noting that cases could not be brought against people merely for "bad judgment".

A perceived lack of political will in some countries to pursue senior bankers and firms could also cloud future cases.

Despite costly state rescues in Spain for example, mainstream politicians have shied away from calling for investigations into various failures in the same way as British ones, after the UK government came under pressure from an intense public backlash in the wake of the crisis.

"(In Spain) it's more an absence of any willingness to pursue the cases than because of a lack of tools, as some cases could be proved without much difficulty," said Juan Torres, an economics professor at the University of Seville, adding that some related to clear instances of fraud.

Claims from customers and activist groups have instead led Spain's High Court to investigate several high-profile failures, including that of Bankia, which was bailed out in 2012 less than a year after listing on the stock market.

Frustrations over the slow progress of legal probes in Spain is even leading some activist groups to consider lobbying the United Nations to list economic crimes as a crime against humanity, even though they admit it is unlikely to happen.

If the scope for legal prosecutions of senior bankers has not broadened drastically in the past five years, however, some argue that life at the top is much harder than it used to be, in part as countries pursue other lines of action.

"Regulatory tools can be more powerful than criminal law, although whether or not it's what the public want to see is another question," Beechey at SJ Berwin said.

"There's more of a sense with regulators that they can do things without fulfilling the burden of proof, and they are definitely working to try and pursue senior management more and more."

What We Haven't Learned From the Crisis

Our old theory of what to do was wrong, and we don’t have a new one.

By Matthew Yglesias|Posted Thursday, Sept. 12, 2013, at 5:20 PM

Former Lehman Brothers CEO Richard Fuld is sworn in before testifying Sept. 1, 2010, to the Financial Crisis Inquiry Commission about the causes of the 2008 financial and banking meltdown. We don't know much more now than we did then, or in 2008.
Photo by Chip Somodevilla/Getty Images

This weekend marks the fifth anniversary of Lehman Brothers’ final, chaotic descent into bankruptcy. The investment bank wasn’t the first American financial institution to drown in bad bets on mortgage-backed securities. But unlike those that had come before, Lehman wasn’t covered by the FDIC and its resolution process. And despite the scrambling efforts of the Treasury Department and Federal Reserve, there was no way to quasi-save it through the kind of shotgun marriage that was deployed to sell Bear Stearns to JPMorgan Chase. Lehman was going down, and all officials could do was wait to see what happened next.

What happened next, of course, was a full-scale financial panic—one that the Fed and the Treasury spent the next year fighting under two presidents. They wanted, desperately, to avoid the collapse of the American banking system. And contrary to loud and fashionable lines of criticism then and now, they overwhelmingly did it not out of corruption or fealty to Wall Street but out of sincere belief that ending financial panic would be critical to helping real people and the real economy. To their credit, they succeeded at stemming the disaster much better than their contemporaneous critics allowed.

But they don’t like to admit to a plain truth that’s obvious to most everyone else: that ending the financial crisis and healing the banking system turned out to be much less important than we believed at the time.

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One of the most infamous documents of the Obama era is a January 2009 projection attributed to Jared Bernstein and Christina Romer making the case for the president’s stimulus plan. They forecast that with the president’s plan in place, unemployment would peak in the third quarter of 2009 at 8 percent and then fall to about 5 percent by the second quarter of 2013.

Oops.

The really striking thing about the paper isn’t what they say about the stimulus. It’s what they say about a world of no stimulus. In this world unemployment peaks at 9 percent in the middle of 2010. After that it falls quite rapidly to about 5.5 percent in early 2013 and then precisely matches the no-stimulus scenario by the end of this year. Which is to say they believed then what policymakers at all levels believed—that there was simply no way to have a grinding years-long period of seemingly endless slow growth and mass unemployment. A harder recessionary fall would mean a sharper snapback. Cushioning the blow was sensible and humane, but the actual difference would be short-lived.

And yet experts knew that, at least in an academic sense, prolonged slumps were possible. That’s what happened during the Great Depression of the 1930s. Ben Bernanke summed up the conventional wisdom on this point in 2002, in his

tribute speech on Milton Friedman’s 90^th birthday—back when Bernanke was a Fed governor but not yet running the show. “Regarding the Great Depression,” Bernanke said, addressing himself directly to Friedman, “you’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.”

The embedded meaning here: The Depression occurred because the Federal Reserve of the time had allowed widespread bank failures to sharply reduce the amount of money circulating in the country. This shortage of currency led to falling prices, which became a vicious cycle. With prices headed downward, everyone wanted to defer business investments and major purchases as far into the future as possible. That only increased the excess demand for money and intensified the cycle of deflation. The lesson was clear—at all costs, prevent a spiral of bank failures, currency shortage, and falling prices. Get that done, and the system will return to equilibrium.

By this standard, the powers that be have performed quite well. Leading measures of financial system stress spiked during the crisis but rapidly returned to normal. Banks have failed, but the banking system is alive. Ordinary households and businesses have no trouble finding someplace safe to put their money, and creditworthy borrowers can get loans. There’s been no cycle of deflation.

Yet the self-correcting economy we were promised hasn’t materialized. The unemployment rate remains high, even as the share of the population looking for a job keeps shrinking. And there’s no real mystery as to why the labor market has remained sick. Despite the hype about robots and jobless recoveries, employment growth has been about as weak as you’d expect given weak overall GDP growth. This is the deepest and most frightening lesson of the financial crisis—the automatic bounce-back mechanism doesn’t actually exist. The need for some extra boost—whether from fiscal stimulus, or monetary policy aimed at deliberately increasing inflation—is deeper and more profound than the Obama administration realized at the time.

Putting the measures in place for that extra boost would be an extremely difficult political lift. But the emergency measures that saved the banking system in the fall and winter of 2008–2009 were a tough lift too. They got done because policy elites regarded them as necessary. Today, those at the helm at the time defend that judgment, but add the qualification that what was necessary was “not sufficient.” Yet the insufficiency of the banking rescue ought to raise the question of whether it really was necessary. The bailouts of financial institutions were supposed to put the country on a self-correcting long-term path, even in the absence of other pro-growth measures. If they don’t do that, then the billions spent on TARP are like any other kind of fiscal stimulus spending—just a form targeted at a segment of society that’s unusually undeserving of public assistance. 

Bailout fatigue is rampant, but there’s absolutely no consensus on what we should do when faced with the next major economic downturn. Five years ago Bernanke and others at least had the excuse that they thought they knew what to do. Today we know that bank-centered theory of depression prevention was wrong, but haven’t embraced a new one. The continued imperfections in America’s financial regulations are scary. But the lack of a plan for what to do next time those flaws come to light—that’s much scarier.