Hey, somehow I lost my comment.Anyway, the FDIC, OCC, and Federal Reserve Board took my client bank holding company all the way to trial in the late 1980s. They lost every single one of the claims they said added up to $800 million. I'll bet they wished they hadn't had to take it all the way to trial, and that we'd let them settle instead.That was the beginning of my move to conservatism. I was so disgusted by the government's attempt to use shaky law to pressure my clients to do what they really wanted, which had nothing to do with the substance of the trumped-up claims.
There are two reasons to take (a bank) to trial. One is to exact the state's punishment for a criminal act. The other, as the first responder pointed out, is to get corrective action in place for wrong-doing and (which he didn't mention) to recover losses from the wrong doing and return those losses to those who were harmed by it.Absent a criminal act--the SEC's favorite settlement of no admission of guilt, but here's a payment--there's no reason for a trial under the first purpose. Judge Jed Rakoff has begun rejecting such sham solutions. To the extent that the settlements do achieve corrective action and a recoupment of the wrongful losses, I have no fundamental problem with settling rather than going to trial.The problem seems to me more to center on the nature of the settlements than on the use of settlements in place of trial. And, if this is the sort of settlement these government guys are going to go for, what can we expect from their skill at litigation were they forced to go to trial? I think T99 has illustrated that.Eric Hines
She does have a good point, and well-stated. Assuming the big bank really broke the law (and that the problem was not, as I think, almost exclusively the fault of Congress with its GSEs and CRAs), we can't just let them make a billion dollars breaking the law and then let them settle for $100 million without a trial at which someone has to admit something in public.But if we really wanted to turn the screws on them, it looks to me like we'd just quit bailing them out. They'd figure out quick how not to let themselves be drawn into any more mega-money-losers.
I'm willing to settle (so to speak) for not bailing them out ever again. I don't generally think the courts, or even the ruthless application of laws and regulations, is a good solution; but if anyone deserves it, it's the people who wrote them. Congress and their owners ought to be the #1 people being held to standards.
A and B above. I fully agree with Rakoff's position, and I wish more judges would reject settlements where no guilt is admitted, but some vig is handed over. That just strikes me as extortion.Of course that'll take better lawyers....Part of what's in the way of application, ruthless or otherwise, of laws and regulations is that there are too many, and they're often conflicting.It's also important that there be no more bailouts. The benefit of these bailouts, such as it is, is that now we have empirical evidence that it doesn't work. Been there, done that, don't need to do it again.Eric Hines
Grandstanding for the crowd. Words. Sound and fury signifying nothing. I want to see some deeds.
From the Senate? This is as close to deeds as they get, these days.
If they start making executives - individually - liable for what they direct their companies to do, that would likely make an impact. Two former executives of the medical device company I work for have been indicted for a scheme they concocted to inflate profits. We finally got through the whole DoJ investigation last year. Our Compliance Department has been beefed up a lot since that all went down several years back. The goal is to make sure no one is doing anything which could cost the company money through fines, etc. And the training people get from Compliance has been making people aware *they, personally* could face charges for their actions...
Executives very often *are* liable as individuals for what they direct their companies to do. For example, executives can go and have gone to jail for price-fixing. Fraudulent financial statements have always exposed an executive to criminal liability, and Sarbanes-Oxley further tightened the screws on this. There is also danger is making so many things so risky to the business and the individual that companies start looking more like government bureaucracies of the worst kind. Sarb-Ox has certainly greatly increased the costs of being a public company and encouraged many to stay private or to seel out to someone larger.
There does seem to be rational middle we're missing out on achieving. We don't want regulation to strangle business, as it does especially with small businesses; but we don't want our Federal agencies to be in league with the thieves, as they seem to be with the biggest firms. Somehow we've managed to do everything wrong.
The problem with (over)regulation, it seems to me, is a fundamental lack of governmental trust in the wisdom of the individual, or of groups of individuals acting more or less together.The concept of corporations (and of LLCs, etc) is to provide the company's officers with protection from civil liability--to protect them from errors of bad luck and of mistaken--even poor--judgment. They explicitly are not protected from criminal liability.Thus, it seems that regulations (some few of which are needed) that focus on transparency, so that an investor, including an individual stock buyer/seller, can know what he's buying and selling, would be optimal.This leads to an additional problem: things like SOX go too far in trying to achieve transparency by mandating minutiae (as well as goodies for the cronies)--which again denies the wisdom of the individual.Given a reg that says "be transparent" without the minutiae, an individual investor is fully capable of determining for himself whether he knows enough to make the investment. Or to have bad luck. Or to be stupid. Of course the rub is in drawing the line for a particular reg in the middle of that broad grey area between not enough and too much. For me, I'd rather shade it to the not enough side.Aside from government's inability to protect us from ourselves, it's also not government's role even to try. Or it didn't used to be.Eric Hines
A recent good book on the banking/government nexus is Bull by the Horns, by former FDIC chairman Sheila Bair.Thoughtful person, punches are not pulled.
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