During and after the housing bubble
During the events that were leading to the financial crisis, there have been people in the financial industry that have been predicting the crisis and explaining what was happening and why.
Meredith Whitney was a financial industry executive who predicted that Bear Stearns and Citigroup would have serious problems. In 2007, she published a very pessimistic report about Citigroup. In the report she has pointed out that the dividends that the bank was paying to its shareholders were larger than the profits of the bank and if the trend were to continue, it would lead to the bankruptcy of the institution. Because of her predictions, Whitney appeared on the cover of Fortune magazine in 2008. Later, in 2010, Whitney has also predicted the municipal bonds crisis that occurred exactly in the way she described it.
James Mai and Vincent Mai have created a company Cornwall Capital that has betting against the bullish market. Because of this, they were able to turn a little over $100,000 into a fortune equaling $120 million. Because of this, the company received attention from Michael Lewis, who has devoted to it a large part of his book The Big Short, in which he described what has been happening with the market of the credit swap during the bubble and during the unfolding of the crisis. Later, Paramount bought the rights to the book and created a movie under the same name based on the book.
Actions by the United States government
According to an article in The Atlantic from September of 2015, the total number of banks and other financial institutions that have paid fines to the government between 2009 and 2015 was equal to 49. The total amount that they have paid in fines and settlements was $190 billion. This number may seem to be large, but it is important to remember that the figure doesn’t come from the pockets of people who were making bad decisions and earning large salaries and bonuses. It was the shareholders of the companies who have ultimately paid the fines, not the chief executive officers, other board members or analysts that were making erroneous decisions.
For example, after Chase Bank in 2014 has settled an investigation with the United States Department of Justice, the chief executive officer of the bank, Jamie Dimon, not only didn’t get fired but actually receive a raise of 74% with his salary surpassing $20 million a year.
The total number of Wall Street executives that have been incarcerated for their actions during the bubble has been one. In Switzerland and other countries soccer executive and cycle championship executives would face charges and get arrested because of the matters that impact only a small number of people, yet there has been only person in the United States that the government held accountable. The name of the person is Kareem Serageldin. Kareem has been a senior trader and served a 30-months sentence. Other than him, nobody went to jail for their action. The Justice Department has chosen a simple strategy that it used with all the banks: it threatened public disclosure of the findings and then agreed to keep everything sealed in exchange for large fines. Nobody went to jail, nobody was arrested, held accountable, or publicly shamed.
Both the Attorney General of the United States at the time, Eric Holder, and the U.S. Attorney for the Southern District of New York at the time, Preet Bharara, have made multiple statements about this fact. They said that they tried proving guilt of individuals, but could not do so because actions of bankers were not about fraud and misconduct but about recklessness and poor judgement, which are not legally enforceable crimes.
The concept of “too big to fail” has played its role here, too. Eric Holder issued a memorandum in 1999 and in the memorandum he talked about the dangers of prosecuting big banks. According to the Holder, prosecution could lead to unintended collateral consequences such as corporate instability and instability of the markets as a result of personal prosecutions and potential arrests of high profile executives in the finance industry.
Lanny Breuer, the person in charge of the criminal division of the United States Justice department, said during a speech in 2012 that when filing the charges, the Justice Department was considering a number of factors beyond guilt, including the health of the industry, the importance of a company and the conditions of the markets.