Why no one is going to jail for the banking crisis

Discussion in 'The great financial debates' started by Brendan Burgess, Sep 23, 2011.

  1. Brendan Burgess

    Brendan Burgess Founder

    Fergus O’Rourke has an interesting, although long-winded, series of five(and counting) articles on his excellent blog “Why they should not be arrested” As I agree with his general point, I have encouraged him to write a shorter snappier piece and publish it to counter the general view that “someone should go to jail for the mess that we are in”. He suggested that I publish it myself, so here goes… These are my views and not intended to be a summary of his.

    A good example of an informed commentator making the call to jail the bankers was in last week’s Sunday Business Post. Dr Joe McGrath of NUI Galway had an excellent article Making the punishment fit the corporate crime is the top priority He sets out the criteria used by judges for imposing prison sentences and questions whether these are appropriate for white collar crime. But he finishes his article with the following
    There is simply no evidence whatsoever of crimes having contributed to the banking crisis in Ireland.

    People are prosecuted for crimes – drunken driving, assault, rape, robbery, fraud, tax evasion, pushing drugs etc.

    Where the judge deems it serious enough, they are sent to jail.

    Errors of judgment, greed, stupidity, arrogance and incompetence are not crimes.

    Carelessness and recklessness are not usually crimes unless specifically deemed as such by legislation e.g. reckless driving causing death.

    Breaches of the Companies Act or the Central Bank regulations usually result in fines and disqualifications, but rarely jail sentences.

    It was greed, stupidity, arrogance, incompetence and recklessness which caused the banking crisis. It wasn’t fraud or dishonesty.

    Bankers the world over got caught up in reckless lending. There were only a few exceptions.
    Consumers the world over borrowed recklessly. There were many exceptions.
    Regulators the world over failed to regulate them properly. There were only a few exceptions.
    Politicians the world over failed to intervene. There were only a few exceptions.

    The Irish people are paying a heavy price for the collapse of the banking system. But this is due to the greed, stupidity, incompetence and recklessness of many people. I have seen no evidence that fraud or dishonesty paid any significant part in it.

    It’s possible that some of our top bankers have been involved in fraud or theft. It has been alleged that some loans were made non-recourse when it was known that the banks were in trouble. Some other allegations have been made and are the subject of Garda investigations. But these were not the cause of the banking failure. If bankers or anyone else were involved in fraud, they should be prosecuted. If the fraud was serious, then the judge will decide whether a jail sentence is warranted.

    Take Michael Fingleton for example. Some years ago, I put down a motion of no confidence in him as Chief Executive of the Irish Nationwide. I did not consider him a fit person to run a financial institution. With the additional information we have now, I think he can be fairly described as greedy, stupid, incompetent and reckless. However, his board and the Financial Regulator knew what he was doing and didn’t stop him. But I have seen absolutely no evidence that he has committed a crime – small or large.

    The Anglo lending spree was fully supported by its board. The Financial Regulator was fully aware of it. It was stupid, incompetent and reckless, but it was not criminal.
    Seán Fitzpatrick borrowed money from Anglo. This was foolish but not illegal. Hiding the loans by warehousing them in the Irish Nationwide was wrong. I don’t know enough about the circumstances to know if he broke any law. Even if he did, it certainly was not the cause of the collapse of Anglo.

    The Irish people have suffered due to the banking collapse. This does not justify criminalising the bankers or the politicians.
  2. Mpsox

    Mpsox Frequent Poster

    I always thought that under the Companies act, if you deliberately provide false information to the auditors that you could be jailed for that. If the banks deliberatley provided wrong information to NAMA or if directors did not disclose some of their deals, could that qualify as providing false information and if so, why not jail them?
  3. Brendan Burgess

    Brendan Burgess Founder

    Hi MP

    I don't know whether or not the Acts say that. If they do, and the judges consider that the offences merit jail sentences, they should go to jail.

    However, none of the offences you mention caused the banking crisis.

  4. DB74

    DB74 Frequent Poster

    TBH Brendan, it's not so much the not-going-to-jail thing that bothers people so much

    It's more the fact that a lot of the bankers, politicians, & builders are feeling no pain whatsoever in these times.

    We see the Bertie Aherns, Brian Cowens, Mary Harneys etc quitting politics on massive pensions & benefits having overseen the vast majority (if not all) of incompetent legislating and enforcement that epitomises their tenure in office.

    We see former "millionaire" builders hiding behind the veil of corporate limited liability, being able to liquidate their companies to the detriment of the small builders while still living in massive mansions & driving big cars and now they are being paid to run their bankrupt empires and being paid good salaries to do so, all from the public pocket.

    We see bankers who oversaw all the lending to the builders etc transferring valuable assets to spouses, thereby leaving the legal system with seemingly no recourse to collect any money that they previously borrowed from the institutions that they were running.

    I don't care whether people go to jail or not but I do want to see pain being suffered by the people at the top because there is a hell of a lot of pain at the bottom.
  5. Brendan Burgess

    Brendan Burgess Founder

    It might or might not be. Again, it was not the cause of the banking crisis.

    If this transaction was done with the approval or the encouragement of the Financial Regulator, it would be very hard to send someone to jail for it. I don't know if this is the case or not.
  6. Brendan Burgess

    Brendan Burgess Founder

    I agree with some of what you say. But I am primarily trying to explain why people are not going to jail for the banking collapse.

    ANORAKPHOBIA Frequent Poster

    If this was the case surely the first person to find themselves slopping out every morning should be the said regulator.
  8. Mpsox

    Mpsox Frequent Poster

    Is "I was only following orders" a legitmate defence?
  9. LDFerguson

    LDFerguson Frequent Poster

    It occurs to me that the actions of certain bankers has enriched them and left an awful lot of people poorer.

    It's true that the process by which they did this is not nearly as clear cut as stealing or fraud. It has been said, it wasn't necessarily one single action that caused it, or one individual. It can even be argued that the bankers didn't intentionally set out to cause other people to be poorer by their actions. But some of them were guilty of actions that were certainly "wrong" and possibly illegal, such as warehousing loans to hide from their auditors, reckless trading etc.

    So if the result was the same and there were some wrong actions committed, surely the law has flexibility to dole out more severe punishment than would be normal for other white-collar crime? In other words, if a banker is convicted of some technical white-collar offense for warehousing a loan, could the punishment not be far more severe than would be normal for this offense, given the disastrous results it contributed to?

    As parallel, if I get caught for speeding I will get a fine or penalty points. But if I injure or kill someone because I was speeding, I presume my punishment would be far more severe because of the effects of my actions, even though it was never my intention to hurt anybody. (I'm not comparing the two for any other purpose than to illustrate my point, by the way.)
  10. onq

    onq Former user

    The OP and articles referred to therein appear to be apologia for those who perpetrated the current economic crisis.

    I am of the firm opinion that we must seek to hold accountable people who represented themselves as and were paid as professionals who enriched themselves by giving improper advice.

    Where a great wrong has been committed, and where negligence, non-disclosure and incompetence occurred at the time and subsequently, justice must be done and must be seen to be done.

    If the government does not at least pursue the so far unperturbed main actors in this affair at the same time as imposing draconian budgets, the government will betray the trust of the electorate.

    A government rules with the consent and support of its citizens - this one was elected on a promise of change - abusing that faith leads down the road to a divided society, civil disobedience and anarchy.

  11. Bronte

    Bronte Frequent Poster

    If this were Amercia we won't be even having this debate.


    Because most of them would have had at the very least been asset stripped and plenty would be in jail.
  12. Bronte

    Bronte Frequent Poster

    Is recklessness not dishonesty? Is transferring assets to your spouse not a fraud, in order for your creditors not to get paid. That's tickedy boo in Ireland but in the US, David Drumm, they are taking a whole different view point. Why is that, that is what we should be asking.
  13. Bronte

    Bronte Frequent Poster

    On a final note, as this topic will send me over the edge, why don't we look at reasons why they should go to jail, not why they should not go to jail.
  14. Brendan Burgess

    Brendan Burgess Founder

    It may or may not be depending on the circumstances and the time when it happened.

    However this thread is about why no one is going to jail for the banking crisis.

    Transferring assets did not cause the crisis.
    Lending Seán Fitzpatrick €100m did not cause the crisis.
    Not disclosing it in the accounts did not cause the crisis.

    As I said in my original post

    If people were involved in fraud or theft, they should be prosecuted for it.

    But it was bad lending decisions which caused the banking crisis and these decisions are not criminal offences.
  15. DerKaiser

    DerKaiser Frequent Poster

    Shareholders, debtholders & depositors supplied large amounts of capital to the banks. There was no point in banks sitting on capital so they went out and did bad deals. This was because there was far more liquidity supplied than could reasonably be used to do good deals.

    Did the banks deliberately cook the books?

    Yes. They fudged loans to directors in the accounts and they masked the state of the deposit base.

    As far as I know this is an illegal misrepresentation of the accounts. Such misrepresentation helped their flow of credit to continue enabling them to lose more and more i.e. deliberate accounting misrepresentation was a significant driver of the banking crisis.

    Also, they artificially propped up their share price through non-recourse loans to fund share purchases. I'm again open to correction but was led to believe this is illegal.
  16. Brendan Burgess

    Brendan Burgess Founder

    Hi DerKaiser

    These all refer to Anglo and not to any of the other lenders. These happened well after the crisis had hit. They did not contribute to the banking crisis. Whether these were done or not, Anglo would have gone bust.

    As I said in my first post

  17. Ceepee

    Ceepee Frequent Poster

    The most high-profile cases in America are different for two reasons in particular, as I see it:

    1. Plea-bargaining: John Rusnak, for example, pleaded guilty to lesser charges in order to avoid a possible maximum 30 year jail term. Pleading guilty meant the burden of proof on the prosecution was for obvious reasons less onerous, but the extraction of a guilty plea was seen as a success, and a satisfactorily speedy one at that. Michael Milkin, the Junk Bond King, also plea-bargained. We don't have that system here - instead, the DPP can only instruct a prosecution of there is sufficient evidence.

    2. Evidence: individual rogue traders, once exposed, have nowhere really to hide, as trades can then be traced back to reveal the scale and length of the deception. But identifying who moved what in Anglo seems to be still under investigation. And unlike certain senior executives who attract a lot of public ire, Bernie Madoff pleaded guilty once he realised the game was up.
  18. Brendan Burgess

    Brendan Burgess Founder

    Rusnak, Millkin and Madoff did not cause the banking crisis. They were just plain fraudsters who were convicted and jailed.

    We haven't had that scale of fraud in Ireland, but fraudsters have been jailed. They are less high profile, so they get less media attention.
  19. DerKaiser

    DerKaiser Frequent Poster

    But someone should still go to jail - It doesn't matter that these weren't the acts bankrupted the country.

    In any case they are symptomatic of the general reckless behaviour (legal or not) and it won't matter to us whether the specific act of recklessness punished had any macro impact. Kind of like being booked for persistent fouling, the booking might not relate to the worst of your misdemeanours but you certainly deserve it.

    Also, the more recent dodgy transactions that are in the public domain are unlikely to be one-offs, but that's just speculation.
  20. bullworth

    bullworth Frequent Poster

    +1 . Followed by any member of government who can be proven to have pressured him not to regulate.

    Question : Did the regulator do his job or not yes or no ?

    Question : Did the government of the day over their decade in power interfere in the work of the regulator ?

    They and others contributed to our problems though. You're never going to find just one person to blame unless you look right to the top but even there I believe there is such a thing as collective cabinet responsibility.