"Inside Job" and bank criminality

A little over a year ago, I posted a Quote of the Week (and also this follow-up) from Charles Ferguson, the director of the Oscar-winning documentary "Inside Job". Ferguson was complaining about the lack of prosecutions of fraud committed by financial executives, a topic I've also discussed here more times than I can remember.

However, until this week, I hadn't actually watched the documentary—not until Barry Ritholtz tipped me off to the presence of the entire movie on Vimeo. I'd avoided "Inside Job" in part because I (arrogantly and incorrectly) thought that I had read and learned everything there was to know about the financial crisis already, and figured that the film probably didn't have much new to add to the discussion. How wrong I was.

The greatest compliment I can give to any non-fiction piece is that it's worth reading even if you think you already know everything about the topic in question—that certainly applies here. "Inside Job" provides incredible access to a who's who of characters in the mess that is our financial system, from economists to bankers to politicians and everyone in between. Ferguson pulls few punches, and he is particularly harsh with respect to the (role of the) academic world, including my alma mater.

Like many pieces on the topic, I think "Inside Job" is a little too forgiving of the borrowers who made the real estate bubble possible, but that's certainly nothing new here (and I've discussed that dynamic before as well). All in all, though, if you haven't yet watched the doc, I highly recommend it. It does a great job of showing just how ugly things have been behind closed doors at our banks, and also how this financial crisis is far from over—in fact, it may still be in its early stages.


Inside Job, Narrated by Matt Damon (Full Length HD) from jwrock on Vimeo.

But if you don't have the time to watch the film, and you somehow still doubt my assertions that banks continue to commit crimes that have systematically gone unpunished... just read this little post (also courtesy of Barry Ritholtz) and be done with it. In fact, I'll just go ahead and reproduce the whole thing right here.

Here are some recent improprieties by the big banks:

- Laundering money for drug cartels. See this, this, this and this (indeed, drug dealers kept the banking system afloat during the depths of the 2008 financial crisis)

- Laundering money for terrorists

- Engaging in mafia-style big-rigging fraud against local governments. See this, this and this

- Shaving money off of virtually every pension transaction they handled over the course of decades, stealing collectively billions of dollars from pensions worldwide. Details here, here, here, here, here, here, here, here, here, here, and here

- Charging “storage fees” to store gold bullion … without even buying or storing any gold. And raiding allocated gold accounts

- Committing massive and pervasive fraud both when they initiated mortgage loans and when they foreclosed on them (and see this)

- Pledging the same mortgage multiple times to different buyers. See this, this, this, this and this. This would be like selling your car, and collecting money from 10 different buyers for the same car

- Cheating homeowners by gaming laws meant to protect people from unfair foreclosure

- Committing massive fraud in an $800 trillion dollar market which effects everything from mortgages, student loans, small business loans and city financing

- Engaging in insider trading of the most important financial information

- Pushing investments which they knew were terrible, and then betting against the same investments to make money for themselves. See this, this, this, this and this

- Engaging in unlawful “frontrunning” to manipulate markets. See this, this, this, this, this and this

- Engaging in unlawful “Wash Trades” to manipulate asset prices. See this, this and this

- Otherwise manipulating markets. And see this

- Participating in various Ponzi schemes. See this, this and this

- Charging veterans unlawful mortgage fees

- Cooking their books (and see this)

- Bribing and bullying ratings agencies to inflate ratings on their risky investments

The executives of the big banks invariably pretend that the hanky-panky was only committed by a couple of low-level rogue employees. But studies show that most of the fraud is committed by management.

Indeed, one of the world’s top fraud experts – professor of law and economics, and former senior S&L regulator Bill Black – says that most financial fraud is “control fraud”, where the people who own the banks are the ones who implement systemic fraud. See this, this and this.

But it's all okay, because Wall Street is our Main Street, love 'em or hate 'em, right? Bullshit.

That list should just about do it for the "banks never committed any crimes" line of argument, forever. So, watch "Inside Job" if you haven't already—and even if you have, watch it again. It's worth it.

[Barry Ritholtz]
[Max Keiser]

Quote of the Week

This week's quote comes from the world of Hollywood, a town which never seems to have a shortage of notable quotables (and strongly worded opinions). Since this Sunday was the night of the annual Academy Awards presentation (congrats to Natalie, my college classmate and a well-deserved winner), there was of course ample opportunity for the stars to come through. And come through they did.

But given that I'm a financial nerd, I decided that the most memorable line of the night belonged to Charles Ferguson, director of "Inside Job", the documentary on the 2008 financial crisis. Ferguson used his bully pulpit to make a statement that he felt important, echoing Matt Taibbi's sentiments from two weeks ago.

This week's QUOTE OF THE WEEK

"Forgive me, I must start by pointing out that three years after our horrific financial crisis caused by financial fraud, not a single financial executive has gone to jail, and that's wrong."
        - Director Charles Ferguson, in his Best Documentary Academy Award acceptance speech

As Ferguson noted in his post-Oscars interview with the Wall Street Journal, not only have no executives been jailed, but none have even been prosecuted. The reasons are varying and vague, and most of the justifications have to do with an unwillingness to "spook" the markets. Any action that might threaten to do harm to big banks' stock prices must, it seems, be cleared on high, and such clearance has apparently been impossible to acquire.

Ferguson recognizes that the financial industry has become so politically powerful--both by proxy and by direct campaign contributions--as to "inhibit the normal process of justice and law enforcement". That's a problem. Even Bernie Madoff understands that.

[Wall Street Journal]