This army of nerds was rarely flamboyant or even public about its endeavors despite the mansions and Maseratis they bought with ill-gotten gains. For years, their convoluted schemes were perceived as insider baseball, as exciting as a graduate economics seminar.
Boring, boring, boring.
And yet, as former federal bank regulator William Black explains, as quoted on the financial website Naked Capitalism, "massive fraud is what caused the economic crisis. As one example, he explains that everyone involved knew that the CDOs that packaged subprime loans were not AAA credit-worthy (which means that they are completely risk-free). He also said that the exotic instruments (CDOs, CDS, etc.) that spun the mortgages into more and more abstract investments were intentionally created to defraud investors." His conclusion: "The entire strategy is to keep people from getting the facts." This enterprise was also complicated because it connected several separate industries into a chain of criminality stretching from community-based mortgage brokers and appraisers to investment bankers and ratings agencies to insurance companies like AIG skilled in the arts of leveraging a housing bubble into a global crisis that led to losses of trillions.
For my film on financial crime, I turned to a convicted white-collar criminal for insight, Sam Antar, once the CFO of the long-closed Crazy Eddie, an infamous New York electronics chain. He admits he and members of his family stole millions until they were caught.
Of the financial crisis, he says:
"This crime has been ten, fifteen years in the making. It's been going on. We're only finding out about it for one specific reason: the tanking economy. Imagine if the economy didn't tank? Imagine if this was allowed to go on for four or five, six, seven years? Imagine how big it would've gotten then?"
"How did they get away with it?" I asked.
"The white-collar criminal has no legal constraints. You subpoena documents, we destroy documents; you subpoena witnesses, we lie. So you are at a disadvantage when it comes to the white-collar criminal. In effect, we're economic predators. We're serial economic predators. We impose a collective harm on society."
Moreover, he said many "legitimate" businessmen are, at heart, opportunists and will break the law when they think they can get away with it or when they are feeling pressure to drive up revenues.
What are some of the crimes they commit?
- Fraud and control frauds. Control frauds start at the top with CEOs seizing control of their companies from Boards and then driving up share values with speculative investments while increasing their own compensation and bonuses.
- Insider trading
- Theft and conspiracy
- Ponzi schemes
- False accounting
- Bilking investors, customers and homeowners
- Conflicts of interest
- Mesmerizing regulators
- Manipulating markets
- Tax frauds
- Making loans and then arranging that they fail
- Misleading the public
Financial frauds and other crimes are on the rise in the United States, reports The Economist: "Over 730,000 counts of suspected financial wrongdoing were recorded in America last year, according to recent data from the Treasury Department's Financial Crimes Enforcement Network. Institutions such as banks, insurers and casinos are required by law to report suspicious activities to federal authorities under twenty categories.
No wonder Senator Ted Kaufman insists fraud is behind the whole crisis but, so far, the financial reformers in Washington, The White House, most of the media and even the progressive movement have downplayed the issue even as far more Banksters went to jail in the S&L years than now.
Today, some on Wall Street are calling for justice. In an interview with the New York Observer, billionaire Jim Chanos said, "I don't know why there haven't been any [perp walks] yet, but it's amazing that it's taken them this long. We've known about Lehman's books since late 2008, but we just needed it confirmed by someone who wasn't a short seller, since we're not to be trusted.... We've known something was wrong with their books since the collapse."Writes financial blogger Edward Harrison at Credit Writedowns, "Three years after the subprime crisis first hit and eighteen months after Lehman's bankruptcy there haven't been any arrests, any indictments, nor any convictions at major banks. How do you lose trillions of dollars in the most lax regulatory environment without somebody, somewhere, at some time lying or stealing? It makes no sense."