Making Sense of the Credit Debacle

Shocking Lack of Accountability
E-mail debates of newsworthy topics.
March 3 2009 2:09 PM

Making Sense of the Credit Debacle

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I am going to have to agree with Jesse that part of the issue driving this collapse was the complete lack of fear of ramifications on the part of those bending the rules to suit their personal goals. I remember 11 years ago, when I wrote a story for Money magazine about simple broker fraud, being shocked by the realization that even the most egregious violations of trust—churning someone's account into oblivion, for example—more often than not resulted in a nonadmission of guilt and a three-month suspension from the markets. We still have much the same situation today despite high-profile imprisonments of Dennis Kozlowski, Jeff Skilling, and Conrad Black. And it means that people are still willing to break the rules with relative impunity. I do think you're wrong, Gillian. The white-collar class in this country does not relish the idea of spending time in the slammer. Send a few lower-level types to prison—Bear Stearns' Ralph Cioffi, for example, if he's found guilty of fraud—and you're going to do a lot more than merely shame one person.

Accountability, too, is something that's been in short supply. How it is that none of the boards of directors of these failed firms has been found personally liable—isn't that the whole idea behind fiduciary responsibility in the first place?—is amazing to me. They either turned a blind eye or didn't bother policing that which they were supposed to, and we've allowed to let them merely resign? I wrote about Conrad Black's fall for Vanity Fair a few years back, and I thought it particularly telling that high-profile names like Henry Kissinger and Marie-Jose Kravis were allowed to simply "resign" from the board when the shit really hit the fan. They were asleep at the switch and let a rogue CEO literally steal from shareholders. After taking several years of ridiculous payments for their troubles, they'd just decided they'd had enough? I'm not sure this kind of lack of oversight merits imprisonment, but it could surely result in disgorgement of those directors' fees, at the very least, if not a higher level of personal liability.

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As for the rating agencies, what I find sad about that is that they were ultimately the patsies of the investment bankers they worked for. And for what? Those analysts don't make Wall Street salaries per se—they're closer to the level of government salaries, if I have my details right. It's like that unfortunate category of business journalists who have a knee-jerk reaction to defending business interests in any particular conflict. Why? Because they believe in the system itself and feel any individual threats to its reputation put the whole thing at risk? The financial world took this free-market force field that so many people helped put around it and damn near blew itself to smithereens. And they did it with no small dose of help from the likes of the Wall Street Journal's editorial page.

I do think we should, though, have some sympathy for the majority of those working at the SEC and the like. Putting aside the case of the roadblocks put in place by the last administration, I have found most people I've interacted with at the SEC over the years to be truly decent people trying to do a tough job against crazy odds. It is amazing, though, how people like Harvey Pitt find their way in and out of these revolving doors. The man represented Ivan Boesky, for God's sake. While I agree with the idea that everyone deserves a hearing (actually, I don't, but let's pretend I do), I find it hard to believe that we don't have less conflicted people around who might do a good job running the agency.

Greenspan, what can I say? He got away with proffering up his ridiculous economic mumbo-jumbo in front of the American people for his nearly 20-year tenure because the money we were all making made us want to believe he was actually a true wise man. It's clear in retrospect—ask Bill Fleckenstein if you want the details—that he was not only unwise but reckless in the extreme. What baffles me is that the man won't actually just go quietly off into the wilderness at this point. He thinks somebody is still listening. I wonder who that might be.

Duff McDonald is a contributing editor at New York and Portfolio and is completing a biography of Jamie Dimon of JPMorgan Chase.

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