The trial promises to be a bitter fight between prosecutors, who accuse the pair of lying and manipulating evidence, and defence lawyers, who say the men are being made scapegoats for a financial crisis that was not of their making. The outcome could also be a harbinger of things to come, as the US Justice Department considers bringing cases against even bigger fish on Wall Street.
“This is not a revenge opportunity,” the 75-year-old judge, Frederic Block, had told prospective jurors. Neither Mr Cioffi nor Mr Tannin is charged with “causing” the credit crisis. They are charged with behaving dishonestly when the crisis began to break. The pair were traders in mortgage securities, curators of two hedge funds that invested in debt which is now known to have been toxic but which had seemed to promise great riches. They worked at the long end of the chain that stretched from overheated housing markets in the south and west of the US, where millions of buyers were tempted into taking on mortgages they could not afford.
Those mortgages were sliced and diced by Wall Street and turned into securities which could be bought and sold as if they were shares. Credit rating agencies had certified the Bear Stearns funds’ mortgage derivative portfolio as super-safe; the defendants’ superiors at Bear Stearns and the funds’ outside investors believed they were taking little risk. The question is when the two managers realised this was far from true.
There is no question that there are a lot of people who should go to jail for what has occurred…greed beyond belief, fraud, and breach of more fiduciary duties than one can shake a stick at.
Having been heaviiy involved in the situation for many years as the CEO of a national not for profit consumer advocacy organization, what my associates and I cannot figure out is why it appears no one is going after the National Association of Realtors, the mega real estate brokerage firms and even smaller ones that have extraordinary conflict of interest laden “in-house” mortgage companies and whose real estate licensees directed buyers to their own company’s mortgage company even though those licensees were contractually bound to look out for the buyer’s best interests in a fiduciary manner and allowed those buyers to enter into mortgages that any realtor with even minimal skills knew would be detrimental to the best interests of their client, the buyer? Most mega brokerage firms make more money from their “in-house” mortgage companies than from commissions on sales of real property.
Also what about all the predatory lenders? It is well known in the trade that there is considerable street money involved and mortgages are a most convenient way of laundering funds.
In the early 90’s during the Clinton Administration, we warned that FannieMae, FreddieMac et al were a house of cards that could tumble at any moment and put the entire United States economy in peril.
And what about the prosecutions of the heads of these organizations and those who knew or should have reasonably known what was going on and permitted the collapse to occur, interested only in their own self-enrichment to the severe detriment of each and every one of us and the stability of our very Nation?
What about the politicians who pushed legislative real estate financing programs through in order to solicit votes from people who they knew would not be able to meet the terms of the mortgage instruments, including “no doc” loans?
And, lastly, what about buyers who knew in their hearts that they would not be able to meet their monthly payments, yet took the grants and free incentive monies and now are double dipping to be bailed out of their own folly?
There are a lot of people responsible for what has transpired.
They all need to be held accountable for their actions and failures to act.
So far, unfortunately, it looks like the whole truth will not be widely told.