How Culpable is Wall Street?

“The pressure on financial engineers . . . has been to compete to get new products out the door quickly, with their firms showing little patience for multi-year research and development. It’s too bad these new products could not be labeled “beta” . . . to warn that products are not fully tested and still need work.”

–Gordon Crovitz, “Time to Reinvent the Web (and Save Wall Street); The Wall Street Journal (2/9/09)

When the dust from the ongoing financial/credit crisis finally settles, the fundamental question society (and likely, judges and juries) must ask is, “did Wall Street commit financial manslaughter? Or is it guilty of something worse, like homicide?”

The difference goes not just to remedies and punishment, but to how we design our future financial system — the current one’s broken — and prevent recurrences of the current melt-down.

So what’s the difference between murder and manslaughter? The perpetrator’s intention, and state of mind.

If you’re speeding and driving drunk, and inadvertently veer off the road and kill a pedestrian, you’re guilty of manslaughter. You may not have intended the result, our legal system says, but the decision(s) you made and your subsequent actions created the risk of harm. As a result, we’re going to hold you accountable.

By contrast, murder requires premeditation. The gradations of murder — first degree, second degree, etc. — correspond to how cold and calculated (vs. impassioned and spontaneous) the actions were.

What’s all this got to do with Wall Street?

Clearly, Wall Street decision makers created a system with enormous risk . . . and it crashed. (I don’t buy the line that government is mostly responsible — when it comes to financial regulation, Wall Street pretty much gets what it wants. Or more accurately: blocks — or circumvents — what it doesn’t.)

The question is whether all the people at Citigroup, Goldman Sachs, AIG, Countrywide, Lehman Brothers, Fannie Mae, Freddie Mac, etc. who were essentially flooring the accelerator had reason to believe conditions were unsafe (watch for the incriminating e-mail’s).

P.S.: backing up over the victim — paying yourself billions in bonuses while the wreckage is still smoking — definitely tilts the scales towards premeditation.

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.
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