According to an article in the Huffington Post:
The subprime mortgage bubble popped more than five years ago, triggering a full-fledged economic meltdown. Since then, the question confronting regulators and government prosecutors has been whether the banks that drove the market’s expansion simply made terrible business decisions, or committed fraud in order to reap short-term profits.
The Securities and Exchange Commission, in a number of civil lawsuits, has alleged the latter (as a regulatory agency, the SEC cannot bring criminal suits). But with the exception of one failed case against Bear Stearns in 2009, the Department of Justice, which historically would lead any criminal effort, has declined to criminally prosecute those who created the financial instruments built out of toxic mortgage loans.
I can appreciate just how difficult it must be to ferret out wrong doing in such a complex environment, but perhaps sworn testimony from Timothy Geithner could be useful. Per the Wikipedia: “In October 2003, at age 42, he [Timothy Geithner] was named president of the Federal Reserve Bank of New York.” And, again per the Wikipedia, that gave him responsibility to keep informed of the “general character” of New York’s “member banks”:
This policy is described in United States Code:
Each Federal reserve bank shall keep itself informed of the general character and amount of the loans and investments of its member banks with a view to ascertaining whether undue use is being made of bank credit for the speculative carrying of or trading in securities, real estate, or commodities, or for any other purpose inconsistent with the maintenance of sound credit conditions; and, in determining whether to grant or refuse advances, rediscounts, or other credit accommodations, the Federal reserve bank shall give consideration to such information. The chairman of the Federal reserve bank shall report to the Board of Governors of the Federal Reserve System any such undue use of bank credit by any member bank, together with his recommendation. Whenever, in the judgment of the Board of Governors of the Federal Reserve System, any member bank is making such undue use of bank credit, the Board may, in its discretion, after reasonable notice and an opportunity for a hearing, suspend such bank from the use of the credit facilities of the Federal Reserve System and may terminate such suspension or may renew it from time to time.
The punishment for making false statements or reports that overvalue an asset is also stated in the U.S. Code:
Whoever knowingly makes any false statement or report, or willfully overvalues any land, property or security, for the purpose of influencing in any way…shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.
These aspects of the Federal Reserve System are the parts intended to prevent or minimize speculative asset bubbles, which ultimately lead to severe market corrections.
So, Geithner should be asked whether his inability to notice that: “undue use [was] being made of bank credit for the speculative carrying of or trading in securities, real estate, or commodities, or for any other purpose inconsistent with the maintenance of sound credit conditions” was due to his personal incompetence or to the fact that someone made “false statements” to him.