It is easier to pin down fraud at the bottom of this chain that at the top. The only senior mortgage banker so far to be convicted of a crime is Lee Farkas, the former head of a small mortgage lender, who was convicted in Virginia of fraud and conspiracy last month for writing fictitious loans to obtain cash collateral.
That is pretty black and white (black, in fact) and easy for a jury to understand. When one gets to the heights of the valuation and packaging of securitised assets that were deliberately complex in order to increase the fees for building and trading them, finding proof of wrongdoing is tougher.
Lehman Brothers, for example, was accused by David Einhorn, the hedge fund manager, of overstating the value of its balance sheet in the lead-up to its collapse in 2008. The court-appointed examiner last year reached different values for Lehman's mortgage and property assets but said there was sufficient ambiguity that it did not amount to fraud.
What is clear is that, both on the way up and in the panic on the way down, many banks valued and traded such assets for their own purposes and did their best to hunt out gullible buyers. The Senate inquiry report quotes a Goldman executive exulting that "I think I found a white elephant, flying pig and unicorn all at once" on finding an investor that would buy one of its collateralised debt obligations.
It beggars belief that somewhere on Wall Street, in the last days of the mortgage bubble, crimes were not committed. They are still worth finding.
David Fuller's view Go after the financial criminals and fraudsters, otherwise the excesses will be even worse in the next bubble.
I maintain that we should promote and encourage high ethical standards. They help to develop better companies, not least in the financial sector, and more efficient economies.