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An institutionalized system of skewed incentives allowed Wall Street bankers and other corporate executives to gamble with America's wealth and then get away largely scot-free after the house of cards came tumbling down, plunging the U.S. into the worst economic crisis in decades and destroying trillions of dollars of wealth worldwide.

That's the analysis of Joseph Stiglitz, an internationally renowned economist and winner of the 2001 Nobel Prize in economics. (His latest book, Freefall: America, Free Markets, and the Sinking of the World Economy, is just out in paperback.)

During a wide-ranging interview with DailyFinance at AOL headquarters in New York City this week, Stiglitz, who served as chief economist of the World Bank from 1997-2000 and is currently University Professor at Columbia University, explained how the availability of cheap money (thanks in large measure to former Fed Chairman Alan Greenspan), combined with outright mortgage fraud and deceptive and predatory lending practices put millions of people into homes they couldn't afford and caused real estate prices to skyrocket. That created a bubble that would inevitably pop. (See video below, or read the full interview transcript.)

"Festering For Years"

"We have to understand that the problems have been festering for years, not just the last three years," said Stiglitz. "In the years prior to the breaking of the bubble, the financial industry was engaged in predatory lending practices, deceptive practices. They were optimizing not on producing mortgages that were good for the American families but in maximizing fees."

Meanwhile, stock-based compensation created further skewed incentives by encouraging executives to pursue short-term stock gains at the expense of long-term corporate sustainablity, Stiglitz said, and in some cases encouraged them to deceive their own shareholders.

Highly complex financial instruments and off-balance-sheet transactions allowed the bankers to keep much of their activity hidden from woefully understaffed regulators at the SEC and other supposed financial watchdog agencies. And if the regulators did catch some fraud, Stiglitz explained, the system of penalties generally meant a small fine relative to the full ill-gotten gains, often in the hundreds of millions of dollars.

"Still Home Sitting Pretty"

Legal penalties for financial fraud in the U.S. have become "just a cost of doing business," Stiglitz said. "It's like a parking fine. Sometimes you make a decision to park knowing that you might get a fine because going around the corner to the parking lot takes you too much time."

"We fine them, and what is the big lesson?" said Stiglitz. "Behave badly, and the government might take 5% or 10% of what you got in your ill-gotten gains, but you're still sitting home pretty with your several hundred million dollars that you have left over after paying fines that look very large by ordinary standards, but look small compared to the amount that you've been able to cash in."

Taken together, Stigliz said, this system of widespread fraud, lax regulation and non-deterrent enforcement, created a system of skewed incentives that rewarded criminality, gambling and other bad behavior, and left American workers, investors and homeowners holding the bill.

Meanwhile, the astonishingly disproportionate influence of the big banks and corporations on the American political system has allowed powerful executives to exert their will on the U.S. government at the expense of the people, Stiglitz said.


Source > http://www.dailyfinance.com/story/investing/joseph-stiglitz-corporate-crooks-to-jail/19684353/


Yeah, like that will happen. :rolleyes:
 

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I didnt know you buy into this viewpoint.

Good article.


Great read.

We can always wish.....
 

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Those evil Capitalists!!!

How about imprisoning the dirty politicians that set up the system to promote it? :thumbsup:
 

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...just another smoke blower, why not get out there an do
something besides sitting back and writing a book about
it while drinking Margaritas with those little umbrellas...:crazy:

.."2001 Nobel Prize in economics"....:lookinup:...what was
he doing when the straw was breaking the camels back...:huh:
 

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Those evil Capitalists!!!

How about imprisoning the dirty politicians that set up the system to promote it? :thumbsup:
What those guys do, is far from capitalism. In fact, it's anti-capitalism, because the game redistributes the wealth to a privileged few.

Put the ****ers in jail, for a very long time, along with their Chris Dodds.
 

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Probably the same thing a lot of people were doing, warning about it and being ignored.
It might be a good idea to show that they broke the law first. They were simply doing Congress' bidding in handing out those mortgages. I'm amazed at the term Predatory. Everyone wanted these loans made - congress, the banks, the realtors, and the buyers. No one tricked them into taking these loans.
 

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It might be a good idea to show that they broke the law first. They were simply doing Congress' bidding in handing out those mortgages. I'm amazed at the term Predatory. Everyone wanted these loans made - congress, the banks, the realtors, and the buyers. No one tricked them into taking these loans.
But, who owns congress? ;)

Congress does the bidding of their bosses. Why do you think good men go to congress and become corrupt assholes? It doesn't take many, to create huge messes like this. It was bi-partisan as well.. the whole ordeal was out and out theft, by design, to benefit a few.
 
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