Criminal acts did not play an important role in causing the mortgage crisis, according to an opinion piece in the Wall Street Journal written by Gordon Crovitz, a former publisher of the Journal. In Crovitz’s view, critically flawed policies and rules in the U.S. and abroad did so, and set the stage for the global shocks we see today. Crovitz did not say that crimes did or did not occur; he said that bad regulations were “worse than a crime.” (“Financial Regulation: Worse Than a Crime,” Wall Street Journal, Opinion). Other informed observers believe the subject of Wall Street crime is a very serious matter.
There is no doubt that, as Crovitz says, policies that subsidized bad mortgages in the U.S. and shaky European sovereign debt, and the “Basel rules” that called for big banks to place significant amounts of capital in investments like mortgages and mortgage-backed securities, were based on unwarranted assumptions that those investments were low-risk. When they imploded, many banks that held the same undiversified bad investments went down too. Crovitz concludes: “The reason prosecutors can't prove criminal intent is that in many cases the bankers were simply trading in compliance with the regulations governing them.”
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