Bear verdict should cheer Wall Street

November 10, 2009

Ralph Cioffi and Matthew Tannin aren’t the only ones letting out a big sigh of relief.

All across Wall Street, anyone who played a role in the financial crisis is cheering today’s acquittal of the former Bear Stearns hedge fund managers.

The quick verdict by a federal jury in Brooklyn will send a chilling message to other prosecutors looking to hold Wall Street executives responsible for the events that sparked the Great Recession.

Somewhere out there, Joe Cassano, former top executive of AIG Financial Products, must be chuckling to himself. That’s because it has just gotten that much harder for federal prosecutors to argue that his group’s peddling of tens of billions of dollars of credit default swaps — insurance on subprime-backed securities — was some kind of fraud on the market.

Now one can argue that the criminal case against Cioffi and Tannin was dealt a blow when the judge in the case refused to let prosecutors introduce some potentially damaging emails into evidence. But the biggest problem with the case against Cioffi and Tannin is that they committed the same sin as everyone else on Wall Street: They bought into the magic surrounding esoteric securities built on a mountain of subprime mortgages.

Cioffi and Tannin were no different than the folks at Merrill Lynch, Citigroup, Lehman Brothers and Bear Stearns itself — all of whom got greedy on the easy money that was made off of collateralized debt obligations and other subprime-related securities.

Of course, Cioffi, Tannin and everyone else deceived themselves in believing the housing party would never end. And none of them had a plan for surviving a downturn in the housing market, nor a sudden freeze in the market for all those securities cobbled together from those iffy mortgages.

But bad judgment and greed aren’t necessarily crimes.

Going forward, prosecutors will have to make sure they really have the goods on Wall Street executives before trying to criminalize sheer stupidity.

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