Data Says We Should Prosecute for Bad Loans
Posted at 1 p.m. on Jan. 28
Luigi Zingales digs into new academic research that indicates banks “knowingly misrepresented” information on securitized mortgages that was “relevant to default risk, such as whether the borrower was an owner or an investor, or whether there was a second lien on the property.”
“The degree of misrepresentation seems to be unrelated to the incentives provided to the top management and to the quality of risk-management practices inside these firms. In fact, all reputable intermediaries in their sample exhibit a significant degree of misrepresentation. Thus, the problem does not seem to be limited to a few bad apples, but is pervasive.”
“Unfortunately, these giant settlements are unlikely to make a difference. They are paid by shareholders and taxpayers (most of these settlements are tax-deductible)… If the target is an industry-wide culture of deception, shouldn’t the criminal justice system be mobilized against banks’ mortgage fraud as well?”
