Question/Comment: Bear Sterns did not go under overnight. Unless they are incompetent, the executives must have known what was happening for at least a year, maybe longer. So how come they took hundreds of millions in salary and bonuses (maybe billions?) Doesn’t their hiding of their problems while continuing to sell mortgage-backed securities as if all was well constitute fraud? Isn’t what we are seeing on par with an Arthur Andersen/Enron/Lincoln S&L mega-fraud all rolled into one? Since the American taxpayer is getting stuck with the tab, shouldn’t the perpetrators of this fraud be held accountable?
Paul Solman: It’s a funny thing, fraud. Funny in that it can be quite surprising – shocking, even (at least to me) – to realize that many people who are later judged to have done it didn’t think they were doing anything wrong. I refer you to a story I helped report on a drug chain called Phar-Mor for FRONTLINE years ago: ‘How to Steal $500 Million.’ There was fraud galore, and people did time for it. So anyone there should have known they were way over the line.
But, who doesn’t hide problems if confidence is the name of the game, as it almost always is in business? At Phar-Mor, everyone in the firm was fixing the numbers, telling themselves they were just buying time until the financials turned around, as they “inevitably” would. False confidence or con game? Blind optimism or fraud? Criminality or self-interested self-delusion, amidst an ethos of every-man-for-himself and “government is the problem?”
Moreover, if the housing bubble hadn’t burst (and do you suppose all those Bear Stearns execs expected it to?) then mortgage-backed securities would have presumably held enough of their value to keep the wolf from the door at Bear, or the bear market from tanking Stearns, or…you get the picture. Most of the folks at Enron certainly didn’t think it was going down: they kept their 401(k) money in the company stock! Even Ken Lay did.