Until last week, I'd never heard of "IBGYBG." But during the Senate Permanent Subcommittee on Investigations' eye-opening hearings into ratings agency malfeasance, former Moody's senior credit officer Richard Michalek introduced me to it while testifying about the perverse incentives that dominated the industry. On the investment bank side, he said, bankers were looking to score the one-time fee from whatever securitization deal they were asking the agency to rate, and move on to the next deal. The incentives for the bank, Michalek said in prepared testimony, were clear: "get the deal closed, and if there's a problem later on, it was just another case of IBGYBG—I'll be gone, you'll be gone."
Michalek says he first heard the phrase from "an investment banker who was running out of patience" with his "insistence on a detailed review of the documentation."
"I'll be gone, you'll be gone," a revealing piece of banker slang, and as succinct an expression of the logic of looting as you'll find. Imagine you and a friend encounter an unlocked BMW on a deserted street with a shiny new iPad on the back seat. And imagine how horrified you'd be if your friend suggested you grab the device and jet, since, well, "I'll be gone, you'll be gone."
It's unclear whether the legal analogy holds in this case, but whether or not laws were broken, there is a dawning realization that we've been robbed.
It reminds me of the way the debate unfolded in the wake of the Iraq War. When it became clear that Iraq had no WMDs, the mainstream understanding of the debacle was as a good-faith error in judgment. "We were heroes in error," as Ahmad Chalabi reportedly said. But as journalists dug into the subterfuge and manipulation of intelligence, it was soon undeniable that the war was born not of a good-faith error but of fraud and deception, a determined effort to persuade Americans of a set of premises that the White House knew, or had every opportunity to know, were false. We began to see the perpetrators as venal rather than merely stupid, corrupt instead of simply incompetent.
We're in the midst of a similar progression in our collective understanding of the financial crisis. The earliest chronicles of the meltdown tended to portray it as a tale of groupthink and mania, of hubris and shortsightedness: all these smart people got it wrong! And while that's certainly true for many, it grows clearer by the day that a lot of people on Wall Street realized early on that the entire enterprise was headed for a crash and responded by smashing and grabbing all they could carry.
Sitting just a few feet from Lehman Brothers' Dick Fuld at a recent House Financial Services Committee hearing, criminologist and regulator Bill Black made this point bluntly. "Lehman's failure is a story, in large part, of fraud," he pronounced as Fuld stared impassively ahead. "And it is fraud that begins at the absolute latest in 2001."
The SEC's complaint against Goldman Sachs for peddling CDOs that had been designed to fail has attracted the most press attention, but similar accounts are strewn throughout the post-crash landscape. There are the ratings agencies' e-mails, revealed by the Senate investigations subcommittee (which has used its subpoena power to great effect), that show employees adjusting their ratings of crap to please clients. "I spoke to Osmin earlier," one Moody employee wrote to a Chase banker, "and confirmed that Jason is looking into some adjustments to his methodology that should be a benefit to you folks [Chase]."
There's the bankruptcy report on Lehman showing that the firm engaged in an Enron-style, off-the-balance-sheet shell game with $50 billion in liabilities. Examiner Anton Valukas concluded that the shady accounting gave "rise to colorable claims against the senior officers who oversaw and certified misleading financial statements."
There's also the case of Countrywide Financial, once the nation's largest mortgage lender, whose top three officers are subject to an SEC suit for fraud and insider trading. From 2005 through 2007, while Countrywide assured its investors that it "managed credit risk through credit policy, underwriting, quality control and surveillance activities," its founder and CEO, Angelo Mozilo, was privately e-mailing his underlings about the swiftly declining underwriting standards at the firm. Of Countrywide's "pay-option" mortgages, which worked like credit cards with minimum payments, he wrote, "In all my years in the business, I have never seen a more toxic product." Many other examples have been brought to light, and no doubt thousands more are hiding in trash folders of traders up and down Wall Street.
Since looting is precipitated by a failure of the state, it occupies a somewhat hazy moral space: when the law has broken down, who's to judge those who seize all they can? In retrospect, the great bubble years have a kind of sick lawless euphoria to them. When the starving citizens of New Orleans grabbed food and water from supermarkets to survive, they were met with martial law. Those from Wall Street who have looted sums large enough to rebuild New Orleans from the ground up, however, have been spared the indignity of facing basic criminal sanctions.
That must change. On April 28 Marcy Kaptur sent a bipartisan letter from sixty-two House members calling on the Justice Department to begin a criminal investigation of Goldman Sachs.
About a year or so ago I attended a meeting of progressives discussing the financial crisis. One participant insisted loudly and with great agitation that we "need to put people in jail!" At the time I thought he was being theatrical and impetuous. But now I think he got it exactly right.