Ben Bernanke and Wall Street Executives

By Dr Oonagh McDonald CBE

In a widely quoted interview with USA Today, Bernanke said that ‘It would have been my preference to have more investigations of individual actions because obviously everything that went wrong or was illegal was done by some individual, not by an abstract firm.’  He makes it clear that he thought some Wall Street executives should have gone to jail. However, ‘ the Fed is not a law enforcement agency. The Department of Justice are responsible for that, and a lot of their efforts have been to indict or threaten to indict financial firms. Now a financial firm is of course a legal fiction; it’s not a person. You can’t put a financial firm in jail.’

Going after firms is precisely what the Department of Justice has been doing in the aftermath of the financial crisis.  It was nothing new.  For some decades, prosecutors have preferred to go after companies rather than individuals, partly because of the alleged difficulties in prosecuting individuals, but also on the grounds that this was an attempt to change the ‘corporate culture’ so as to prevent future crimes, The result has been ‘deferred prosecution agreements’ and even ‘non-prosecution agreements’ in which companies agree to undertake various reforms to prevent future wrong doing. Such agreements became the mainstay of white-collar  criminal law enforcement. There is little evidence that such an approach, including the imposition of heavy fines, does actually change the behaviour of companies.  It did, however, bring in billions of dollars ($220 bn by March 2015) and kept government housing policy, which required Fannie Mae and Freddie Mac to buy ever-increasing proportions of subprime loans from the lenders, out of the picture in any cases brought against the lenders.

In the aftermath of the financial crisis, the Department of Justice brought many high profile case against leading banks, but these were settled out of court, as they resulted in  the kind of negotiations which were roundly condemned by Judge Jed Rakoff. He described just going after the company is ‘both technically and morally suspect’, since the prosecutors can only threaten to prosecute the company if there is sufficient evidence  to prove beyond reasonable doubt that  fraud has been committed, and, if that can be established then the managers concerned should be indicted. 

Such condemnation from a judge and from the politicians and media led to a radical change of direction announced by the deputy Attorney General in her Memorandum on September 9^th.. Sally Quillian Yates announced that in the future, the Department of Justice will turn its attention to individual accountability, since it is one of the ‘most effective ways to combat corporate misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing’. She  argued that this ‘deters future illegal activity; it incentivizes changes in corporate behaviour,  it ensures that the proper parties are held responsible for their actions, and it promotes the public’s confidence in our justice system’. Ben Bernanke’s remarks are certainly in line with the changing views about law enforcement.

However, that is not the fundamental issue concerning the past.  It would, of course, have been possible to bring criminal charges against senior executives if they could be shown to have been guilty of fraud as individuals, but the charges were always against the company.  The real question is: if senior executives are to be held accountable, then the laws and regulations should be clear and of course in force at the time to ensure that  administrative actions or prosecutions could take place.  For Bernanke to say that some senior executives  should be in prison  implies that he considers that it was possible to do under the regulations or the laws in existence at the time, but that the regulatory authorities did not refer any case to the Department of Justice nor take the administrative actions open to them at the time or in the aftermath of the financial crisis.

Bernanke  was in a position to ensure that regulations were in place so that senior executives could be called to account., but his speeches and the full minutes of the Federal Open Markets Committee indicate that he did not see the risks in the growth of the subprime market and weak regulation.  Indeed, Bernanke seemed unaware of the extent of subprime lending and its impact on the economy or even on the banking sector. Even as late as May 2007, he stated, we do not expect significant spillovers from the subprime market to the rest of the economy or the financial system’.  In June 2007, he announced a review of the rules governing  lending practices and  supervision. It was too little, too late.  Looking back later, Bernanke admitted that ‘stronger regulation and supervision aimed at the problems with underwriting practices and risk management would have been more effective in containing the housing bubble.  The Big Five investment banks voluntarily agreed to be supervised by the SEC under a special, undemanding regulatory regime. Inadequate regulatory frameworks and an unwillingness to take action against individuals  meant that senior executives would not, and often could not be taken to task for their alleged misdeeds.

Dr Oonagh McDonald is author of Lehman Brothers: A Crisis of Value (978-1-7849-9340-5) 

Peter Barry, author of the landmark MUP book, Beginning theory, reflects on how his twenty year old creation came to be

By Peter Barry

I am delighted to be asked to do a blog piece on ‘BT at 20’, and also struck by an echo of how BT started, around 1982. At the time I was teaching at LSU College in Southampton. We never had classes on Friday afternoons, and the Friday lunchtime custom of academic staff was a visit to a local pub. On one occasion, I had settled down with a pint and a ploughman’s at The Wellington in Park Road, when Paul Gardner, our convivial HoD, asked casually, if I might be interested in devising an undergraduate course in literary theory. Being young and naïve, I expressed enthusiasm, and Paul said, as if casually, ‘Could you do it for Monday?’ My weekend ended there, and on the Monday I gave him the outline syllabus for a theory course. It went through a fast-track validation route that Paul had set up, and by the following September I was teaching it, as part of a new degree scheme. It was the first undergraduate course in literary theory in the UK, and in due course (pun intended), it became Beginning Theory. On Friday last week, more than thirty years after that lunchtime in The Wellington (still naïve, but no longer young), I got an email from MUP inviting me to do a blog piece. I had already agreed to do it before scrolling down to the punch-line, which read, as I should have anticipated, ‘But we will need it by Monday’.

Over the weekend, I got out my BT file from way back then, and took a look. There are several readers’ reports on the BT proposal from circa 1993, all of them pretty snooty about the possibility (perhaps even the desirability) of writing about literary theory in a way that students can understand. The idea for the book had come to me in 1992, when I encountered a woman just outside Sussex University, on the platform of Falmer Station. She was reading one of the two (postgraduate) student-directed books about literary theory which then existed. She was in tears, and I had the distinct thought that it must be possible to write about theory without provoking that reaction. It’s a bizarre idea, I know, and (with the obvious exception of Terry Eagleton, who instigated it) it never really caught on, except with (at most) half a dozen people worldwide.

When I write, I talk to myself (which is OK, so long as you say the right things). One of the things I often tell myself is ‘It’s not extreme enough – make it more extreme’. When I come back to a piece that I thought I had pushed to an extreme, it usually feels more normative than it did when I was writing it, but (I hope) it never just feels standard, run-of-the-mill academic normal. Being extreme in the context of literary theory means using ordinary language, explaining fully, finding the example that works, then working it all the way through, and never pretending to be a full believer in what I only half believe.

Anita Roy, who was the MUP commissioning editor in the early 1990s, sent me the bundle of readers’ reports, saying that I should use anything in them that seemed helpful. She came to LSU shortly afterwards at my invitation to do a talk to the Humanities Research Group, which I had set up with Dr Jane McDermid (now Reader in History at Southampton University). No official letter had yet been sent, and I had assumed that MUP wasn’t going to do the book. During the meal afterwards, at a pizza house in Rochester Place, Anita Roy said something that made me ask in surprise ‘Do you mean you’re commissioning it?’ and she looked puzzled and said, yes, of course we are. So that was that - I’ve been with MUP ever since, and have never wanted to be anywhere else.

The chapters began with the typed out lectures which by that time I had been delivering on the theory course for several years. The period of expanding them into a book is vivid in the memory. For over a decade, my room in college had been spacious and beautiful, with a pair of lofty windows overlooking the Avenue in Southampton. In the early 1990s – the era known in higher education as ‘massification’ – student enrolment at colleges and universities greatly increased. New staff had to be appointed, and my room, with several others, was sliced into two. Over the summer I wrote in the corridor, listening to the noise of builders drilling through to make extra doors and flimsy dividing walls. I had the feeling that I wanted to be somewhere else, and by the time the book was published in 1995 I had moved to Aberystwyth University.

Anyone who writes a high-selling academic book has to pay a price – it is the sin for which there is no absolution. But when I lecture, and I see people nodding with understanding, I feel that I can want nothing better. As a writer and teacher, the only quality I value is clarity – as Ezra Pound said, clarity is the writer’s only morality. I have no interest in accolades from professors, and the ones I like come from students worldwide in emails. The nicest always tell the same basic story – I was enjoying English, and then in Year 2 we were hit by the theory course, and I was about to give up the subject – tears are often mentioned – then someone told me about your book. There was one email I wanted to have quoted on the front cover – it was from America and it read in full ‘This book is the real fucking dope – I’m pissed my profs didn’t tell me about it sooner’. Others come from readers of humbling erudition – one explained the three transmission errors I had made in a single-line Latin quotation – we silently corrected them, and I imagined the pain my Latin teacher would have felt on seeing them. As we have gone through numerous re-prints over twenty years, errors we corrected a decade earlier sometimes rise from the dead to haunt us, going unnoticed through two or three reprints before we realise they are back, and need to be weeded out all over again.

At a deeper level, revising and updating a book of one’s own seems straight-forward, in theory, but in practice re-entering the mind-set of a quarter of a century ago is nearly impossible. I feel about for the way back into a certain line of argument, but am often defeated. It’s easier to write a new book than to revise an old one, though I am pressing on anyway towards the goal of the 4^th edition. I’m sometimes asked how it feels to have written a book that everyone seems to know about, and I say that it feels nice. All I mean is that I like the fact that people know my name – it’s as elemental as that. Sometimes I have to confess that I’m not the author of illustrated books with titles like How to Photograph Your Girlfriend, and I imagine that my namesake may occasionally have to explain that he is not responsible for the faults of Beginning Theory. I remain extremely grateful for the twenty-year support and friendship of Commissioning Editor Matthew Frost at MUP, and likewise that of John McLeod, ex-LSU, and now Prof at Leeds University, who is co-editor of the Beginnings series. Being from Liverpool, my lifelong ambition was to be a paperback writer, and I’m pleased that it has happened. Also, I remain constantly optimistic that, as it says in the Beatles song, ‘I'll be writing more in a week or two’.

Peter Barry is Professor of English at Aberystwyth University and is the author of Beginning Theory (3e) (ISBN 978-0-7190-7927-6) and Reading Poetry (ISBN 978-0-7190-8851-3)