Since the start of the 2007 financial crisis, an enormous amount of literature has been written attempting to identify the factors that contributed to it. This has resulted in the publication of numerous excellent texts and articles by experts in economics, finance, banking regulation, law and other subject areas.
Many of these works have highlighted the crucial role of ineffective means of banking regulation, the deregulation of consumer credit laws, high risk banking, greed, the sub-prime mortgage crisis, securitisation, deregulation of banking laws, convenient credit, irresponsible or predatory lending and weak macroeconomic policies. However, the research presented in my new book seeks to offer a different interpretation and concludes that that there is one previously under-researched contributory factor: white collar crime.
I would argue that white collar crime is a significant factor that contributed toward the financial crisis. This is demonstrated by the identification of a number of instances that illustrate the link between white collar crime and the financial crisis. For example, the phenomenon includes sub-prime mortgages and mortgage fraud, predatory lending, Ponzi frauds, market manipulation, the rigging of LIBOR and the adverse impact of efforts by President George Bush to tackle the War on Terror in 2001.
The monograph concentrates on the impact of the financial crisis in two specific jurisdictions, the United States of America (US) and the United Kingdom (UK), which provided a unique opportunity to compare and contrast the different approaches towards combating the problems associated with the financial crisis.
The research concludes that both the US and UK adopted similar financial regulatory policies in response to the financial crisis – shown, for example, by the publication of numerous reviews by the Department of Treasury, the Federal Reserve, the Financial Services Authority, HM Treasury and other independent inquiries. Similarities are also demonstrated in the glut of US legislative reforms enacted including the Emergency Economic Stabilisation Act 2008, the Housing and Economic Recovery Act 2008, the American Recovery and Reinvestment Act 2009, and the Dodd-Frank Wall Street Reform Act 2012. Meanwhile legislators in the UK have introduced the Banking (Special Provisions) Act 2009, the Financial Services Act 2010, the Financial Services Act 2012 and the Financial Services (Banking Reform) Act 2013.
Interestingly, the search for the perpetrators who caused the financial crisis varies in the US and UK. For example, one of the first measures introduced by President Barak Obama was the Fraud Enforcement and Recovery Act 2009 and the creation of the Financial Fraud Enforcement Task Force. These measures are of great significance for two reasons. Firstly, the Fraud Enforcement and Recovery Act were introduced as a direct response to white collar crime that was associated with the financial crisis.
Secondly, this legislation attempted to redress the financial imbalance created by President George Bush who tasked the Federal Bureau of Investigation (FBI) with tackling the War on Terror at the expense of white collar crime. This response can be contrasted with that adopted in the UK where there has been no direct legislative response to the white collar crime that is associated with the financial crisis. The Coalition government has only introduced new criminal offenses under the remit of the Financial Services Act 2012 and the Financial Services (Banking Reform) Act 2013.
Another important contrast between the policies adopted in the US and UK relates to the prosecution strategies adopted by law enforcement agencies and regulatory bodies. For instance, in the US the FBI has handled criminal prosecutions while the Securities and Exchange Commission (SEC) has used its extensive civil enforcement powers. Importantly, there is a clear division between the roles of both agencies. However, it is important to note that the Department of Justice has failed to secure any high profile convictions of bankers allegedly involved in criminal activity. They have decided to pursue civil fraud actions as opposed to criminal prosecutions. In the UK, the enforcement actions have been pursued by the Financial Services Authority, now the Financial Conduct Authority, and the Serious Fraud Office. However, there has been some reluctance from either agency to actively pursue alleged wrongdoers. This article has additional information.
For example, the agencies were initially very averse to investigating the alleged manipulation of LIBOR. Comparatively, not one of the bankers purportedly involved in illegal activities during the financial crisis has been convicted. Furthermore, not one director has been disqualified under the Company Directors Disqualification Act 1986 for their conduct during the financial crisis despite strong rhetoric from the Department of Business Innovation and Skills. This position can be contrasted what that adopted by the SEC. The response of the SFO has been limited by the sparse resources provided by the Coalition government. Once again, this is an important contrast between the policies in the US and UK.
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