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home : opinions : opinions April 16, 2014


7/31/2012 9:55:00 PM
Column: Accountability canons must apply to all
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Photo of the Paterno statue coming down.



Woman gets five years for IRS fraud.



Prison time for insider trading.





Tom Cantlon
Courier Columnist


Did you see the pictures recently of the statue of Joe Paterno being taken down? This is a powerful symbolic statement. An unfortunate but necessary cultural signpost. A standard that needs to be applied to other recent wrongdoing.

Joe Paterno was the football coach who is accused of covering up the child sex abuse by his assistant coach. As a result, sanctions have been imposed on Penn State football including having more than 100 game wins voided, including two Big Ten titles. It also means Paterno's record of having the most wins now falls far behind other coaches.

The statue was outside the Penn State stadium and portrayed Paterno in a triumphant pose leading his team. Though the work crew put up a work curtain, photos were snapped over the top of it showing the head of the statue wrapped in padding ready for moving, even while the uplifted "we're number 1" finger still stood out.

This is a pretty amazing cultural statement. An unmistakable indication that he was not permitted to build a career of fame and football glory, and keep all of that when it turns out to have been dependent on harboring a child abuser. Unlike other situations of wrongdoing, where a fine is announced in the news, or a judge declares a decision, this case has the added graphic of Paterno's statue being taken down. When else have we seen someone fall so definitively?

It's sad that such an exemplary story of success, of Paterno's rising up from a football player, to an entry-level position in staff, to the most winning coach (prior to the games that were voided), should end this way - but also entirely necessary. Future kids whose abuse could be avoided by someone speaking up need this protection. People in such positions need to know the consequences if caught.

We do this sometimes, make the punishment fit the crime, even when it's on a big scale. The current big "where are the convictions" issue is investment fraud and the crash. We have, at times, dealt well with similar problems. When Michael Milken committed investment fraud on a grand scale, he spent a stretch in prison and was banned for life from the securities industry. When the Savings and Loan scandal happened there were more than 1,000 convictions that shortly followed. Felony convictions and prison time, not just companies paying civil fines.

The small-scale cases typically get full punishment. Just last week a woman was convicted of tricking the IRS into sending her more than $2 million in fraudulent refunds and was sentenced to more than five years. Some other cultures, the Japanese come to mind, have particular reputations for accountability.

The term "moral hazard" has become popular since the crash. It typically means some category of investors don't have to pay for something and so they may be encouraged to do the same again, or more. Homeowners taking out more mortgage than they can handle and then walking away, or bailed out banks realizing they can get away with more risk than they should take.

There's another kind of moral hazard, where someone gets away with something more than just excess risk, something more serious. This is what the Paterno case is about. We clearly don't want people to think they can attain success at the expense of abused children.

With the almost total lack of real penalty for the crash, we have created a huge moral hazard. It was bad enough this time. This just encourages it to be even worse next time.

There have been some fines, but that's just a cost of doing business to a large bank. And the top execs kept their enormous profits. Even if they might have made more if they'd avoided the crash, still that might calculate in their minds as a worthwhile gamble. There has been one recent case of a major financier going to prison, but that was for common insider trading, not the deceit and recklessness at the heart of the crash.

Paterno's statue coming down is sad, pointed and appropriate given the damage to the young victims. We need something similar connected with the crash. Not that a few convictions would begin to punish everyone involved. Not for the "fun" of vindictiveness, but as a necessary piece of a functioning, lawful country and economy. We can't have massive, criminally recklessness financial gambling resulting in enormous harm to millions of people, and not have that result in a few people in jumpsuits looking

back at us from behind bars.

Not without it blowing a huge hole in the fabric of a well-functioning society. That's the contrast: The Paterno fall, and this gaping hole in our social/legal fabric. This yawning moral hazard. The country needs the same standard of accountability applied to both.



Reader Comments

Posted: Thursday, August 09, 2012
Article comment by: Attentive Listener

Reasoning by extension, if I am operating in the government-regulated financial services industry and I knowingly defraud people by spending their money first on myself, then eventually to pay off my previous investors, this is all the government's fault for being involved with the industry in the first place? That's convenient.

It's also completely illogical, so it's a good thing none of our laws actually work this way. Isn't this like blaming the police for crime (while letting the criminals go, no less), after you have taken away their guns and forced them to accept a mob boss as chief?


Posted: Wednesday, August 08, 2012
Article comment by: Hokas Pokas

Yes, that is exactky what I am saying, except, government is NOT ALWAYS bad. (We ARE talking about the financial industry, aren't we?)

Oh, by the way, people make bad decisions in the market place EVERY DAY! They take a risk, it does not pay off, and they lose! Happens ALL the time! (JP Morgan, Knight Capital Group) Like the Sinatra song, "So take a deep breath, pick yourself up, dust yourself off, and start all over again." This is a terribly old fashioned idea these days. What a shame.

Liberals always want a nice safe place, complete fairness, free from all risks and dangers. Guarantees for EVERYTHING. And otherwise very intelligent people are suckered into believing any politician that promises these things. That is preposterous! There simply are no guarantees in life! Life is not always fair!


Posted: Wednesday, August 08, 2012
Article comment by: Attentive Listener

You can believe that if you want. It sounds a lot like you are saying that as long as governments are involved in markets, then anything that goes wrong in those markets can be attributed to government. This is not logical, but is certainly convenient if you have already made up your mind that government is always bad and business always good, especially given that governments always have been, and presumably always will be, involved in markets.

Posted: Wednesday, August 08, 2012
Article comment by: Hokas Pokas

@ AL:

You still don't get it. Because government manipulation of the free market, with the best of intentions, shifted the risk, SOME banks made many bad loans. It was not too little regulation, but too much.


Posted: Saturday, August 04, 2012
Article comment by: Attentive Listener

So what I am reading in the end looks like "Yes, Mr. Listener, you are correct, the government cannot force banks to make loans, instead what they were doing was helping banks to bundle and sell them, which the banks took advantage of by making riskier and riskier loans, knowing that they wouldn't be left holding the garbage assets." So Rultimately you are blaming government for allowing banks to engage in this behavior, though you do also claim to assign 'some' responsibility to the banks, who actually did it. So does that mean that you now favor stricter oversight and regulation of the banks?

I see I got both Dr. Jekyll AND Mr. Hyde that time. I will only talk to one of you, so figure out amongst "yourselves" which one you would like it to be.



Posted: Friday, August 03, 2012
Article comment by: Couldn't Resist

"attentive listener", oh yeah, sure. I can see it now, eyes starring at the speaker, head pushed forward in a gesture of attentiveness, sitting on the edge of the seat in anticipation of the next important comment. But all the while, the weak, confused mind struggles to actually comprehend what is being said. Yes, attentive...very attentive, but without any capacity to understand what the adults are talking about.

And for what it's worth...realizing his incapacity to understand intelligent debate, I'll nonetheless state that yes (duh), the government CAN and DOES force banks and all other businesses to do things EVERY DAY. The government forced banks to make hundreds of thousands of bad loans over several decades. That was the main catalyst for the economic downturn in the U.S., thanks almost entirely to liberals in government. Less regulation on banks was only a theory for the stupid people to spout off about.

Sheesh, the simpletons we have to indulge, in the effort to have a discussion about important matters.


Posted: Friday, August 03, 2012
Article comment by: R J

It was good for Bobby Bowden.

Posted: Friday, August 03, 2012
Article comment by: Hokas Pokas

@ Attentive Listener:

Good. I am glad I could make you "aware." At least, partly. I hope you noticed, however, that I used the word 'encourage' not your word 'forced.' This is because I do not hold the the banks blameless.

Still, though, it appears that you don't understand how the secondary mortgage market works. Please accept my very basic and brief explanation. FNMA and FHLMC issue underwriting guidelines for banks to use. These guidelines form the basis for what is an acceptable loan that FNMA and FHLMC will buy. Once the bank sells this loan to FNMA and FHMLC, the bank, usually, is no longer responsible for the loan. FNMA and FHMLC then "package" the loan with other loans into a Mortgage Backed Security (MBS) that it sells to outside investors. There are NO GUARANTEES that these MBS's will perform.

Therefore, the banks "want" to make these loans in order comply with federal "fair" lending requirements (i.e. "anti-redlining" and "equal opportunity lending" laws) and, yes, to make money. Some banks may be more aggressive, like Countrywide Savings, and others less so, like Wells Fargo. Countrywide was bailed out by Bank of America.

The way I see it, greed can be spread from bottom to top. The borrowers wanted to buy more house than they could afford, the lenders wanted to make more loans and earn more money, the secondary market participants FNMA, FHMLC and other private companies wanted increased volume, and more money, and the outside investors, pension funds, etc. wanted a higher return on their investment.


Posted: Thursday, August 02, 2012
Article comment by: Mark Kubiske

@Pete Hamper

Beautiful! And this brings us to Syracuse... Oh, but Mark Emmert has two degrees from SU, so never mind.


Posted: Thursday, August 02, 2012
Article comment by: Attentive Listener

@Hokas Pokas

I wasn't aware that the government could force a bank to make a loan.

Wait, what you are saying is that banks did want to make these loans, and just wanted to leave the government holding them if they went bad?

And in your book this is not the banks' fault?



Posted: Thursday, August 02, 2012
Article comment by: Mark Kubiske

Tom Cantlon wrote: ""To Mark Kubiske, you're right that there should be due process. Apparently the NCAA and the University felt they had a clear enough case (statements Mr. Paterno made early on in this story?) to proceed, or that they couldn't wait for the lengthy trial to conclude, or that there may never be a clear legal judgment of Mr. Paterno now that he's deceased.""

PSU and NCAA indeed. Include their many willing accomplices in the media (present company included) who continue to repeat the same, unsupported factoids.


Posted: Thursday, August 02, 2012
Article comment by: Pete Hamper

The NCAA better pentalize the University of Colorado like they did Penn State. Both individuals had ties to the schools. Alleged cover up or lack of due action allowed the individual to sexually assault innocent , or murder innocent people. In Penn State's case it was centered on the athletic department. Colorado it's the physical science/ medical department. In Penn State's case it was the coach and AD. In Colorado's case it was a professor who had reason to believe the person to be unstatable, and did nothing. NCAA should fine Colorado, and cut back on the number of medical school graduates can receive academic scholarships. Like twenty five less a year for four years.

Posted: Thursday, August 02, 2012
Article comment by: Hokas Pokas

Tom, I have no idea what you are reading but these sources precisely prove my point!

To start, if you read the brochure, "Closing the Gap," published by the Federal Reserve Bank of Boston you will find numerous examples of how banks were "encouraged" to ease underwriting standards in order to make mortgage loans more accessible to low income groups and minorities. The banks were advised that FNMA and FHLMC would buy these loans. If this isn't government meddling in private enterprise, I don't know what is.

Next. The banks did not sell these bad loans, claiming they were "good," to private investors. These loans were purchased by the government controlled entities known as FNMA and FHLMC. These companies then packaged the loans and sold them as securities to investors, backed by the full faith and credit of the U.S. government (that's you and me). To date, FNMA and FHLMC have received billions in taxpayer subsidies to keep them afloat. These agencies should be sold and privatized.

People like Barney Frank, Christopher Dodd and Maxine Waters actively covered up the insolvency of FNMA and FHLMC in order to further their goals of income redistribution through home ownership.

Furthermore, Senator John McCain introduced a bill, based on a Bush administration recommendation, the "Federal Housing Enterprise Regulatory Reform Act of 2005," designed to oversee FNMA and FHLMC. The democrats, fearful this measure would tighten lending practices, killed the bill in committee.

The federal government should not engage in "venture capitalism" because they are not very good at it. The private sector does this very successfully. The government uses taxpayer money to build roads, bridges, etc. Defense contractors, small or large, use mostly their own capital (venture capital) to research and develop ideas, there is very little government money involved. If the military needs a new item, contractors put in a bid which includes their design. This is done without government funding. Some defense budget money may be released for further research and development, but most of the cost is borne by the contractor. The cost of R & D is built in to the price of the item. It is a gamble. If the contractor's design is selected, they "win" the contract. If not, they lose their investment. There is no venture capital from the government, that is absurd.


Posted: Wednesday, August 01, 2012
Article comment by: Tom Cantlon

To Mark Kubiske, you make a good point as I tried to acknowledge in the previous response. You're right that a person should be considered innocent until proven guilty. And he remains considered innocent by the legal community. But he is deceased so I assume there will never be any trial of his possible crimes. That leaves the living to figure out what to do. Does the university continue to honor him with the statue? Does the NCAA do nothing? And there are pieces I don't know. Even if he hasn't been convicted, if when he was first removed as coach he told the university or in deposition "yes I saw something or knew something and I should have told police but I didn't", how should that be dealt with? I have no idea if he said any such thing but maybe that's what the university and NCAA are acting on. If Bernie Madoff had committed suicide before trial and left a note saying "yes I stole all that money" should none of his funds be distributed to victims just because he would have never been convicted? And if it's clear Paterno failed to report what he should have, isn't there an obligation to future potential victims to show hiding such things isn't tolerated? You have a valid point in a black and white way, but then people at the university etc have to make decisions within a gray area. Maybe Paterno's loved ones could sue for his reputation being punished despite no conviction and see what the courts would do with that? I don't know.

Posted: Wednesday, August 01, 2012
Article comment by: Tom Cantlon

To Hokas, thanks for the links. I looked at them. Unfortunately they all fail to support your point. They are all either just someone else's opinion, or minor side points, or hard data but which doesn't support your conclusion. But it's a different topic so I'll hang onto your links for the future. But to the point here, virtually every major financial entity was doing everything in their power to be deceptive about the investments they offered, leveraged beyond anything responsible, rating houses knowingly giving false ratings, financial insurance outfits selling insurance they couldn't provide. Or are you saying none of that happened? It did, so it should result in some people getting the same result as Joe Paterno. That's the whole point. If you disagree, with what?

Posted: Wednesday, August 01, 2012
Article comment by: Mark Kubiske

I read your response to my earlier comment. So it seems you acknowledge that Paterno has been "found guilty" by the mob mentality and without benefit of due process, and yet you state in your article, "An unmistakable indication that he was not permitted to build a career of fame and football glory, and keep all of that when it turns out to have been dependent on harboring a child abuser." Really? "it turns out"? That sounds like you accept the mob's verdict. Shame on you for doing so. Who else shall we proclaim GUILTY!! Just because we want to?

Posted: Wednesday, August 01, 2012
Article comment by: Tom Cantlon

To Mark Kubiske, you're right that there should be due process. Apparently the NCAA and the University felt they had a clear enough case (statements Mr. Paterno made early on in this story?) to proceed, or that they couldn't wait for the lengthy trial to conclude, or that there may never be a clear legal judgment of Mr. Paterno now that he's deceased.
To Predictable, "did they commit a crime" is exactly my point. There needs to be prosecutions. We have an huge list of penalties banks pay with no admission of guilt. If they did many things to warrant so many huge (to us) penalties but we can never get a conviction, and penalties don't work, something's wrong with our laws or our application.
To the Rev, "use child rape"? Yes, I'd say you are misreading. I'm just commenting on stories in the news. I'm not "using" it any more than the NCAA is using penalties on Penn state is to discourage child rape. Actually it's not about the rape, it's about the penalties on those complicit. And I'm not "forwarding ideas of economic social justice". I'm reaffirming rule of law. People who commit financial deceit should be prosecuted. I usually find something worthwhile in your comments. This seems like an odd leap.
To Tom Steele, yes congress and crony capitalism is part of the problem. That comes about because there are people with financial interests wanting to corrupt things for profit, and unfortunately find either corrupt people or fools who will do their bidding. It all goes together.
To Thomas Gatchell, in particular this column is about accountability in the financial sector. That's not to say it isn't also needed at all levels of gov, and that it doesn't all get mixed together as noted above. The "green" grants and loans you're listing maybe should have been more carefully vetted, don't know, different topic. No different than many other programs, like defense programs where start ups or budding ideas are funded, knowing that many will fail but the ones that succeed will be good for the country. It's called venture capital and the country has often benefited from playing that role. But about the major banks selling junk investments as good, rating houses lying about ratings, AIG lying about insuring them, seems like there ought to be some punishment there, doesn't it?


Posted: Wednesday, August 01, 2012
Article comment by: To: Paterno was a scapegoat

Joe Paterno was ONE of those pansies that didn't do anything about a child rapist ,because he thought the rapist helped him win football games. I'm only sorry he's not alive to go to jail for it. Don't make excuses for him.

Posted: Wednesday, August 01, 2012
Article comment by: Hokas Pokas

I completely agree, Tom, with your assessment of the Penn State situation, but your reasoning regarding the mortgage crisis is misguided.

The reason not many bankers have been prosecuted is simple: banks were making mortgage loans, bad ones, based on government policies and requirements. These policies originated with liberal democrats back to Jimmy Carter and it was an attempt at wealth redistribution using home ownership.

http://www.bos.frb.org/commdev/closing-the-gap/index.htm

http://www.boston.com/bostonglobe/editorial_opinion/oped/articles/2008/09/28/franks_fingerprints_are_all_over_the_financial_fiasco/

http://bostonglobe.com/business/2011/12/16/freddie-mac-fannie-mae-chiefs-including-richard-syron-sued-sec-over-loans/w4bX3PV2uJrAYW7vPKoeBI/story.html

http://online.wsj.com/article/SB10001424052748704250104575238641146885632.html

http://www.opensecrets.org/news/2008/07/top-senate-recipients-of-fanni.html

http://newsbusters.org/blogs/noel-sheppard/2008/10/11/maxine-waters-caught-lying-about-fannie-mae-ties-real-time

http://www.insidesocal.com/southbay/2008/10/waters-defended-fannie-freddie.html

Liberal democratic politicians like Barney Frank, Maxine Waters, Christopher Dodd and even Bill Clinton should be investigated.


Posted: Wednesday, August 01, 2012
Article comment by: Mark Kubiske

I think anyone who creates such a gross miscarriage of justice should be prosecuted and not allowed to hide behind cultural norms. We would all agree, an angry mob that would march on a man's home and burn it to the ground, with blatant disregard for due process and equal protection under the law, would themselves deserve to be prosecuted. Imagine such an event happening in State College, PA, at the home of one Jerry Sandusky just after his arrest. The mob would be held accountable, because that's not how we do things in this country. Likewise, those who would promulgate scandalous accusations resulting in the destruction of a man's record of success, sterling reputation, and golden legacy, with utter disregard for due process and equal protection under the law, should be excised from the realm of public discourse and never allowed to destroy another human being thus. Richard Jewell, Wen Ho Lee, and now, very likely, Joseph Vincent Paterno. Americans have learned nothing.

Posted: Wednesday, August 01, 2012
Article comment by: Paterno was a scapegoat and nothing more.

Joe Paterno was a scapegoat for the pansies running the University, too afraid of homosexuals to do anything about child rapist and bully Sandusk, and nothing else.

The only honorable & honest thing here had to do with the football team and they are the only ones being punished.

Were there justice and integrity the University leadership would be fired, sued, and jailed for their allowing the abuse to continue after Paterno told them of it years ago.


Posted: Wednesday, August 01, 2012
Article comment by: Kathy Svendsen

Tom Gatchell: You've got to be kidding about "if Bush had done such blatant agenda-driven cronyism." What about the Iraq war and all those contracts to restore services to the Iraqi people where billions of dollars disappeared and nothing was restored. The Democrats, I'm sure, if they had been looking under rocks as the Republicans are prone to do, would have found lots more things to accuse Bush of.

Investing in new technology isn't cheap but we still have to try, especially where clean energy is concerned.


Posted: Wednesday, August 01, 2012
Article comment by: Predictable and Boring

Tom: We get it. Some of those horrible capitalists should have been burned at the stake. Oh except for that one little detail perhaps, "did they commit a crime"? But hey, you're right , who cares about that?

Posted: Wednesday, August 01, 2012
Article comment by: The Rev

Misunderstanding your intent Tom C.. After multiple readings it appears you used child rape to forward ideas on economic social justice. Certainly, without doubt or question, I must be confused.

Posted: Wednesday, August 01, 2012
Article comment by: Tom Steele

Joe Patreno has been a college football coach hero to me. He is one major college coach that had a team of academic tutors to provide a degree to student athletes where most college coaches just use up the four years of eligibility and throw the non-pro bound players in the trash heap. However, Paterno's cover up of Sanduskie's exploiting children is inexcusable. As for Cantlon's banking references and Miliken's conviction, he is mainly wrong. Everyone should read "The Creature From Jekll Island" and know the origin of deceit of the federal reserve system brought to us by our congress. Small bankers are allowed to fail where the big boys are bailed out by the federal reserve. Miliken, in my opinion was convicted of outsmarting the large financial boys. He sold high risk high yield bonds that is minor compared to the derivatives the large banks are making Billions from. Once again the problem is our congress and crony capitalist. And both parties are involved.


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