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Fact or fiction? No one on Wall Street went to jail for financial crisis

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(If you want a more in-depth take on all this, read this article from Motley Fool and this piece from the New York Times, from which our analysis is drawn.)

1. What is the difference between “illegal” and “irresponsible”?

Asked at a Thursday news conference about the lack of Wall St. prosecutions, President Obama said this:

[O]ne of the biggest problems about the collapse of Lehman and the subsequent financial crisis and the whole subprime lending fiasco is that a lot of that stuff wasn’t necessarily illegal, it was just immoral or inappropriate or reckless. That’s exactly why we needed to pass Dodd-Frank, to prohibit some of these practices….

I think part of people’s frustrations, part of my frustration, was a lot of practices that should not have been allowed weren’t necessarily against the law, but they had a huge destructive impact.

While the distinction between hubris/stupidity and illegality may not satisfy many, it’s a key component to the financial crisis. The Motley Fool put it thus:

Blowing up your company isn’t necessarily a crime. Leveraging 30-to-1 isn’t unlawful. Neither is buying securities backed by homeowners unable to repay. Nor is ignoring caution signs. Or disregarding history.

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