US Outlook: There ought to be a legal defence of crime passionnel for executives accused of fraud.
There's a vast difference between the casual lies of mortgage brokers – the wilful negligence of mortgage lending firm bosses and the double-speak of mortgage derivative salesmen – and the other types of fraud that characterise the credit crisis. This second category, crimes of passion, are the desperate actions of executives who bent or broke the rules in the hope of saving an impossible situation, in the hope of saving themselves, their firm, and sometimes even the whole financial system.
The alleged fraud committed by Ken Lewis, the chief executive of Bank of America in 2008, was to mislead his shareholders over the state of Merrill Lynch's finances in the run-up to the closure of their merger. To the extent that a lawsuit by the New York attorney general, Andrew Cuomo, has any merit – and it is difficult to tell because it reads more like a political speech than a legal filing – I think Mr Lewis can invoke a crime passionnel defence in the court of public opinion.
In the febrile atmosphere of late 2008, giving a running commentary on losses at Merrill Lynch was tantamount to inviting a run. I can't blame Mr Lewis and his advisers for looking for every legal opportunity to keep Merrill's deteriorating condition private while they searched for a solution (in this case another unedifying government bailout).
The high-profile legal cases so far have gone after the desperate, supposed misdeeds of executives in the middle of a panic (at Bears Stearns hedge funds or the Reserve Primary money market fund, for example). In the interests of deterrence, let's hope the focus soon shifts to the inflators of bubbles, rather than their victims.