Subprime argument

Bear Stearns acquittal: The case against Ralph Cioffi and Matthew Tannin was the closest anything came to a trial over Wall Street’s role in the financial crisis. The acquittal of the two former Bear Stearns hedge fund managers suggests that blame is not easy to apportion – and that cock-ups, not conspiracies, offer the more likely explanation.

Cioffi and Tannin were poster boys of the credit crunch. They ran two funds packed with subprime mortgage bonds and collateralised debt obligations, one of which was cranked up on leverage. Their collapse in mid-2007 precipitated a crisis of confidence about how to price these opaque instruments that, combined with rapidly deteriorating house prices, rapidly led to multi-billion dollar writedowns at financial institutions across the globe.

Snippets of their email exchanges released last year by the authorities implied the two knew the market was doomed, purposefully lied to investors about it — and that Cioffi had even taken his own money out before the crash. But the jury agreed with the defense that they were in fact just debating the state of the market while trying to save the funds. As for Cioffi’s cash, that went straight into another fund he ran to meet investor demands that he have some skin in the game.

He’s not alone there. Lehman Brothers’ former chief executive Dick Fuld kept his stake in the firm as it hurtled towards bankruptcy. So did the leaders of Bear Stearns, Alan Schwartz and Jimmy Cayne. There’s little doubt they were guilty of excessive optimism — even of downright incompetence. But as Tuesday’s acquittal of Tannin and Cioffi appears to make clear, neither is a yet crime.