The dodo (Raphus cucullatus) was a flightless bird endemic to the Indian Ocean island of Mauritius. Related to pigeons and doves, it stood about a meter (3.3 feet) tall, weighing about 20 kilograms (44 lb), living on fruit, and nesting on the ground.

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In biology, extinction occurs when an organism or species dies off. Through evolution, new species arise and thrive when they are able to find and exploit an ecological niche — while other species become extinct when they are no longer able to survive in changing conditions or against superior competition.

We should have had an extinction event in late 2008, but unnatural forces prevented the natural order of things from coming to pass. One of the most significant downsides to the bank bailouts was that they kept on life support creatures whose failings should have led to their demise. We prevented the normal process of failure to take place.

Thus, the economy is presently saddled with banks so maladapted to their environment, to changing conditions, that, despite the fact they could no longer survive on their own, they are still with us. Rather than allow superior competitors to arise naturally, we artificially prolonged the lifespan of these maladapted banking creatures.

Hence, we created an entire generation of Dodo Bird Bankers.

Their design, development and management was what sent them towards an ignoble end. If you truly believe in Free Market Capitalism, that end would have been a fitting denouement. These banks high leverage and insufficient capital was the equivalent of nesting on the ground when Dogs & Pigs — i.e., SubPrime Securitization and Derivatives — were introduced.

But the Dogs & Pigs merely revealed a host of other errors. From loan origination, to securtitization to loan processing to foreclosing, there has been substantial illegality every step of the way.Why there has not been more prosecutions remains a great mystery of our age.

These were inept firms who, when left to their own devices, would have collapsed under their own weight and disappeared. They needed massive leverage to appear profitable and attract shareholders. They could not maintain sufficient capital ratios for the same reason – they would have appeared less profitable than desired. This same philosophy permeated all of the Dodo Bird Banks’ many divisions. They had to cut corners in order to survive.

There is a famous quote that says words to the effect “Financial panics don’t bankrupt firms — they merely reveal who is already insolvent.” That is especially true when it comes to the Dodo Bird Banks.

Despite their natural evolutionary deaths, these maladaptive corporate behemoths were saved. What we have now is an unnatural, artificial banking ecosystem. Gross failures, incompetence and inadequacies are what we preserved. These dodos cannot operate properly. They engage in misbehaviors because that is what they must to survive. They cut corners, take short cuts, behave illegally. They do this because they must.

Given that their structures, managements and internal processes failed to follow the prime directive — stay alive! — it is fair to assume other important things they do are similarly  suspect. These dying beasts are on the wrong side of the law so often becauase they cannot afford to do things legally.

The surviving Dodo Bird Bankers are an unnatural blasphemy on Capitalism. Their continued existence undermines faith on our laws, institutions, and economy.

This morning, I will be meeting with a group of regulators to discuss why Dodo Bird Bankers must be prosecuted to the fullest extent of the law. Having a background in both Law & Finance, I hope to make a persuasive case as to why not prosecuting criminality will have enormous negative consequences for the economy. I also hope to impress upon them what areas of criminality are ripe for fast and easy convictions.

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Previously:
Darwin’s Law of Maladaptive Corporate Behavior (or, why bailouts are nearly always a terrible idea) (October 20th, 2010)

Category: Bailouts, Legal, Regulation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

36 Responses to “Dodo Bird Bankers”

  1. dead hobo says:

    BR noted:

    This morning, I will be meeting with a group of regulators to discuss why Dodo Bird Bankers must be prosecuted to the fullest extent of the law. Having a background in both Law & Finance, I hope to make a persuasive case as to why not prosecuting criminality will have enormous negative consequences for the economy. I also hope to impress upon them what areas of criminality are ripe for fast and easy convictions.

    reply:
    ———–
    If you leave the room and nobody looks sick or frightened then you didn’t try hard enough. In this day and age, nobody pays attention if you don’t say something in a way people want to listen to. These people either want to be comforted or frightened. They will later think only about the things they remember hearing, and only if it will affect them personally in some way. If you want to be remembered and you are not comfortable with the status quo, then make sure they understand how they will each be ravaged by the next financial catastrophe unless they are lucky enough to get some free govt bail out money to tide them over, individually.

    The best way to glaze eyes over is to talk about social engineering or what’s ‘right’.

  2. illoguy says:

    May your presentation be Churchillian.

  3. Arequipa01 says:

    Mr. Ritholtz-

    Thank you for your time and energy. Advocating for the vigorous application of law is a good use of your knowledge and skill.

  4. amboycharlie says:

    I wish you the best of efforts, sir, saddle up Rocinante and charge.

  5. Almitra says:

    Regulator capture has been a significant theme of the crisis. And the regulators are observers of legislator capture. You are down the chain in your diagnosis of what it is that is the dodo bird of the story. But drive the wedge where you can, Barry. I would have you address a joint session of congress…

  6. wally says:

    “Why there has not been more prosecutions remains a great mystery of our age.”

    I think of it not as a mystery, but as a revelation. It justifies the creeping cynicism that has been growing in the US since the time of Richard Nixon… the growing awareness that our government is on a different path and is serving different interests than we so foolishly once believed. During that time the US has gone from a moral beacon to a very ordinary place.

  7. Tarkus says:

    Almitra is correct – simply co-opt the “gatekeepers” and the voices of the people will not be heard.

    The problem is the scope and magnitude of the culpability, which can be daunting. It requires an Elliot Ness – or several – for our time.

    The effects of what has happened is multi-generational. It will affect their children and grandchildren – and will affect them negatively continuously – unless it is corrected.

    This is why Mankiw’s NYT questions were irrelevant and a mere misdirection from the underlying problem – gross distortion of the economy by companies that rightly should have failed. Maybe college professors avoid hard questions these days.

  8. BR,

    w/this..”…A significant downside of the bank bailouts was that they prevented normal process of failure to take place…”

    esp. “…A significant downside of the bank bailouts…”

    you know the, fuller, Story/Explanation goes back to the FedRes/’Central Banking’..

    even, as you delineated, in your Book, ‘Bailouts’ weren’t born in ’008..
    ~~
    http://www.blogtalkradio.com/blacksheepradio/2008/10/24/the-name-of-the-game-is-bailout-the-creature-from-jekyll-island
    ~~
    “…So, you begin to understand when you get into the historical details how much deception was built into the system at the very beginning. Even today most Americans think that the Federal Reserve System is a government agency, and was created to control the banks to benefit the American people.

    It’s a complete deception because the truth of the matter is that the Federal Reserve System as it was created on Jekyll Island by these representatives of the very large banks was a cartel, not a government agency at all – a cartel no different than a banana cartel, a sugar cartel, or an oil cartel. It was a banking cartel, and they created the cartel agreement on Jekyll Island.

    Then they said, how are we going to force all of the banks, the newcomers, and all of the American people to abide by our cartel agreement? That’s simple: We take the agreement, make it into legislation, and pass it into law. We get the bubblehead congressmen to pass our agreement into law and call it the Federal Reserve Act, and that’s exactly what they did. So the cartel agreement is put in place as a law, and you must abide by it or go to prison because it now has government support and enforcement.

    The Federal Reserve System has the appearance of a government agency, and engages in a little bit of political involvement mostly for show, but the institution is primarily completely independent. In fact, instead of the Congress controlling the Federal Reserve System, as it ought to, it’s more the other way around. Now it’s the Federal Reserve System controlling Congress…”
    http://publisherscorner.nordskogpublishing.com/2009/11/understanding-creature-from-jekyll.html

  9. AHodge says:

    heres to jail time and these guys prosecuting
    but as i have harped here alot
    you need to fix accounting and corp rules
    and cut back the congress protection racket.

  10. BroZilla says:

    I teach future bankers and financial professionals. I can assure you that they fear nothing. They’ve seen numerous white collar criminals avoid prosecution and believe they are immune to it. They also realize that if they don’t cut corners and even do things that are illegal, they will not survive at their firm. Good luck in making an impression upon the regulators today. I sincerely appreciate your efforts.

  11. rip says:

    Good luck. Unfortunately what we are seeing many industries is a massive consolidation down to a few TBTF companies that own our government. Simon Johnson is right.

    Better to require the TBTF to be broken up: as in antitrust. Let them fight each other for Gov scraps and keep each other honest. Today it is indeed a cartel. And it will only get worse.

    The individual regulators probably would just as soon not be banished to the broom closet for stepping on the wrong toes.

  12. AHodge says:

    Do we have to keep calling them bankers?
    these guys have no idea how to make a loan
    keep track of its credit
    they presided over securitization, traded each other increasingly fake assets, then all ran away or tried to
    calling them bankers (meaning reliable suppliers of credit) suggests there was a reason for bailing them out.

  13. AHodge says:

    if you fix accounting, you wont need a panic “to reveal who is financially insolvent”

  14. Terry says:

    Well, dodos didn’t die out naturally. It took some hunters–and not very good ones at that–to kill off the slow moving, non-flying birds.

    Unfortunately, we’ll need some really sharp hunters–ones who can hit a banker at a thousand yards–to kill off the dodo bankers because they are quick, deceptive, and smart.

  15. polizeros says:

    a) They are also parasites in the clinical sense of the word; contributing nothing, taking much.

    b) In a book about organized crime in Vegas, an FBI agent remarked about the mobsters, “They aren’t smarter than other people, it’s just that they will do things the rest of us won’t do.”

    I guess that makes then sociopath parasites.

    What this country needs is a good old-fashioned Red White and Blue populist revolt.

  16. riley says:

    “Why there has not been more prosecutions remains a great mystery of our age.”

    Simple, the Unites States is no longer a Representative Democracy. We have become a Corporate State where state and corporate power have merged to benefit the interests of chosen corporations and elected officials. If the State allowed the banks to fail or actually prosecuted their illegality, elected officials would loose a prime source of their power.

    “This morning, I will be meeting with a group of regulators to discuss why Dodo Bird Bankers must be prosecuted to the fullest extent of the law.”

    BR I hope you are successful, but I am not very confident. Not from to a lack of confidence in you, but regulators, as representatives of the State, protect the mutual interests of the State and Corporations. Anything more than a wrist slap risks upsetting that relationship.

  17. sberkland says:

    William Black, former banking regulator, refers to the Immunity Doctrine: “The de facto policy right now is elite frauds go free if they’re in banking because the whole sector is too fragile.” 

    He also wrote:

    “Congress, at the behest of the Chamber of Commerce, the banking trade associations, and Chairman Bernanke, successfully extorted the Financial Accounting Standards Board (FASB) to scam the accounting rules so that the banks could fail to recognize on their accounting reports over a trillion dollars in losses. …We are also secretly subsidizing banks and hiding their losses through massive loans from the Federal Reserve backed by toxic collateral. We should end those subsidies and force them to post good collateral.” (Black, 12/20/2010)

    “Our posts on the Prompt Corrective Action (PCA) law (which mandates that the regulators place insolvent banks in receivership) have focused on the banks’ failure to foreclose as a deliberate strategy to avoid recognizing their massive losses in order to escape receivership and to allow their managers to further loot the banks through huge bonuses based on fictional income (which ignores real losses). We have previously noted the massive rise in the “shadow inventory” of loans that have received no payments for years, yet have not led to foreclosure… The administration stood by while Bernanke, the Chamber of Commerce, and the specialized bank lobbyists used Congress to extort the Financial Accounting Standards Board (FASB) to pervert the accounting rules so that banks would not have to recognize their losses….The combination of covering up and secretly subsidizing the SDI’s losses [cheap Fed money] also explains the SDIs’ unwillingness to lend to the real economy. It’s safer to borrow funds from the Fed at next to nothing, buy bonds, and clip coupons. This perverse dynamic is one of the important factors, along with fraud, that has made the economic recovery so weak. We are following the failed Japanese strategy… TARP did not resolve failures. The failures have been covered up and subsidized by the Fed.”

  18. constantnormal says:

    “Why there has not been more prosecutions remains a great mystery of our age.”

    Really? I see no mystery at all, simply more flaws — this time in our basic system of government, which has always relied upon (and strenuously resisted changing, for obvious reasons) private funding, which slides us right into bribery and corruption.

    We have a system of government that has evolved to become dedicated to the pursuit of graft and corruption, which no one entering government “service” with the intent of serving anyone but themselves. It has been configured to make it impossible for those who might have other goals to first, get elected, and second, even if they do, to accomplish anything.

    Fixing the financial industries’ ills is a small step in comparison to fixing the ills in our government, which encourage corruption throughout our once-capitalist economy. If a company tries to compete fairly, unless they are gifted with talent and insight far beyond all others (and that may ultimately prove inadequate), they will be plowed under by competitors using all manner of tactics that ought to be (and in most cases once were) illegal, but are now enshrined into federal law, courtesy of decades (centuries?) of governmental corruption.

    You can look out over other industries — health care, manufacturing, utilities … and see similar patterns of behavior, all stoked by the furnace of campaign contributions and rotten legislation, bought and paid for from the fruits of “capitalism”.

    I sincerely doubt that the United States can last more than another few decades before it all comes apart, rotting from within. The stench of corruption is everywhere, from overpaid CEOs to untaxed corporations (and yet still clamoring for less taxes!), to production moving outside the US, to wherever the business climate has cheaper wages and fewer regulations, and hang the product quality.

  19. DeDude says:

    Problem is that way to much of the stuff that should have been a crime, had become legal. Even the broader concepts such as fraud can only be prosecuted if there is not a precedent that an action previously have been accepted or ruled to be legal. Our supreme corporate masters and their sock puppets at the Supreme Court have made sure that its all OK as long as it creates a nice flow of money into their pockets. There are lots of people in government that want to prosecute but few who have been able to find a winning strategy worth even attempting.

  20. Jim Bradley says:

    BR – Seems to me, the “top banks” are on the bad list, but since they are incestuously related to funding the US government deficit by managing the money creation privilege of the state, I doubt there’s going to be traction until that link is broken.

    So, do you have any comment on the Fed? To me that’s the real issue. These outcomes are a logical philosophical outcome … empirically verified as being the nature of centralized control of money around the world.

    On a related note, I also am interested in your comments on “regulation” … These problems are a result of regulation as much as poverty is a result of communism. Everyone’s is saying we just ‘need the right kind of water’ and it will be dry just like we need the ‘right kind of leaders’ to make communism work. There’s this persistent fantasy about the nature of government. Maybe this is how centralized regulation works.

    Comments?

  21. Herman Frank says:

    Ahhhh, to hear a wise man speak …. and then to see this wise man being mooned by his discussion partners at the other side of the table!
    “Yes” – you are trained in law, “yes”- you are trained in finance, “yes”- you speak out for Joe Blow who lost his savings in “a financially difficult time”, you are SO right. But you forget that the persons at the other side of the table have cashed the checks of their “patrons” – like in the French “Patron” … their father-boss.
    So in essance “you’re wasting your time in this meeting”. It’s like the association of merchants talking with the cops about the “protection-money” they have to pay. But the cops get part of the money which the merchants pay. And that’s taking care of their mortgage, their car, their trip with the wife, their kids school, their own pension. So guess what’s gonna happen? Next time the merchants have to pay double “for having ratted”.
    Cynical?! Nahhh, just someone who thinks you should be appointed principal advisor to the new consumer protection agency. Be the first of the new Elliott Ness-agents.
    Have no fear, your cause is just – but once you’ve got a willing ear, watch your back.

  22. crutcher says:

    Why are you taking this opportunity to talk sense into prosecutors now when you refused to testify before Congress? Too little, too late. As I recall, your excuse was that you thought you wouldn’t be able to refrain from swearing… let’s not kid ourselves too much about our devout service to the public good.

  23. DrungoHazewood says:

    Well, dodos didn’t die out naturally.

    WTF? News flash-humans are part of nature. I guess humans were around during all the previous periodic mass extinctions. If you can’t compete, whether its from an asteroid impact, ice age, or human activity, its all part of nature. Nature had us evolve to the point we can do great things and also fuck things up. Sheesh.

    Good luck, BR.

  24. AHodge says:

    speaking of orwellian bullsh…
    can we also stop calling banking and finance “fragile”
    what we have is more like crabgrass or kudzu
    the supply of finance is still half broke
    because no one will buy the securities now, unless they are fakely insured (again)
    and no one will return to banking, they are waiting for investors to stop holding their noses

  25. dougc says:

    Maybe you can inspire a politican to be the next teddy rossevelt, although I can”t imagine who it would be.

  26. socaljoe says:

    Unlike the bird, dodo-bankers sit at the top of the food pyramid and are able to change the “laws of nature”.

  27. jj2me says:

    “Hence, we created an entire generation of Dodo Bird Bankers.”

    Great term. It will be the primary take-away of the meeting. Couldn’t be better, captures the essence, and provides an opening salvo that challenges the seriousness of the banking sector arguments.

    I always felt that most of the free-market types unwittingly take the side of rigged markets, in their haste to lash out against any perceived governmental constraints.

  28. [...] Barry Ritholtz, “The surviving Dodo Bird Bankers are an unnatural blasphemy on Capitalism. Their continued existence undermines faith on our laws, institutions, and economy.”  (Big Picture) [...]

  29. SANETT says:

    Hope you get some traction. The wreckage of their greed is all over the place, including friends and a family member. Mark Twain wrote “Even a dog knows the difference between being tripped over and being kicked.” These people were kicked and while she thinks otherwise I’m at least a little smarter than my dog.

  30. eliz says:

    Good luck! I certainly hope your insights and wisdom make an impact….though I am skeptical anyone can.

    “It is said that power corrupts, but actually it’s more true that power attracts the corruptible. The sane are usually attracted by other things than power.” – Science Fiction author David Brin

  31. [...] charges against their banksters. Their economy is now recovering.It’s time to prosecute the Dodo Bird Bankers, parasites unable to survive on their own.These dying beasts are on the wrong side of the law so [...]

  32. Jim Bradley says:

    BR – Seems to me, the “top banks” are on the bad list, but since they are incestuously related to funding the US government deficit by managing the money creation privilege of the state, I doubt there’s going to be traction until that link is broken.

    So, do you have any comment on the Fed? To me that’s the real issue. These results are a logical philosophical outcome … empirically verified as being the nature of centralized control of money around the world.

    On a related note, I am also interested in your comments on “regulation” … In my view, these problems are a result of regulation, as regulation politicizes who pays the costs, and we know who is (eventually) going to control politics. Everyone’s is saying we need the ‘right kind of leaders’ or the ‘right rules’ by a centralized authority to make things work, but in my view that’s like saying we just ‘need the right kind of water’ and it will be dry.

    It just a counterfactual, both empirically and logically – worldwide – to believe that centralized regulation is an offset to the self-same centralized power. “If only we had better regulators…” just seems to point to the illegitimacy of the entire desire to “regulate” in the first place. I’d settle for the bad guys losing their money, as they should have in 1992, 1998, 2001, and 2008.

    There’s this persistent fantasy about the nature of government, as if laws will solve the problem of corruption. I don’t think so. It’s the common citizens that have to put a stop to this, or we will get the government we deserve …

    Comments?

  33. Jim Bradley says:

    BR – sorry for posting twice… for some reason there’s a huge delay making it on the site. On the upside, the 2nd post is even better than the first (I think) …

  34. carpediem0496 says:

    BR,

    You and I have disagreed on a number of things, but you are spot on here.

    More than economics is at stake. Representative government at stake. The integrity of the Constitution – or what is left of it – is at stake. Our freedom is at stake.

    One challenge you will have is the fact that the regulators are employed by government, which is a beneficiary of the bailouts. The banks were bailed out and the governments have the banks to purchase an ever growing supply of debt. It is a perverse relationship. This is cronyism – not democracy!

    There was a good WSJ article by the leader of the Trus Finns on this from European perspective. (Why I Won’t Support More Bailouts,
    http://online.wsj.com/article/SB10001424052748703864204576310851503980120.html)

    Best of luck.

    I look forward to your assessment of the meeting.

  35. Irishboy says:

    Best of luck with the regulators – it could not happen too soon.
    noted: “persuasive case as to why not prosecuting criminality “.
    After 30 years in the industry, in a Midwestern state, serving my client base while representing what I believed to be the gold standard of the Wall Street firms my peers and I are the ones being prosecuted.
    The same management that lied their way into this mess are sacrificing loyal employees; management accepts every new rule and regulation offered by the regulators and politicians than crams the rules and regulations down the corporate structure, as if we were the guilty parties of the last 15 years.
    My penalty box: 33% of my productivity is devoted to paperwork and regulatory training. To send / email company research, approvals need to be gathered locally, then one layer above local and one additional higher approval. I have had more continuing education mandates in the last 16 months than the previous 20 years combined. My license is spotless.
    Management continues fabricating numbers to refresh and enhance their bonuses from the stockholders while waltzing through DC handing out the entitlements proving their innocence while gathering “get out of jail for free cards”.