Financial Crisis Related On The Subprime Mortgage Market And The U.s. Housing Market

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b. RELIANCE
Another component of fraud crimes is reliance. For the government to prevail on fraud charges, it has to establish reasonable reliance on the alleged misrepresentations or omissions. Most financial crisis related investigations focused on mortgage backed securities that banks sold consisted of subprime mortgages that are doomed to be defaulted. The misrepresentation argument goes that banks failed to disclose the low quality of the mortgages and substantial risks of default that are associated with them. However, banks can conveniently raise the defense that the securities are sold to sophisticated investors, such as pension funds and mutual funds, who could have known what was going on in the subprime mortgage market and
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The court found that as a sophisticated participant in the financial market, the buyer should have, and easily could have, protected itself from misrepresentation by demanding that it see the report prior to a closing. Therefore, it seems that the context of the transaction does not play into government’s favor.
5. Institutional Failures

The current institutional set up and operations also contributed to the lack of prosecutions against bank executives regarding their wrongdoings leading to the financial crisis. First, regulators and agencies are short staffed. Second, regulators and agencies determined other types of prosecutions as their priorities over financial crisis related investigations. Third, there is the lacking in coordination between regulators and a consolidated national task force focusing on the criminal prosecutions related to financial crisis.
a. Short Staffed It is notable about the number of staff and funding has been allocated to investigating banks and bank executives: not many. Judge Rakoff noted that FBI had more than one thousand agents assigned to investigating financial frauds before September 11 and only had 120 agents reviewing more than 50,000 mortgage fraud reports filed by banks in the years leading to the financial crisis. Funding wise, although the Fraud Enforcement and
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