‘Fabulous Fab’ Tourre played a bit part in the mortgage crisis. So why is he the only one paying a price?


Fabulous Fab Tourre's problem: He was smart enough to understand what was really going on but dumb enough to brag about it in an e-mail. (Spencer Platt/Getty Images)

He's not so fabulous after all, the jury found.

Fabrice Tourre is the former Goldman Sachs trader who in 2007 helped engineer and sell a complex financial product based on mortgage securities that was, in effect, designed to fail. A jury in an SEC civil suit found him liable on six of seven counts.

It is easy to imagine that he might have skated by -- or never come to the attention of the Securities and Exchange Commission at all -- were it not for a particularly boastful e-mail in which he seemed all too aware of how broken the financial system truly was before it finally imploded and triggered a global financial collapse.

"More and more leverage in the system, The whole building is about to collapse anytime now!" he wrote to a girlfriend in London. "Only potential survivor, the fabulous Fab standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstrosities!!!"

This is being portrayed as a great victory for the SEC; the agency finally took a high-profile case to court and won. But to me, it really proves the impotence of the government-wide effort to prosecute those with culpability for inflating a multitrillion-dollar mortgage bubble, defrauding millions of people in the process, necessitating trillions in government bailouts and causing the worst economic downturn of the modern age.

That's a lot to lay at the feet of one lousy vice president at one investment bank, even if it is Goldman Sachs. Tourre is, in effect, the biggest of the small fry who have paid a personal legal price for the mega-crisis.

It's not that as if there've been no civil prosecutions; the SEC tallies up 157 individuals and entities it has charged civilly and $2.7 billion in monetary relief for victims related to the financial crisis. Private litigation has scored billions more. Criminal litigation has been confined to cases that either involve small fry, like people who lied on their mortgage applications, or cases that are only barely related to the core factors behind the financial collapse (insider trading, pyramid schemes, etc.).

The central problem is that making bad business decisions is not a crime. The leaders of failed firms such as Bear Stearns, Lehman Brothers and AIG were only vulnerable to prosecution if it could be proved beyond a reasonable doubt that they lied to investors or knowingly defrauded someone. Same goes for the mid-level people who actually packaged the securities that imploded in devastating fashion. That is a high legal bar to pass, particularly when prosecuting affluent, well-represented defendants.

Which brings us back to Tourre. He was a vice president at Goldman, which is less impressive than it sounds; it is a title held by hundreds of 30-something young gunners at a firm like Goldman. In the list of bad guys from the run-up to the financial crisis, I have a hard time putting Tourre in the top 100 villains.

There were thousands of people on Wall Street and beyond who helped inflate a fraudulent mortgage bubble. What differentiates Tourre from the others is that he was both smart enough to understand what he was actually going on, and dumb enough to brag about it in an e-mail. That was enough to earn the SEC's wrath.

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Ezra Klein · August 1, 2013