Under these rules, a lawyer may not be able to prove that fraud existed, but any person who gives it a momentary thought can understand that this situation is ripe for exploitation. If all you need is someone willing to even entertain the notion that the bank is fully hedged, then you would never disclose your most material (and informational) positions!One difficulty for the S.E.C. and other investigators is determining exactly when banks should have disclosed more about their mortgage holdings. Banks are required to disclose only what they expect their exposure to be. If they believe they are fully hedged, they can even report that they have no exposure at all. Being wrong is no crime.
As a student, you are taught about the benefits of transparency but within an organization you are taught the benefits of opacity. In the real world, theory about what is good for outside investors goes out the door when your paycheck hinges on your capitulation to the party line.
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