Morgan Stanley CEO says bankers’ bad judgment was not a crime

NEW YORK - Morgan Stanley Chief Executive James Gorman said on Tuesday that he does not believe more bankers should have gone to jail for the financial crisis. "Bad judgment, incompetence, negligence, greed: these might be socially unacceptable, lead to a lot of personal embarrassment and potential financial ruin, but they're not criminal offences," Gorman said in a Q&A with the financier and former journalist Steve Rattner at the New York Ideas event.

Gorman went on to say that in the few cases where people were proven to have broken the law, such as Bernard Madoff's Ponzi scheme, culprits were jailed. "Simply taking people to jail for messing up in their jobs, you'd be locking a lot of people up in corporations and outside," he said.

Gorman did not specifically cite recent moves by the US Department of Justice to prosecute banks on criminal charges.

A former securities lawyer and consultant who took over as CEO of Morgan Stanley in 2010, Gorman also said the government should not have repealed Depression-era laws that kept securities underwriting and trading separate from commercial banking.

The laws, part of the Glass-Steagall Act, were rolled back over several years, culminating with legislation at the end of the 1990s that allowed the creation of Citigroup Inc. By 2009, the US government had rescued Citigroup three times because of losses it suffered in the financial crisis.

Asked multiple times whether Glass-Steagall should have been repealed, Gorman simply said "No." But he also noted the repeal of Glass-Steagall was not a factor in the failure of non-universal banks like Bear Stearns and Washington Mutual during the crisis.