The Subprime Mortgage Crisis of 2008 (Subprime Crisis or Crisis) caused an unprecedented worldwide recession. Between 2007 and 2010, the global financial services sector lost 325,000 jobs. In the United States, consumer household net worth decreased by $11 trillion. Meanwhile, C-level executives (hereafter, executives or corporate officers) from sixteen of the firms most closely associated with the Subprime Crisis were eligible to receive golden parachute payments approaching $1 billion if their firms’ failures had resulted in their terminations. Because of the government bailout program, that money would have been indirectly funded by United States taxpayers.
The Subprime Crisis presented the U.S. government with an opportunity to establish new responses to financial crises through reassessments of control person liability. To avoid repeating the types of failure that precipitated the Subprime Crisis and caused the worst national recession since the Great Depression, legislators attempting to stabilize a financial system that has become characterized by products of unfathomable complexity should take novel steps, in addition to implementing regulations, to achieve their goals.
While this Comment later outlines at least one viable model for legislators to follow, this introduction first sets the stage by discussing inadequate past responses to crises, the general nature of the failures of corporate leadership, and the inefficacy of the current corporate liability model in deterring the kinds of failures that brought down the economy in 2008. Two cases will be introduced to provide context and, from there, the discussion will proceed.
The Fallout of Too Big for Trial: Advocating Control Person Liability, 44 Golden Gate U. L. Rev. 365