Deterrence is what kept Fabrice Tourre’s bosses from leaving a paper trail (or an e-trail) acknowledging that they had any idea that he was actively picking “loser mortgages” to go into the ABACUS securities package that he was putting together with John Paulson, and that Paulson would subsequently sell short to a profit of $1 billion. Tourre seemed to have no such fear of being caught.
An alternative explanation is that Tourre’s bosses were truly in the dark and they let their underlings build a $1 billion portfolio without supervision. (I could believe this if it were a mutual fund and it were amassed by taking in customers’ money and then buying assets, but to construct the portfolio and _then_ try to sell it? $1 billion of _their own money_? No way.)