justice

Scorecard: 1,000 to 2

© Can Stock Photo Inc. / mflippo

The Savings & Loan Crisis of the late 1980’s resulted in over a thousand felony convictions of executives for wrongdoing, after a third of the institutions went broke. The FBI had a thousand agents on it, and the government was determined to find and punish thieves. The New York Times wrote extensively about this.

Thoughtful people all across the ideological spectrum are incensed that there have been only two felony convictions related to the 2007-2009 financial crisis. The recent crisis had a far greater impact on the economy, workers, families and retirees. Yet far less was done to investigate and prosecute the bad guys.

Naturally, many people of all political persuasions are concerned and upset. Corruption, incompetence, or both? No one knows. It clearly violates the social compact on which our society is based.

Now, get ready for another astonishing shock. In lieu of sending criminals to jail, various agencies of government have been soliciting multi-billion dollar settlements from the large banks. But whose money is this? Yours and mine—shareholders. It is as if the government is collecting ransom from thieves which they are paying from our pockets.

If you think we are being melodramatic, consider that the Justice Department recently asked Deutsche Bank for $14 billion to settle allegations of wrongdoing. This figure is more than two-thirds of the bank’s net worth, as measured by the value of its shares in the market. In our system, the presumption was that a company is owned by its shareholders. Now we find out that the government thinks it is entitled to more than half the net worth of this company—instead of doing its job and prosecuting wrongdoers.

In our opinion, the system worked better and more fairly when thieves went to prison and shareholders enjoyed the rights to their property without impairment by arbitrary government action. One of the worst aspects of this situation is how little attention it is getting; this article is intended to help rectify that. Please spread the word by sharing and linking and emailing your representatives.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Paved with Good Intentions

© Can Stock Photo Inc. / Elenathewise

Picture a stretch of a busy highway. The speed limit is a moderate 65 miles an hour, which most commuters follow comfortably. Occasionally a maniac driver speeds through doing 80 or more, and may or may not be caught. No one particularly minds, until a series of high-profile crashes creates a public outcry about the speeding problem. The department of roads resolves to crack down on speeders and adjusts the speed limit down to 55.

Commuters might grudgingly slow down a bit, but because the road is built for traveling at 65 miles an hour, it doesn’t make sense to drive at 55—so most drivers don’t, and traffic continues to travel at 60 mph or so. The highway patrol, seeing that everyone’s just matching pace with traffic, turns a blind eye to this insignificant “speeding” and continues to work on catching the big offenders. For the most part, the change in speed limit does not have much impact.

However, while the stricter speed limit may seem “harmless”, it actually has a very chilling effect. Suppose one day a trooper wakes up on the wrong side of the bed and decides he doesn’t like the look of a particular driver, so he pulls them over for speeding—an open and shut case, since they’re speeding like everyone else. It is hardly fair or just, however, that one speeder among many should be singled out for punishment based on an arbitrary whim. All that the lower speed limit accomplishes is giving enforcement officers discretion to punish normal driver behavior at will—it does not actually make it any easier to catch or punish the original problem speeders, since it is just as illegal for them to drive at 80 in a 65 zone as it is in a 55 zone.

We’re not writing about this to complain about law enforcement officers. Rather, we use this example to illustrate a broader failing of regulatory efforts. When enforcement agencies find themselves frustrated they often resort to casting a wider net, writing new rules that make normal and honest behavior illegal. Often, these rules are made with no malicious intent—they’re still only after the big fish, and they figure any small fry that get picked up along the way can be released with no harm. But by giving themselves their pick of targets, they substitute their own discretion for the rule of law.

This is no way to run a free country. We want regulators to catch the criminals as much as anyone does—more than most, since our reputation suffers when fraudsters are allowed to run free. But passing stricter rules and making everyone into criminals is absolutely not the right answer. The next time you hear someone calling for tighter regulations, listen with a critical ear to what they’re saying: are they proposing to catch bad guys, or will they end up targeting everybody?