It was asked, what would the 14th Banker find essential in Financial Reform legislation? I will take one piece of that question today because today I am angry. I was thinking about Civil versus Criminal consequences and the lack of prosecution that has gone on in regard to the financial crisis. Today the European Union announced a bailout of immense proportion to try to stabilize the Eurozone and bring the immediate market turmoil to an end. One reason that such is required is that there has been theft. The usual bunch of suspects are implicated.
I am certain that the penalties for financial crimes are lax. I am equally certain that financial crimes were committed and that these are egregious, premeditated, and extremely lucrative. If somebody (the SEC for example) fines a company after the fact for crimes that were committed by individuals who were enriched by the crime, justice has not been served. Individuals must be held responsible.
I looked at the FBI web site. This tells me that the value of all property crime in America in 2007 was $17.6 Billion. That’s just a Thursday’s work on Wall Street. In 2008 approximately 2.4 million Americans served time, most for drug or property crime. How many of these had worked on Wall Street? I’m sure it’s not many.
The transactions that have contributed to the financial crisis are immensely complicated and the firms engaging in them can effectively obfuscate. Identifying individuals, providing just punishment, and the removal of such individuals from society will take a long time. It is certain that the vast majority will go unpunished. The New York Statute of Limitations seems grossly insufficient given the magnitude of these crimes. Further, the class of felony that such crimes fall into should be reviewed.
If Goldman or others had information on the financial status of Greece that was not public information, then traded on that information in the CDS or currency markets, they have traded on inside information. This is in addition to the multitudes of other violations which are already alleged. Where are the arrests? I understand the investigations may take a long time. Quite honestly, the effective prosecution of such crimes may take decades.
Who is our Simon Wiesenthal? Who will track down these criminals in the coming months, years, decades? Perhaps we need some old men to spend their last years in prison after thinking they effectively fleeced the world. Perhaps the cycle of crises can be mitigated if the prosecution for these particular crimes continues for decades and every so often Wall Street is reminded that there is no sanctuary and that individuals will be hunted down at whatever time in whatever place.
Do not tell me these are small matters. People starve when you manipulate markets to speculate the price of corn up 100%. People die when you do not put proper safety equipment on a well to save a half million bucks and then destroy an ecosystem. Some people jump onto subway tracks. Some have heart attacks when their life savings are gone. Some burn to death in street riots. Do not tell me these are small things, errors in judgment, rogue actions. If we have figured out anything, have we not figured out that these are systemic problems and that the institutions involved make decisions that the rewards justify the risks, not just financial risks, but also the risks of sanctions or prosecution of any sort? Are we going to do anything to alter the balance of risk and reward so that the rational decision is to do the right thing?