ARNOLD KLING
August 14, 2011
The Top Political Contributors
August 11, 2011
Gender and the New Commanding Heights
August 11, 2011
Jamie Galbraith Makes an Assumption
August 11, 2011
Macroeconometrics: The Science of Hubris
August 10, 2011
Real and Nominal Bond Yields
BRYAN CAPLAN
August 14, 2011
The Effect of Thumb Sucking on Income
August 12, 2011
The Voice of Cold, Hard Truth to All Would-Be Educators
August 12, 2011
Ability, Morality, and Prosperity: A Paper and a Report
August 11, 2011
The Theory of Time and Frittering
August 10, 2011
Male Variance and the Remnants of the Gender Gap
DAVID HENDERSON
August 9, 2011
Hayek in "Unbroken", Part Two
August 8, 2011
Hayek in "Unbroken"
August 5, 2011
James Bovard on the Peace Corps
August 4, 2011
Summers Way Off on FDR and 1941
August 3, 2011
The "Amazon" Tax
SHARE
"The alleged abuses occurred while the market was going up. Should they have been prosecuted at that time, rather than after the crash?"
How does that old saying go? It's better late than never. We are presently paying the price for not listening closely to Adam Smith's warning that business people are inclined to collude against the general public. Regretfully, the ultra-Libertarians were able to seduce our political leaders into allowing the foxes to guard the hens.
"The alleged abuses occurred while the market was going up. Should they have been prosecuted at that time, rather than after the crash?"
Prosecuting any complicated case takes time, so a significant time lag in cases like this is unavoidable.
"Prosecuting any complicated case takes time, so a significant time lag in cases like this is unavoidable."
You are only half right. Actual prosecution might take a little time---but the very fear of prosecution would have had an immediate impact for the good! Moreover, even a mild hint might have been sufficient.
The fine of $1.4 billion is less than 7% of the $21 billion in pretax profits for the ten Wall Street firms for the single peak year 2000 out of a multi-year fraudulent scheme of tainted stock research. By comparison, the top marginal income tax rate for New York City is 12.15% and for New York State is 7.7%, and the highest sales tax rate is 8.625% for New York City and 8.75% for New York State. In other words, such a penalty is merely a relatively small cost of doing business.
In addition, about 2/3 of this fine is tax-deductible and covered by insurance reimbursements. This means that the U.S. taxpayers are going to pay much of the cost of this massive fraud scheme, and the other customers of the related insurance companies are going to pay higher premium rates in future to recoup the claims payments.
Self-regulation does not work in the investment banking and stock research/brokerage arena. The stakes are now far too large, and the degree of financial sophistication is now far too great, often PhD machinations. The result will be regulatory capture. Who is watching the watchers? The new SEC Chief, William Donaldson, has a long Wall Street career and related network to protect. What is needed is a true outsider to the financial services industry, maybe a retired high-ranking military officer, to clean up the manifold conflicts of interest sufficiently to restore investor confidence.
The corrupt greedy CEO's and senior managers in the chain of command of all ten of the firms in the recent record-size settlement should be investigated, and where appropriate charged individually for criminal fraud, take a perp walk on video-camera, and serve time to think about their shameless publicly announced attitudes (arrogant gloating, for example, by Merrill Lynch and Morgan Stanley in the The Wall Street Journal) and their corporate cultures of greed and crime while behind bars in state prisons, not in federal minimum-security country clubs.