This related hearing [1] led by freshman senator Elizabeth Warren is eye-opening. She can't get a straight answer on the last time a major bank was taken to trial over its offenses.
She does get a straight answer. Regulators don't sue; they have a steady-state relationship with the banks where their concerns are addressed with consent decrees. Lawsuits are insanely expensive in the best of cases, but they're worse when you're suing a megabank, because the suit impacts the broader economy.
It is a little disingenuous for Warren to act surprised about this. She knows not only why regulators don't sue, but also how unlikely it is that we're going to start doing that (it'd be economically irrational for us to do so).
Her heart is in the right place. Too Big To Fail is a real problem. But if you've got a bunch of wasp nests in your back yard, you don't fix the problem by jamming sharp sticks into them.
> [...] but they're worse when you're suing a megabank, because the suit impacts the broader economy.
I don't disagree with the factual correctness of this statement, but the implication is unsettling. Any kind of legal action from the government - from throwing someone in jail for possession of marijuana to suing banks over financial crimes - has negative economic consequences. If we send someone to jail for drug possession, we spend a lot of money investigating and prosecuting them, we pay to keep them locked up, we happily give up their productivity and any taxes they would have paid, and we reduce their long-term value to society by hanging a public arrest record on them. So, where do we stop using economic consequences as a reason for not enforcing laws?
I'm somewhat highly-compensated and I contribute a lot back to the economy, though consumption and taxes. Should the government prosecute me and someone who only earns minimum wage differently, since prosecuting me and throwing me in jail will have a substantially higher negative impact on the economy? Maybe I get 2 or 3 free misdemeanors per year, your average millionaire gets a free felony, and if you are on Fortune's top 100 list you get 3 free felonies?
I'm seeing more and more justification of not going after big companies and powerful executives due to the economic impact, and I think that is getting awfully close to codifying different legal systems for rich people and poor people. Certainly it already exists to a degree, but at least we sort of pretend that it is distasteful now.
That's a little uncharitable. It's obvious that Senator Warren's real question is: Do the banks have any reason to feel as if they face a threat of real legal action if they break the rules?
If not, that's surely something we can and should change.
I don't mean to be uncharitable. I'm glad Elizabeth Warren is there. She's demagoguing, but so is everyone else, and her side of the argument is underrepresented.
But it's not at all clear --- in fact, it seems unlikely --- that the core problem we face is a refusal by regulators to sue.
It seems more likely that the core problem is that the economic incentives in the finance industry, or at least in commercial banking, favor rapid and aggressive consolidation. Not enough disincentive exists to offset the externalities this creates. Maybe we should tax banks based on their sizes; maybe we should do that in the form of some kind of insurance premium.
But since anything we'd do to address any of the real problems is going to require bipartisan cooperation, first we need to be candid about what the problems are.
Completely different meaning. If ate a bar of chocolate in the library despite posted signs against eating and drinking. I broke a rule. If I threw my chocolate bar at the librarian's face with an intent to injure him, I broke a law (assault and injury etc.)
Oh there's no doubt that laws were and are being broken by top banks every single day. The problem is that they have enough concentration of power on their side (in most western countries) that it's almost impossible for the feeble democratic institutions to effectively punish them.
It is not disingenuous, it is feigned. A subtle but important difference. She points out in the first 30 seconds of that clip why it is important that they SHOULD occasionally sue - leverage.
You can't just count the cost of one suit against one settlement and call it economically rational.
Lawsuits (or filing charges) may be insanely expensive, yes. But I really doubt they are as expensive as never bringing charges against anyone or suing anyone, and the damage that eventually causes due to pervasive, unchecked corruption of the entire system.
People on HN have a warped view of how leverage works in American politics. The prevailing meme of congresspeople who are bought off has a lot of appeal, but its far from the facts. My wife was a lobbyist so I have a bit of insight into the situation. Fact is, the usual suspects don't need to bribe congressmen. Who needs bribes when you have beliefs? You just need something like the heritage foundation or AEI to say that suing banks or regulating them will cost jobs and boom: you can count on tons of votes from people whose ideological interests are aligned with those of the banks.
Corruption in the US looks different than in say China. Its puritan corruption. Convincing true believers that what's good for big corporations is good for everyone and for the all important jobs. Everything starts from there.
Not necessarily 'bought off' as in handing over cash for favor, but a lot of politicians are already part of 'the machine' and profit handsomely from it, so their personal goals line up.
And that's the reason term limits are needed for each and every political office. Of course nothing on the order of a constitutional amendment is even remotely possible in the current US political system (that's likely to persist for a long long time to come).
Term limits are not the solution! In fact it will just exacerbate the problem. If Congress ends up as perpetual freshmen, who do you think will end up with an even higher proportion of power in Washington? The lobbyists and the staffers. These people have the insider knowledge, the connections, and the influence and they will be able to steamroll over an endless parade of newbie lawmakers.
As someone said higher up, the reason nothing is ever done is because the congressmen's incentives align with the banks and the power brokers. The only solution is to ensure that those with voting power in Washington have incentives that are the opposite of the banks. Term limits do not do this.
Possible solutions: Pay Congress and important oversight positions a salary proportional to their importance--somewhere in the multiple millions per year. Make lobbying any government official illegal (anything beyond writing a letter to your Congressmen). A lifetime ban from working for any company that is affected by decisions made while in office. 100% publicly financed campaigns.
I don't think term limits fix what you're asserting. If anything, they just codify when people get out of office and go into particularly posh jobs with the people who were lobbying them.
Bought off, some maybe, for those that won't be bought, they'll either play along, or face fierce opposition within their own party, lose financial support and hence, have a slim chance to be reelected. Consider some of the things Ted Kaufman said in the recent PBS special about this exact issue.
Can anyone here answer Warren's question, even if the regulators couldn't? I'd be interested to learn about any court trials prosecuting larger banks (that is, if any exist), but it's proving difficult to Google.
The fact that the people in that room couldn't (who certainly know of any single time a wall street bank has gone to trial in the past years) and that Warren is so sure of her position is enough evidence for me personally
[1] http://www.dailykos.com/story/2013/02/15/1187417/-Elizabeth-...