Don’t Try This at Home, or So That’s How They Did It!

I once attended a conference on the crisis in the banking system where I was able to have a brief informal chat with an economist [working] for one of the Bretton Woods institutions (probably best I not say which). I asked him why everyone was still waiting for even one bank official to be brought to trial for any act of fraud leading up to the crash of 2008.

Official: Well, you have to understand the approach taken by the US prosecutors to financial fraud is always to negotiate a settlement. They don’t want to go trial. The upshot is always that the financial institution has to pay a fine, sometimes in the hundreds of millions, but they don’t admit to any criminal liability.

Me: So, you’re saying that if the government discovers Goldman Sachs, for instance, of Bank of America, has committed fraud, they effectively just charge them a penalty fee.

Official: That’s right.

Me: So in that case…okay, I guess the real question is this: has there ever been a case where the amount the firm had to pay was more than the amount of money they made from the fraud itself?

Official: Oh no, not to my knowledge. Usually it’s substantially less.

Me: So what are we talking here, 50 percent?

Official: I’d say more like 20 to 30 percent on average. But it varies considerably case by case.

Me: Which means…correct me if I’m wrong, but doesn’t that effectively mean the government is saying, “you can commit all the fraud you like, but if we catch you, you’re going to have to give us our cut”?

Official: Well, obviously I can’t put it that way myself as long as I have this job…

And of course, the power of those same banks to charge account-holders eighty bucks for an overdraft is enforced in the same court system that merely collect of piece of the action when the bank itself commits fraud.

-Excerpt from David Graeber’s The Utopia of Rules On Technology, Stupidity, and the Secret Joys of Bureaucracy, Melville House 2012.

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