Cheating Made Painless

I know this is a very difficult concept to comprehend, but when the marginal benefits of cheating far exceed the marginal costs, people are going to keep cheating:

SEC Enforcement Director and former Deustche Bank general counsel Robert Khuzami boasting about the latest slap on the wrist directed at a major bank, this time a $228 million fine of JP Morgan Chase for a bid-rigging scheme involving municipal bonds. The Chase ruling is the latest to come down in a series of fines involving a number of banks, including Bank of America and UBS.

This is one of the best examples we’ve had yet of the profound difference in the style of criminal justice enforcement for the very rich and connected, versus the style of justice for everyone else. This scam that Chase, Bank of America and UBS were involved with was no different in any way, really, from old-school mafia-style bid-rigging scams.

What these banks did is they got together and carved up territory between them, arranging things so that they wouldn’t be bidding against each other in municipal debt auctions. That means the 18 different states involved in these 93-odd deals all got screwed out of the best prices, leaving the taxpayers in those places severely overcharged for their public borrowing.

This is absolutely no different from what mafia groups in New York used to (and probably still do) do for public contracts – the proverbial five families would get together, divide up the boroughs and neighborhoods between them, and each family would individually buy or intimidate their way into the bidding process, corrupting the game so that the public had to overpay for their garbage collection or their construction labor or whatever. The only difference here is that we’re talking about debt, not garbage. But the concept is exactly the same; it’s the same crime.

If Khuzami’s defendants had been a bunch of Italians from Howard Beach, they would be facing RICO charges and would be looking at years in prison, plus seizure of all their ill-gotten gains, in addition to civil suits and penalties...But if the defendants are a bunch of Ivy-League educated bankers from Wall Street, what we end up getting is a negligible fine (officials will brag about this $228 million, but it’s a drop in the bucket compared to what the banks make scamming communities and governments) and, as always, no admission of guilt. This is how the SEC’s own press release reads:

Without admitting or denying the allegations in the SEC’s complaint, JPMS has consented to the entry of a final judgment enjoining it from future violations of Section 15(c)(1)(A) of the Securities Exchange Act of 1934 …

As it is, as my friend Eric points out, the endgame for banks like Chase is, “Admit nothing, pay two hours of revenue and all good!”

By accounting terminology, I think you would call this "provision for bad debts bets." This is simply a cost of doing business, and this will continue into perpetuity as long as the toothless ass clowns at the SEC allow it. 

Can you ever imagine this ridiculous standard applying to an average citizen? Say you get pulled over for doing 95 mph through a school zone. A cop is never going to say to you, "Well I'm sorry to inconvenience you, please just pay this $5.00 fine and I'll be on my way. Oh, and I won't make you admit any wrong doing. Again, really, really sorry to bother you." Hell no. The fines for such civil indiscretions are enormous, even doubled in school zones. And they are that way for a reason - they want the fiscal penalties to be painful and immense to the average driver's pocketbook so as to discourage that very kind of behavior. A Wall Street firm that makes close to $6 billion in a mere three months is not going to be dissuaded from its illicit activities when it faces no criminal indictments and is permitted to cough up what amounts to its budget for hookers and blow for a week to atone for its actions.