Too Smug to Jail
'The Economist' issues a myopic defense of the white-collar criminal
As we reach the close of an election season marked by anger toward the unaccountable rich, The Economist has chimed in with a defense of the beleaguered white-collar criminal.
The piece makes many of the usual Wall Street arguments: locking up executives wouldn't do any good, populist passions are ignorant, etc. But this is the crucial passage:
"Most corporate crime is the result of collective action rather than individual wrongdoing—long chains of command that send (often half-understood) instructions, or corporate cultures that encourage individuals to take risky actions. The authorities have rightly adjusted to this reality by increasingly prosecuting companies rather than going after individual miscreants."
Yikes! This extraordinary argument is cousin to the Lieutenant Calley defense, i.e., that soldiers bear no responsibility for crimes they were ordered to execute. The Economist here would have you believe that there's no such thing as an individual crime in a corporate context.
This is a line you hear a lot not only in the finance community, but among the lawyers who defend the likes of banks and pharmaceutical companies.
Former Attorney General Eric Holder, now back in his comfy old role as a partner in a prominent corporate defense firm, said almost exactly the same thing in a speech in New York two years ago (emphasis mine):
"It remains true that, at some institutions that engaged in inappropriate conduct before, and may yet again, the buck still stops nowhere. Responsibility remains so diffuse, and top executives so insulated, that any misconduct could again be considered more a symptom of the institution's culture than a result of the willful actions of any single individual."
Ambrose Bierce once said that a corporation was "an ingenious device for obtaining individual profit without individual responsibility." Bierce was being funny, but this "individuals can't commit corporate crime" argument, sadly, is serious.
It's an idea grounded in a belief system backed by syllogistic reasoning. We live in a capitalist economy; private companies need to innovate and take risks in order to succeed; therefore, we should not do anything to discourage innovation or risk-taking, or what The Economist calls "testing the rules":
"Society should by all means punish white-collar criminals if they have obviously committed crimes and imposed harm. But it should resist the temptation to criminalize new businesses testing the rules. And it should certainly resist the temptation to single people out for harsh punishment simply because they are rich and successful."
The magazine decries the backlash against banks after 2008 as irrational populism. It also praises prosecutors for not bringing cases against firms for things like selling faulty mortgage-backed securities, which are described as "perfectly legal (if unwise)."
But this just isn't true. Most of the Wall Street scams that triggered what The Economist would decry as "populist" outrage in recent years weren't just morally despicable, but bluntly illegal. Many were just skyscraper-level versions of street crimes.
In the mortgage fraud cases, companies knowingly sold defective products to institutional investors, pension funds being a classic customer. Whistleblowers told of executives who knew they were selling investors packets of home loans prone to default, and did it anyway.
These executives weren't "testing the rules" in an effort to innovate their way to the next superconductor or smartphone. This was just plain old criminal fraud, ripping people off, with minorities and the elderly suffering disproportionate losses. The state of Illinois got $84 million from just one bank, Citigroup, for its fraudulent marketing of dangerous securities to state retirement funds.
In a non-corporate context, we'd consider this among the most serious kinds of crimes that we punish. What sentence would you want for someone who stole from your parents' retirement money? From your local teachers' union?
It's bad enough that the self-pitying jerks on Wall Street who read magazines like The Economist think that paying taxes or giving employees benefits or adhering to any labor or environmental standards are unconscionable burdens. Now we're supposed to be so grateful for their sociopathic pursuit of profits that we should excuse them from the criminal code, too?
What a bunch of clueless weasels these people are. Always lecturing the poor for wanting a free lunch, when they're the ones begging for a free ride.