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Thursday, July 12, 2012

Our Legal System Supports our Crony Capitalism

What's wrong with this picture:

One the one hand we have individual citizens who steal things or money from other individual citizens.   Laws vary from state to state, but here in Indiana for example, theft can get you anywhere between 6 months to 8 years in prison depending on what was stolen and how much of it was stolen etc.   The average American will earn about $1.6 million over their lifetime, and so an individual thief may essentially lose up to 10% of their total lifetime earnings due to loss of income in jail (assuming the average person lives to be about 78 years old).

Now take not a person, but a large bank.   A bank that has  'stolen' millions of dollars through fraudulent and just outright deceitful practices.  This action just isn't one theft like someone stealing a painting or a car: it literally ruins entire families: hundreds or thousands of families across the nation.  Yet, this bank, because of the power granted to them in our supposedly capitalist system, means they get a slap on the wrist of $175M.  A bank like Wells Fargo has aprox. $80 Billion in gross income in one year.  Therefore, Wells Fargo's slap on the wrist equates to about 0.2% of it's annual income.  But wait, that not a good comparison to what Wells Fargo can earn and finance over its life.   If we assumed Wells Fargo's 'life' was 78 years (just like a typical American), Wells Fargo's lifetime earnings would be over $6 Trillion, which makes $175M look like toilet paper.  And Wells can earn exactly the same amount of money at age 78 as at age 20, because unlike individual people, banks never age and never have to worry about things like  healthcare, social security, etc.

Let's recap.  One person loses years of their livelihood and a signification chunk of lifetime earnings and all the family support that could have been provided during that time, all for stealing something as mundane as a car.

One bank, loses less than 1/5 of 1% of it's annual earnings for destroying hundreds or thousands of families across the nation.

Think about that.





8 comments:

UII OFFICIAL said...

I would like to thank you for the efforts you have made in writing this article
nice post, that's very interesting information thanks for sharing :)
I introduce a Economics student in Islamic University of Indonesia Yogyakarta

Alex said...

I agree with this post, my only question is what to do about this asymmetric punishment dynamic.

A lot of the power inherent in corporations is the ability to mask one's intentions/policies behind a corporate name. Whenever it's reported that "Acme corporation" does X, what that really means is that a dozen top executives have decided to do X. That ends up being the way lots of people can hide their activities and intentions.

I don't mean to turn this into a sneer fest about corporate "fat cats", but do you think making corporate leaders have some more skin in the game would help with corporate responsibility? By holding those at the top of a corporation responsible for a corporation's actions, maybe they would begin to "self-police" more effectively?

Perhaps that suggestion is no different than prosecuting laws that are already on the books. However, I want to avoid the opposite danger of throwing corporate leaders in jail as "demonstrations".

Maybe the question that ties my rambling together would be this: How do we make those responsible for a corporation's policies more accountable without categorically demonizing corporations?

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