No 86 Posted by fw, November 8, 2010
Kudos to Galbraith and Stiglitz and the alternative media for telling us what mainstream media, with their corporate-embedded talking heads, won’t tell us in their “manufactured consent”.
The following is a reposting, with minor modifications, of a piece that appeared in a November 6, 2010 post of the Real-World Economics Review Blog, titled Stiglitz joins Galbraith in calling for criminal prosecution of bankers. The article is itself excerpted from two two other sources cited below.
In July, James Galbraith called for the criminal prosecution of the bankers, presumably thousands, whose frauds brought about the Global Financial Collapse. In an article, James Galbraith: To Fix The Economy, Feds Need to Clean House in The Banking Industry published in the July 10 issue of Crooks and Liars, Galbraith said:
“What to do? To restore the rule of law means first a rigorous audit of the banks and of the Federal Reserve. This means investigations—Representative Marcy Kaptur has proposed adding a thousand FBI agents to this task. It means criminal referrals from the Financial Crisis Inquiry Commission, from the regulators, from Congress, and from the new management of troubled banks as they clean house. It means indictments, prosecutions, convictions, and imprisonments. The model must be the clean-up of the Savings and Loans, less than 20 years ago, when a thousand industry insiders went to prison. Bankers must be made to feel the power of the law in their bones.”
Now, Joseph Stiglitz, in a long interview with Yahoo’s Daily Finance has done the same Here are selected excerpts from Put Corporate Criminals in Jail.
U.S. legal system is being compromised and there is no longer a sense of “Justice for all”
The legal system is supposed to be the codification of our norms and beliefs, things that we need to make our system work. If the legal system is seen as exploitative, then confidence in our whole system starts eroding. And that’s really the problem that’s going on. There’s a broader sense of collateral damage that I think that has not really been taken on board. And that is confidence in our legal system, in our rule of law, in our system of justice. When you say the Pledge of Allegiance you say, with “justice for all.” People aren’t sure that we have justice for all. Somebody is caught for a minor drug offense, they are sent to prison for a very long time. And yet, these so-called white-collar crimes, which are not victimless, almost none of these guys, almost none of them, go to prison.
The system is designed to encourage predatory loans
The system is designed to actually encourage that kind of thing, even with the fines [referring to former Countrywide CEO Angelo Mozillo, who recently paid tens of millions of dollars in fines, a small fraction of what he actually earned, because he earned hundreds of millions].
Fines are little more than a slap on the wrist
Yeah, we fine them, and what is the big lesson? Behave badly, and the government might take 5% or 10% of what you got in your ill-gotten gains, but you’re still sitting home pretty with your several hundred million dollars that you have left over after paying fines that look very large by ordinary standards but look small compared to the amount that you’ve been able to cash in. The fine is just a cost of doing business. It’s like a parking fine. People have an incentive sometimes to behave badly, because they can make more money if they can cheat. If our economic system is going to work then we have to make sure that what they gain when they cheat is offset by a system of penalties.
These are not victimless crimes
I think we ought to go do what we did in the S&L [Savings and Loan crisis] and actually put many of these guys in prison. Absolutely. These are not just white-collar crimes or little accidents. There were victims. That’s the point. There were victims all over the world.
Damage to the global economy was in the trillions
In our antitrust law, we often don’t catch people when they behave badly, but when we do we say there are treble damages — you pay three times the amount of the damage that you do. That’s a strong deterrent. Unfortunately, what we’ve been doing now, and more recently in these financial crimes, is settling for fractions – fractions! – of the direct damage, and even a smaller fraction of the total societal damage. That is to say, the financial sector really brought down the global economy and if you include all of that collateral damage, it’s really already in the trillions of dollars.
For Wall Street and the Big Bankers, it’s back to business as usual
So do we have any confidence that these guys who got us into the mess have really changed their minds? Actually we have pretty [good] confidence that they have not. I’ve seen some speeches where they said, “Nothing was really wrong. We didn’t get things quite right. But our understanding of the issues is pretty sound.” If they think that, then we really are in a sorry mess.
What the U.S. has now is “indentured servitude”
Let me give you another example of where the legal system has gotten very much out of whack, and which contributed to the financial crisis. In 2005, we passed a bankruptcy reform. It was a reform pushed by the banks. It was designed to allow them to make bad loans to people to who didn’t understand what was going on, and then basically choke them. Squeeze them dry. And we should have called it, “the new indentured servitude law.” Because that’s what it did. Let me just tell you how bad it is. I don’t think Americans understand how bad it is. It becomes really very difficult for individuals to discharge their debt. The basic principle in the past in America was people should have the right for a fresh start. People make mistakes. Especially when they’re preyed upon. And so you should be able to start afresh again. Get a clean slate. Pay what you can and start again. Now if you do it over and over again that’s a different thing. But at least when there are these lenders preying on you, you should be able to get a fresh start. But they [the banks] said, “No, no, you can’t discharge your debt,” or you can’t discharge it very easily. This is indentured servitude. And we criticize other countries for having indentured servitude of this kind, bonded labor. But in America we instituted this in 2005 with almost no discussion of the consequences. But what it did was encourage the banks to engage in even worse lending practices.
Big Banks: “Mistakes were made but not by us.”
The banks want to pretend that they did not make bad loans. They don’t want to come into reality. The fact that they were very instrumental in changing the accounting standards, so that loans that are impaired where people are not paying back what they owe, are treated as if they are just as good as a well-performing mortgage. So the whole strategy of the banks has been to hide the losses, muddle through and get the government to keep interest rates really low.
The result of this is, as long as we keep up this strategy, it’s going to be a long time before the economy recovers.
My comment: Don’t hold your breath waiting for justice in the U.S.. There is an uneven distribution of money, power and influence in the U.S. political, judicial, and news reporting systems.