The Leftist Senator from Massachusetts, Elizabeth Warren can be seen here, making bank regulators squirm in their seats. I often disagree with Warren, but not in this case. She asks a basic question: When have you ever taken a Wall Street bank to trial?
Of course, settlements are a time-honored way of resolving allegations and avoiding the expense of a trial. Senator Warren seems is more comfortable claiming they are beneficial than I would be. But she also points out that, if banks never go to trial, then the state’s leverage in getting a settlement is diminished. If the banks can break the law and believe they will never go to trial, they are both more likely to break the law and also less likely to pay out a realistic settlement that fits the crime.
What Warren doesn’t explicitly say, but should be obvious to everyone, is that banks that can make enough money by a crime to cover the risk of getting caught and paying the settlement will always commit the crime. (The other obvious truth is that politicians were desperate to see the housing bubble grow instead of collapse and were willing to look the other way as banks broke laws to keep it going.)
The regulators have no plausible answer. They just sit in their seats and insist they are doing a great job. They are—for the banks where they hope to work after finishing their government “service.”
And this systematic crime and fraud has economic consequences:
“I have one more question I’d like to ask and that’s a question about why the large banks are trading at below book value? We all understand that book value is just what the assets are listed for, what the liabilities are and that most big corporations trade well above book value. But many of the Wall Street banks right now are trading below book value and I can only think of two reasons why that would be so. One would be because nobody believes that the banks books are honest or the second would be that nobody believes that the banks are really manageable. That is that they are too complex either for the – their own institution to manage them or for the regulators to manage them. And so the question I have is what reassurance can you give that these large Wall Street banks that are trading for below book value. In fact, are adequately transparent and adequately transparent and adequately managed.”
Here she did get an answer from the regulators. Other economic factors can affect how the banks are being traded. But some of those “other” economic factors are pretty closely related to the concerns that Warren raised.
I thought the best part of Warren’s speech was when she pointed out how you and I and small businesses don’t get such easy treatment,
“You know, I just want to note on this, there are district attorneys and U.S. attorneys who are out there every day squeezing ordinary citizens on, sometimes, very thin grounds, and taking them to trial in order to “make an example,” as they put it. I’m really concerned that Too Big To Fail has become Too Big For Trial.”
Warren was pressed for time, but her statement would have been better if she had also pointed out some differences between how banks are treated and how other corporations are treated by law enforcement. To name one instance just off the top of my head: Gibson Guitars got raided by armed Federal agents twice for an obscure and debatable law about the wood they use in their guitar necks. Has Goldman Sachs or AIG or Bank of America ever been visited by armed shock troops wearing body armor?
No. And they know they never will be. Such treatment is reserved for the serf class, not the bankers.