August 17, 2016, The Atlantic
First came the housing bubble in mid-2007, with the subsequent housing market correction. Then, the subprime mortgage crisis ensued the following year, causing the United States to enter into a severe recession. Roughly 8.7 million jobs disappeared by 2010; GDP contracted by 5.1 percent, making the Great Recession the worst since the Great Depression. Thirteen trillion dollars in household net worth was lost by 2009. The poverty rate increased to 15 percent in 2010.
No one responsible for the untold suffering these numbers represent went to jail. Who is there to prosecute when an undisciplined economy collapses by its own rules?
Sam Buell, a Duke law professor and the government’s lead prosecutor in the Enron scandal, just wrote the book Capital Offenses: Business Crime and Punishment in America’s Corporate Age to explain why the culprits of the Great Recession were not held responsible. This Atlantic article interviews the author.
The difficulties that government prosecutors face in cobbling together fraud cases against even the most nefarious executives illuminates the fact that, legally, corporations are big, fancy responsibility-diffusion mechanisms. It’s what they were designed to do: Let a bunch of people get together, take some strategic risks they might otherwise not take, and then make sure none of them is devastated individually if things go south.
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White-collar crime involves individuals caught in individual acts like fraud, bribery, Ponzi schemes, insider trading, embezzlement, cybercrime, or money laundering. The legal system knows how to handle these crimes. Bringing the U.S. to its knees economically is not illegal. Companies as large as GE paying no taxes is legal. It is legal for hedge funds to bet on food prices in financial markets that drive many tens of millions of people into extreme poverty as a result of rising food prices.
The protests of the Occupy Wall Street movement are now merely a quaint memory. Though we want to turn the Great Recession into a morality tale in which the good guys and the bad guys are identified, it cannot be reduced to a victims-and-villains explanation. Buell explains that while it may be easy to identify systematic wrongdoing, it is much harder to pin blame.
The frustrating thing about the financial crisis is that the victims, of which there were so, so many of us who were severely victimized when this happened, were not parties to the trades that created the problem. We weren’t the ones who bought the mortgage-backed securities. So yes, we were victimized in the sense that we were downstream victims in the economy from a sort of risk fiesta that was allowed to go out of control because it wasn’t regulated. But because we were victimized doesn’t mean that somebody can be put in prison.
Time magazine attempted to list the 25 people most to blame for the Great Recession. Others say globalization and the U.S. dollar were as much to blame as the banks. Perhaps capitalism itself is to blame.
Accusing individuals as the culprits might satisfy our collective psyche and help us believe we can avoid a repeat of the catastrophe. But this may be distracting us from asking much more difficult questions about our underlying economic system.—James Schaffer