Tuesday, August 4, 2009

Yeah, That'll Show Them

The New York Times has an article on the fine that Bank of America (BoA) received from the SEC. Basically, Bank of America lied to its shareholders about the $5 billion dollars in bonuses that it paid Merrill Lynch employees after it merged with them.

In the middle of a $50 billion acquisition, and with taxpayer backstops and financing, BoA gave the people who had destroyed Merrill Lynch $5 billion in bonuses. And then they hid this fact from the people who owned Bank of America- the shareholders.

For this, the agency charged with regulating them fined them $33 million.

Does this sound a little off? It does to me. Let's put this in perspective by changing the absolute values of the numbers, but keeping the relative values the same.

This is as if BoA, after closing a $50,000 deal with an insolvent company, paid the employees of that insolvent company $5000 of government-backed money, and then lied to its shareholders about it. And to make sure that something like this never happens again, the SEC fines them $33 bucks.

This is worse then no fine at all. This essentially legitimizes that kind of behavior by telling executives that "it's fine, just pay the fine", thereby removing even the social stigma of ripping people off.

Ugh. Who are we kidding? On Wall Street, the social stigma comes from not ripping people off.


This reminds of something I've wanted to take about for a while-the regressive nature of fines. How can it possibly make sense for a crime to carry the same fine, regardless of the financial situation of the person who committed it? If a fine is supposed to be punitive, then it will obviously be far more punitive to a poor person that to a rich one. What justice does this serve?

Fines are a great way for rich people to avoid jail time. I think we should do away with them. If it's a crime, let's people in jail, or censure them publicly. But let's not allow two standards of punishment to apply.

At the very least, a $1000 fine for someone who makes $25,000 per year should translate to a $100,000 fine for someone who makes $2.5 million.

No comments:

Post a Comment