Punishment for theft often varies inversely with the amount stolen. When English landowners evicted peasants and deprived them of their customary rights, someone noted:
They hang the man and flog the woman/Who steals the goose from off the Common;/But let the greater criminal loose/Who steals the Common from under the goose
Today, steal five cars and you probably will go to prison. Defraud $50 million from myriad mortgage borrowers and your white-collar crime probably will be overlooked in the general confusion.
While such disparities may be old, it does not make them good policy. Hand slaps for financial theft encourage similar acts in the future.
Financial bubbles themselves stem from bad policies, not fraud. But most bubbles eventually encourage fraud. When the prices of farms, houses or corporate stocks seemingly defy the law of gravity, irrational exuberance sways people’s thinking. If others with modest incomes can get mortgages to buy a nice house, why can’t we? If friends and relatives get adjustable rate mortgages, why shouldn’t we? If the helpful lender suddenly suggests an even better mortgage on the day of the closing, why delay to check with financially savvy friends?
Sharp practice in selling services or goods is not necessarily illegal. Selling a product with a high price when another is available at a lower one is not a crime, nor, in general, is selling a product that the buyer cannot afford. Caveat emptor #150; buyer beware- still prevails.
But at some point sharp practice becomes crime. When an entire company systematically makes “bait and switch” tactics standard practice it may cross the line.
Based on what we know now, much sub-prime lending involved abusive practices. But probably only a small minority of lenders actually broke the law.
Congress cannot and should not make past lawful actions criminal, regardless of however unsavory they were. But the government should actively investigate and prosecute those lenders who did break the law.
When a financial crisis is widespread, this seldom happens. The task looms so large that authorities have little idea of where to start. Congress does not appropriate additional funds for the scale of enforcement needed to address widespread illegal acts. The perpetrators are smart and able to muddy the accounting trail. They can afford expensive attorneys. U.S. attorneys and state attorneys-general throw up their hands and concentrate on traditional crimes.
Even when flagrant cases result in prosecution and conviction, sentences are light. We learn the thief was a community pillar, generous to local causes. Noted public figures attest to his good character. “Mistakes may have been made” but these were inadvertent and technical. Why send such an outstanding citizen to jail? A few months of community service will be ample punishment. And so we send a message that it is OK to steal if you choose the right method.
© 2007 Edward Lotterman
Chanarambie Consulting, Inc.