Yesterday, the federal government got five major banks to plead guilty to trying to rig foreign exchange markets. The government is making them pay billions of dollars in fines — more than $5 billion, in fact — but observers like Slate's Jordan Weissmann (or, for that matter, Vox's Matt Yglesias) agree that's pretty light. And Weissmann is mad about it.
"Is the Justice Department still too scared to pursue actual criminal penalties against a bank?" he asks. "So long as banks are allowed to pay for their crimes by simply writing a check, it's hard to think of these as anything other than ersatz convictions."
If you're trying to fix the way America regulates its banks by looking to the way it currently punishes its criminals, you're just asking one broken system to fix another.
You can't put a bank in prison. What the government could have done was ban the banks in question from a wide range of moneymaking activities, potentially killing them as viable businesses. Instead, prosecutors waited to bring charges until waivers from the SEC were secured to ensure that business would proceed as usual. That was a key decision and perhaps a mistaken one — is the economic benefit of letting the banks stay in all their major lines of business really worth the cost of lost discipline around misconduct? And if the government knew fines were the only way they were going to punish the banks, should they have made the fines bigger?
These are good questions. But simply dismissing criminal fines as an "ersatz" punishment is ridiculous. Banks like money (that's why they were cheating!), and punishing them by taking money away from them is a perfectly sensible idea.
If the federal government isn't willing to crack down harder on banks as institutions, Weissmann suggests it should make an example out of a few low-level bankers:
the Justice Department is still considering bringing charges against some of the individuals involved in the foreign exchange scheme. Even if the targets of its investigation turn out to just be relatively low-level traders, that would still demonstrate some determination to treat blatantly criminal activity as blatantly criminal activity.
To a criminal justice reporter, that sets off some alarm bells. Let's tweak some of the words a bit:
the Justice Department is still considering bringing charges against some of the individuals involved in the drug ring. Even if the targets of its investigation turn out to just be relatively low-level dealers, that would still demonstrate some determination to treat blatantly criminal activity as blatantly criminal activity.
In other words: the federal government has tried the "let's demonstrate that we disapprove of this criminal organization by cracking down on its low-level members" strategy. It hasn't worked.
It hasn't worked because the government simply expressing disapproval of something doesn't stop people from doing it. It hasn't worked because people at the top of a criminal organization don't necessarily feel vulnerable just because their entry-level employees are getting rounded up. And it hasn't worked because it's extremely easy to replace low-level employees — whether they're drug dealers or bankers. If the problem here is the banks' bottom line wasn't hit hard enough, that's one thing, but doling out severe punishments to rank-and-file employees is cheap moralism — not a real penalty to the organizations they work for.
Of course, a lot of Weissmann's complaint — which is pretty common among economic populists — is that prosecutions of bankers should feel more like prosecutions of other criminals, so that the government can send the signal that what they've been doing is wrong. That's exactly the sort of attitude criminal justice reformers are trying to get rid of.
The fight against mass incarceration isn't just that it targets the wrong people and should target other ones instead. It's a fight against the idea that criminal justice is just telling bad people they've done bad things. An actual drug cartel wouldn't be treated the same way as a group of bankers who called themselves a "cartel," and that's a problem with the criminal justice system, sure. But is the right answer really that bankers should be "punished like criminals," rather than the other way around?