Barry Ritholtz, at his The Big Picture, recently weighed in on events -- which he's both witnessed and reported on -- that have been happening in the banking and financial sector since the turn of this century... MFGlobal being the most recent and obvious example.
It's a Back To First Principles moment, and I love it when he does this. It's like a scene in a Frank Capra film: In a room full of people, babbling about events that have just occurred, a lone character stands up on a chair and delivers a three-minute speech, telling everyone the Truth -- exactly what's happened and why. No equivocation, no hyperbole, and clear as a bell.
And watching this, most everyone in the scene (as well as the theatre) says, "Hey -- she's right! This Bullshit is fucked up an' shit!!"
(All right; save it -- and yes; I borrowed that tart little phrase from The Great Curmudegon. But the people in the theatre are thinking something like that.)
This will be a short but simple post, to clarify some fundamental misunderstandings about the purposes of laws, regulations, and codes of conduct in society.
Laws do not prevent crimes. We can legislate all the criminal laws we want, but there will still be bank robberies and drunk driving and murders. We pass laws not to prevent these acts from taking place, but rather, to make sure there is a very high cost to committing them.
In fact, we legislate criminal laws for three broad reasons:
1. Let people know exactly what is acceptable and unacceptable behavior.
2. Punish people who violate these norms.
3. Remove the dangerous people from society for the protection of everyone else.
We create corporate regulations in order to effect similar broad policy purposes:
1. Inform companies what is unacceptable economic behavior.
2. Punish corporate management who violate these norms.
3. Remove dangerous economic behaviors from society.
By economic behaviors, I refer to any impact a company has in the broader economy...
When it comes to laws, there is always a trade off: My freedom ends where your nose begins... Anything a corporation does that threatens these same things is fair game for regulation.
There is a nefarious group of corporate cronies who abuse the word “Freedom.” They employ the word to mean curtailing everyone else’s freedom. They seem to believe Freedom is a license to behave recklessly, to endanger third parties, to risk the economy.
It is not.
The sooner we recognize these simple truths, the faster this society will be heading in the right direction. I suspect that the longer we delay recognizing these truths, the slower our economic recovery will be.