The election of Donald Trump was due, in no small part, to the abject corruption of our elite.
“The major function of criminal law in a capitalist society is to prevent people from bypassing the system of voluntary, compensated exchange-the “market,” explicit or implicit-in situations where, because transaction costs are low, the market is a more efficient method of allocating resources than forced exchange. Market bypassing in such situations is inefficient — in the sense in which economists equate efficiency with wealth maximization — no matter how much utility it may confer on the offender.”
The flip-side of Posner’s theory was that unlike the poor, the wealthy required only tort law to ensure their proper behavior.
Posner–“This means that criminal law is designed primarily for the non-affluent; the affluent are kept in line, for the most part, by tort law.”
Coincidently, Alan Greenspan, former Fed Chairman and Ayn Rand fanboy, believed the very same theory. However, Greenspan, in the wake of the 2008 Wall Street Crash, was forced to recant his magical thinking and grudgingly admit that he had found a flaw in the model.
Why is this magical belief system so important?
For the last 40 years, under the rubric of neoliberalism, both Republicans and Democrats have held this very same theory: regulations and laws only apply to the little people, while the innovators and entrepreneurs that create wealth should be free from such nuisances because their honor and reputation would keep their animal spirits in check.
Consequently, punishment for crime committed by elites has all but collapsed over the past couple decades.
While the Republicans favor energy, manufacturing, and the Military/Industrial/Complex, Democratic party constituents represent a cross section of finance, high-tech, Hollywood, and, of course, the Educational/Industrial/Complex.
In a must read post at Naked Capitalism, Yves Smith, examines the student-loan-securitization complex and it’s Democratic supporters. In the process, she demonstrates not only how the mortgage-securitization process that crashed the US economy in 2008 was the template for the student-loan-securitization, but also that this new scam is ongoing precisely because of the stunning failure by the Obama administration to hold the banksters accountable.
This failure still makes my blood boil, so I’m going to include a big-steaming chunk of Yves indictment.
“There was a way to have brought the entire mortgage securitization complex to heel. As we chronicled, starting in 2003, more and more originators failed to take the steps necessary to transfer mortgages to securitization trusts. About 80% of the securitizations had elected New York law to govern the trust. New York trust law is ancient and well settled. It is also rigid. An asset has to be conveyed specifically to the trust; endorsements in blank don’t cut it. Separately, the securitizations had also required that the mortgages be transferred to the trust by a specific date for tax law reasons.
Normally, when something is screwed up in a contract, you simply write a lot of waivers and maybe someone has to pay for the waivers. But these contracts were rigid. You couldn’t write waivers to fix these problems. Instead, a mini-industry of document back-dating, forgeries, and fabrication grew up to create a paper trail covering up the original sin of the failed securitization.
That means the Obama Administration held a nuclear weapon which it refused to use. It could have called in all the servicers, the big dogs at the banks that owned them (to the extent they had banks as parents; some didn’t), and the big names among the investors, like Pimco and Blackrock.
They could have sat all, say, 50 of them in a room and said,: We know that legally, most of the securitizatons post 2003 are empty bags. The mortgages never got to the trust. And that can’t be fixed now. So you have two choices. Either we sit back and allow or maybe even help the parties that are exposing this massive securitization failure. That will lead massive losses and litigation on a scale that will destroy a lot of wealth and almost certainly a lot of institutions. Or you will give principal modifications to qualified borrowers. You figure it out but if you don’t do this we will blow you all up. It is not acceptable to have millions of unnecessary foreclosures because your servicers can’t be bothered to do them. You staff up and eat the costs. They are trivial compared to the alternatives.
It used to be routine for government to have chats like that (usually a bit more coded but the bottom line was clear) when businesses rode roughshod over the public interest. So don’t pretend it couldn’t have been done.
The Obama Administration chose not to do it.”
Right now, the Democrats, and indeed the entire elite class of politicians and journalists are focused on Russian interference into our sacred democratic process as a way to deflect from their own culpability in creating the corruption that brought us to where we are now.
Corruption is not a bug, but a feature of neoliberalism. Rather than pushing for a Laissez-faire role for government as some supporters and critics allege, neoliberals in both political parties promote an activist role for government, albeit a bifurcated one, where there are harsh penalties imposed on you and I if we stray from the savagery of the “market,” while elite criminals are massively enriched and celebrated.