Crime and Punishment

I heard, today, of another case of a bank (well, really a hedge fund, but that's a fairly blurry line) getting fined for wrongdoing.  In this case, it is SAC Capital being fined by the SEC for insider trading.  I'm glad to see that there's at least a little enforcement here, although I wonder if the punishment fits the crime.

What is known is that the firm admitted wrongdoing (rare, these days), and is being shut off from outside investors (this was also a surprise), and is paying $1B.  That sounds like a lot of money, but I wonder if it really is.

The NPR piece about it, this morning (on Marketplace, I think) mentioned a single one of the incidents on which this case was based, netted $300M.  Which begs the question of whether the firm still came out ahead, even after paying the fine.  Given that they apparently were getting 25% annual returns, and that that was only one incident (though undoubtedly the biggest one), I suspect, in pure dollar terms, that they're still coming out ahead.

If that's the case, you have to wonder if that actually serves as disincentive for those doing the trading.

The one reason I'm not sure it isn't one is that, for one, they're being cut off from outside investors.  That could be a deathknell; we'll see.  And two, there are ongoing cases with eight of the employees as well.  If those eight are nailed to the wall, then perhaps there's a bit of deterrent for the future.  If not, this seems like another slap on the wrist (a la JP Morgan, paying seventh months profits (yeah, that $13B fine seems like a lot until you put it in those terms) for mortgage fraud that robbed thousands (via pension funds, probably tens of thousands) of people out of their homes and/or savings) to the banking industry.

Outrage on the Way

What would you think if you needed to refinance your mortgage, and you knew that the company that would be backing the loan had a vested interest (as in, would make money) by saying that you didn't meet the loan standards. Well, it turns out that that's what's been going on for a while now at Freddie Mac (and maybe Fannie as well. I forget).

To be clear, it is unknown if that has caused anyone to be rejected for a mortgage.

What is clear is that Freddie has been making investments that go down in value when people within the pool of mortgages on which a given investment is made refinance. What is also clear is that standards have gotten much tighter (this is not completely suspicious; it obviously needed to be done).

Whether there is a direct connection basically revolves around Freddie's goodwill. Do you want to rely on that?

More to the point, should you have to rely on that from an institution that has been bailed out by the federal government to the tune of tens (maybe hundreds? I forget) of billions of dollars, recently?

Also to the point, the type of investment made is a very risky one, in general. A lot less risky, when you're Freddie Mac, and taking advantage of your market influence. In fact, almost without risk if that connection does exist.

Given that, I'd be absolutely gobsmacked if there was no connection between Freddie's standards and those investments (actually, I'd call them bets, not investments).

More to come...

A Taxing Situation

I've known for a while that, last year, I paid more federal tax on the first gallon of gas I bought than Exxon-Mobile, with its $50B in profits, paid out. (I'm sorry, I'd like to say where I got that conception of the problem from... Maybe a Matt Taibbi-penned Rolling Stone article? If not, he's still a fantastic reporter; one of not many looking to stick it to the powerful. In any event, I can't find it and would be happy to have it pointed out to me.)

This Daily Kos diary discusses one of the strategies by which those taxes are avoided.

This sort of thing leads to a weird situation where I'm not at all sure there's any direct way to monitor. I think it leads to a need to just base taxes on corporate reporting statements, or something along those lines. Frankly, if you're going to do business in America, you should pay taxes in America. It really is as simple as that.

And it looks like it might be nearly impossible to actually trace the money. I don't know. Anyone see the problems with that approach? (Other than that it only works for publicly-traded companies, although I think making it only apply to publicly-traded companies isn't too big a deal. Remember, for those companies, they want profits to look as large as possible, so investors will be more likely to buy. Hence, more tax liability. Simple.)