Why We Regulate Capitalism: Five Easy Pieces
As the neocons and The Mitt whine and complain about excessive government regulation, and how it stifles capitalism, WC offers in response five different, specific examples of why regulation is absolutely necessary and why unfettered capitalism a very, very bad idea. Five easy examples, Five Easy Pieces.
1. Frédéric Chopin: Fantasy in F minor. JPMorgan Chase managed to lose $7 billion (and still counting) by – how to say this charitably – failing to adequately supervise one of its departments. JPMorgan Chase is in that special class of U.S. financial institutions that is Too Big Too Fail. It JPMorgan goes down, it could take with it the U.S. economy. But it places billion dollar bets using taxpayers’ monies. And complains about excessive regulation.
2. Johann Sebastian Bach: Chromatic Fantasia and Fugue. Then there is Barclays Bank and its LIBOR games. LIBOR is the reference interest rate for an astonishing number of financial deals, ranging from your credit card to Alaska bond rates to U.S. Treasury rates. Yet it turns out that Barclays, and likely other banks, having been gaming the rate for their own benefit. The bankers and traders at Barclays didn’t care about the repercussions of gaming the rate; they only cared that it made them more money. It’s too early to know how big this debacle is, but it may be the largest single criminal act in history.
3. Wolfgang Amadeus Mozart: Piano Concerto No. 9 in E-flat major. WC has written earlier about GlaxosmithKline and its marketing of drugs for unapproved purposes. GSK pled to three charges the USDOJ had made against it. First, that it marketed Paxil, an anti-anxiety drug, for use on children and adolescents, when it was only approved for adults. Second, that it marketed Wellburtin, an anti-anxiety drug, as a weight loss drug. And third, that GSK failed to report grave safety issues with its Avandia, a diabetes drug. The $3 billion fine, while the largest every levied on a U.S. company, may be less than a pimple on its financial statement, but it may make GSK more prudent in the future.
4. Frédéric Chopin: Prelude in E minor. WC has also written earlier about MF Global and its theft of investors’ trust funds. In a desperate financial jam, MF Global, headed by a former U.S. Senator, didn’t hesitate to do so. MF Global did not hesitate to put its own interests ahead of its customers.
5. Wolfgang Amadeus Mozart: Fantasy in D minor. And as our final piece, Capital One has been caught once again ripping off its own credit card holders. As a result, Capital One is facing fines totaling $210 million Most of the fine arises out of the first reported enforcement action of the Consumer Financial Protection Bureau, who obtained a consent decree – a de facto admission of wrongdoing – from Capital One. Consent Decree 0001, in fact. The Comptroller of the Currency tagged Capital One for bogus billing practices. Capital One is a recidivist, a repeat offender. It was nailed by the Comptroller back in 2010 for extorionate fees, including big fees to close an account.
Like Bobby Dupea, the surly protagonist of the movie, capitalism is utterly amoral. In its rawest form, it is accountable only to its shareholders for the highest possible profit. Capitalism requires big businesses to obey the law only if the cost-benefit ratio justifies it. If there is more money to be made by selling dangerous, unapproved drugs to kids than the likely fines if you get caught, then pure capitalism requires – mandates – that the company do so. If Capital One can make more money tricking its customers into buying bogus payment-protetion insurance than the fine it will face if it gets caught, then that’s what it will do.
It’s not just, it’s not fair and it’s nor right. Regulators always struggle to keep up. They get co-opted. They get bribed. But however limited their success, the result is better than no regulation. Defending them is easy. Five Easy Pieces.