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Sunday, October 23, 2016

Unequal enforcement of the law will distort and destroy any capitalist society, and we may be witnessing just such a downward spiral in the financial sector.

Capitalism is not an abstract idea. It is an economic system with a distinct set of underlying principles that must exist in order for the system to work. One of these principles is equal justice. In its absence, parties will stop entering into transactions that create overall wealth for our society. Justice must be blind so that both parties — whether weak or powerful — can assume that an agreement between them will be equally enforced by the courts.

There is a second, perhaps even more fundamental, reason that equal justice is essential for capitalism to work. When unequal justice prevails, the party that does not need to follow the law has a distinct competitive advantage. A corporation that knowingly breaks the law will find ways to profit through illegal means that are not available to competitors. As a consequence, the competitive playing field is biased toward the company that does not need to follow the rules.

The net result of unequal justice is likely to be the destruction of the overall wealth of our society. I don’t mean the wealth of individuals; I mean the total wealth of goods and services that are the benefits of healthy competition. To the extent that unequal justice prevails, entities that are exempt from the laws will, in all likelihood, be more profitable than law abiding competitors. Then they use their profits to further weaken competitors by using their illegal profits to further build their businesses at the expense of competitors. All of this business building activity is based on a foundation of sand, and ultimately the entire industry — or even the larger economy — becomes distorted. The “rogue” company gains power, changes markets, and destroys direct and indirect competitors because it is playing by different rules.

The above scenario is not simply a hypothetical example. It is exactly what happened at Worldcom. As the company succeeded because of its then-unknown illegal activities, it grew, managed to take over MCI (one of the true innovators in the industry), and weakened competitors who could not match its profitability. Ultimately the whole edifice collapsed, causing massive wealth destruction in the telecommunications industry and the economy as a whole.

In the WorldCom example, appropriate legal enforcement and prosecution did not occur until the accounting fraud and other crimes were detected. Thus, while it is more an example of undetected accounting fraud than unequal justice, the results are illustrative. In a society with unequal justice, the appropriate laws are never enforced, so entities acting outside the law continue to grow more profitable and powerful (as compared to everyone operating according to the rules). Moreover, the profits from illegal activities can be used to subsidize competition across the spectrum of business activities of companies acting outside the law — which further enforces the competitive advantage, and possible hegemony, of entities operating on a different playing field.

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Copyright 2012 The National Memo
  • Does anyone out there remember a time when if you needed a barn built, The whole neighborhood was there and the laws applied to all equally? Even the Republican party has strayed away from their own beliefs and policys,tending to lean more toward where the money is, not equality,It is becoming a sad sad world.

  • howa4x

    We have always treated white coller crime differently than street crime, which seems more random and visceral. The war on drugs is a good example. Our prisons are loaded to the breaking point with people involved somehow in the trade. What if our prisons were loaded executives from financial institutions or corporate boardrooms? When Spitzer was Atty General of NYS they were. He went after crime on Wall st and put people behind bars , and for a while it became less apparent. The 3 biggest reasons its treated differently is that the executive criminal makes millions in political contributions and also religious ones, and can call in favors..They can hire top flight law firms that can force the government to settle to avoid costly legal battles. The third is the crimes are seen more as victumless. If investors get defrauded then the feeling is it is up to them and the board to stop it, and it’s viewed more of a breach of contract than a violent crime, so a civil suit is usually done. People fear street crime because it’s closer to their lives and politicians prey on that fear, so a law and order, lock them up veiw is taken. Drug abusers looking for dope money will prey on anyone. Wall st, and corporate boardrooms, are too distant from people lives, and because financial instruments have become more complex its harder to pinpoint true blame.
    The underlying problem is that if investors loose confidience in the integrity of financial instutions then they won’t invest anymore, and soon pension funds will also stay away. Punishment will be going out of business, or getting fired, not jail

    • lexi001

      You’re buying right into what you are being told; that if we put any restrictions on the big boys they won’t invest. Really, what exactly do you think they are going to do with all that money? Put it under the mattress? They’ll invest. God forbid they don’t make the same obscene profits, but they will invest.

  • ricklarry

    if laws are not equally enforced who would respect them and who should respect them. I concluded there shall be no respect on either side .

  • lexi001

    As anti-Republican as I am, when Obama put his administration together it became apparent that there would be no changes in Big Business. My disappointment was huge. Who did he have make up this admin? The financial big-wigs. Having been in the financial industry for the past 27 years, and still in it, I, small little business woman that I am, wrote a letter to my Banking Commissioner in 2007 complaining about what was going on in the industry, i.e., particularly the housing market. I said in that letter if something is not done SOON, we are going to see foreclosures in this country the likes of which most of us cannot even imagine. What do you think the response was? I received a thank you letter for my input! Then a year later when the proverbial s**t hit the fan, they all claimed to be taken by surprise. Four years later the only people that have paid for this are small residential brokers, realtors, and a few lawyers involved in fraud. Many of those, along with large fines, have gone to jail. Going to the top of the food chain, rating agencies, would have seemed the first step; did that happen? No. We all heard some buzz, and then like all the other “buzz” they jumped on the band wagon to regulate small brokers!! I believe “they” thought the general population would buy into the belief that they have gone after the “bad guys”. That regulation put a lot of “little” guys right out of business, made it harder for the “little guy” to get a loan and more costly for the “little guy” to stay in business. Once again, four years later the financial industry is making money hand over fist. The new program for underwater borrower’s has, once again made it a bankers dream. The banks are making incredible amounts of money on these refinances. All of these programs, from TARP money to this last program has benefited no one but big business. No regulation is ever put in to these programs with any stipulations on what can be done with these HUGE give-aways. The sad fact of the matter is, unless you are in this industry most Americans have no idea what has really happened here.

    • You need to understand that from day 1 this country was run by the rich for the rich and there is no way we will ever pass any law that does not foster these ends. There are no poor people in Congress, Never was, and never will be. They were originality called the “Landed Gentry” and today we call them the 1%ers. They only difference between any of the political parties is the degree to which they was to starve and steal from the poor.

  • CSW

    Justice is Blind. We need to remove all corrupted Politicians from the Federal,State and Local Governments. I for one would go out and get the rope. We can start with Eric Holder, we may have to use some old rope because we would run out. There isn’t any good left in this Republican field but for Dr.Ron Paul. Romney has the same Masters as Obamo. Goldman-Sachs. Newt will run the Nation like he did with all his ex-wife’s. We know Obamo isn’t even a real American,But the Congress is gutless to even Impeach this dirt bag.

    • mike112769

      Our Congress is a disgrace to the name. They have let the President treat them like lap dogs. They are the ones that are supposed to be running this country, not the president. We need to implement term limits for every electable job, from dog-catcher to Senator. Staying in office for decades while taking bribes from lobbyists are not what the Founders had in mind by “serving in Congress”.

      • Jon

        I really can’t fully agree with you mike.. Though everything you’ve said has been documented, my concern lies with you’re belief that it’s the president who’s doing this (no matter who that may be) instead I sense a higher evil manipulating our governmental system.. How else can it continue to exist even with moralistic leaders in the white house? Of course, our last two POTUS (if not further than that) haven’t been to one or the other majority’s liking, still there are those behind the scenes who laugh everytime we make such mistakes. That the leaders are also subject to the same treatment thus give the impression that it’s their doing (‘scape goats) wouldn’t be surprising to me at all. Take the Nixon era for instance, so vile was his leadership that we ousted him out of office (with the threat of impeachment) thus the evil was vanquished yet criminal activity continued to swill even to this day. In fact, Nixon was just another crony who happened to fail in covering his own ass and went down as the sacrificial lamb for the hidden elite who noted his flimsy attempt at trying to play like the big boys so thus was eliminated from their flock. In the eyes of these (Illuminati?) there hasn’t to date been anyone on the throne capable enough to kick start the new world order (thus the hidden keeps trying).

    • lexi001

      Your post started out with me actually listening to you; as soon as you got to your last line I realized I was just reading another racists comments. Why don’t you use some decorum in your discussions so people might actually want to hear what you have to say? Believe me the only people listening to you are other racist. Do you think there is a difference between racist and the Taliban? There isn’t. Look at the life in the Middle East. Apparently, you’re hoping for a similar life-style here.

    • Christian Martin

      Preach the gospel. Ron Paul is probably the only one(Narcisstocrat or Republiturd)that cant be bought or bullied by Fed Res or Goldman- Suchs. I found it it truly amazing how alike Bush and Obama are. Very little changed from administration to administration. I think that there was some kind of inside bets between the two on who could rack up the most debt the fastest and who could do the most to circumvent rights and freedoms. Is there a clear winner?

  • mike112769

    The biggest criminals are in Congress. Our “representatives” forgot all about us, and just took the pay-offs offered by Big Business. Corruption in our seats of power is where you see true “trickle-down” economics in action. It affects the whole business industries’ dealings with our politicians.

  • Jon

    However, capitalism depends on consumer fraud and underhanded corporate practices TO survive. Are we talking ‘oxymoron’ here..?

  • Genny Abbott This is so true & well put. Seems values in this country have just been turned on their heads for all the big-shot “important (self-appointed) people in our country now–guess it’s go ne on a good while actually; just seems to be really mushrooming all over now.

  • lexi001

    I understand completely, Rvn. I agree with you. I don’t know whether you thought my post was an indictment of any particular group. It was not. I’m well-aware that we appear to have no power to change things. I wish I had leadership abilities, but I do not. We need someone or someone (s) to lead the masses in a revolution. By that I do not mean carrying guns!! That is not the answer, although it appears many are thinking this way. That’s a thought for distinction. Quite frankly, I think they are hoping we will pick up arms. Then they can mandate for a military state. People should be very wary of what they wish for. I also believe that the mechanics that are working within the political world have been in the works for years. The sad fact is people are walking right into the trap. Look at the anger and rage in the population. Us vs Them. That is exactly the mantra of the GOP. They now have the population right in their grip. The only way the “little guy” will ever come out of this with the freedoms we THINK we have is to stand together. I can see by what’s going on that that is not going to happen. I believe they have already won. I hope and pray I’m wrong and that the passiveness I encountered everyday ends. So many people just don’t get it.

  • when the us government is the largest drug and arms dealer on the planet, do you think wethepeople will ever see justice? get real.

  • rustacus21

    Ironically, President Franklin Roosevelt, in his 1933 book, ‘Looking Forward’, starkly & accurately predicted that in order to avoid terrible ‘cycles of prosperity crumbling into depression’, the need to ‘…plan wisely and rest our structure upon a base sufficiently broad… enacting permanent safeguarding of our social and economic life…’, where vigilance would be our best path to sustained prosperity – NOT wavering & falling to the temptation of the ‘gamblers’ risky & obsessive lust for greater wealth & profit. B/c many Americans have been ‘denied’ exposure to this brand of Liberal/Progressive philosophy, Conservatives have been able, instead, to convince American’s lacking in this ‘enlightened’ orientation to continually fall victim to the ‘temptation’ of get-rich-quick scams, such as ‘wealthy-only’ tax cuts, laze fare ‘free market’ manipulations & supply-side economics – all of which have completely & again – predictably – brought America’s economy to 1 ruinous brink after another, of near collapse. In other words, we’ve been thru this all B4. The ‘foundation’ established by the Roosevelt administration kept the nation’s economy safe & strong for over 40 years, was victimized by the Reagan-esque divisiveness of ‘race economics’, which pitted racial & ethnic demographics against each other, resulting in obliteration of workplace Democracy, as represented by Unionization & its equal-pay/opportunity provisions. Consequently, ‘white-collar crime’ is excusable & often rewarded, b/c it’s, well, a crime committed by the more ‘gentile’, sophisticated & ‘entitled’ class, but no less evil, in its magnitude. This article proves that the Constitution has all the tools necessary to restrain the ‘unruly noblemen’ & corp’s, who now, as they did xactly 80 yrs ago, manipulated the rules of the economic ‘game’, which enabled their criminal tendencies. Liberal/Progressive solutions have been the only safeguard. Its TIME to enact them yet again…

  • lugdus

    The link to Wikipedia you provided refutes this statement.

    “As the company succeeded because of its then-unknown illegal activities, it grew, managed to take over MCI ”
    From Wikipedia
    “On November 4, 1997, WorldCom and MCI Communications announced their US$37 billion merger to form MCI WorldCom, making it the largest merger in US history. On September 15, 1998 the new company, MCI WorldCom, opened for business, after MCI divested itself of its successful “internetMCI” business to gain approval from US DOJ.[4]

    Beginning modestly in mid-year 1999 and continuing at an accelerated pace through May 2002, the company (under the direction of Ebbers, Scott Sullivan (CFO), David Myers (Comptroller) and Buford “Buddy” Yates (Director of General Accounting)) used fraudulent accounting methods to mask its declining earnings by painting a false picture of financial growth and profitability to prop up the price of WorldCom’s stock”