Where does all that settlement money go?
In the Alternative Banking meeting yesterday we kicked things off with a great visit from Katya Cohen, author of a new book called The American Spellbound, where she describes the fictional account of a women working in a large bank and learning to fit in with the mindset of greed combined with a superhero complex. Good stuff, and it explains at least a little bit to me about what the heck was going on in the one outrageous Robin Hood Foundation awards night dinner I went to at Cipriani way back when.
After that we talked for a bit about the recent S&P settlement with the Justice Department, which was one of those nobody-goes-to-jail deals that cost $1.5 billion.
Now, that’s a lot of money to you and me, but it’s not that much to huge financial institutions; in the case of S&P it’s about two years of profit, depending of course on which two years you’re talking about:
That’s not what we focused on yesterday, though, because it’s really old news. All these massive settlements are relatively manageable for the financial companies that end up paying them. In fact that is implicitly part of the deal, and it’s part of why the system is so contemptible. In the end, the settlements don’t substantially threaten business as usual. Instead, as Gerald mentioned, you should take the word literally: the settlements do nothing but “settle” things back to the way they were.
That brings us to the question we focused on yesterday: where does all this money go? It’s big money after all, and if it goes into state coffers, to be used as Cuomo or whomever sees fit, then the concern is that, as corrupt as this system is, there will be powerful forces at work to keep it just like this. If a given state (New York State, I’m looking at you) gets addicted to this cash flow, there will be no reason to change tactics and, instead of massive fines, simply jail wrong doers and break up or dissolve corrupt institutions.
In fact, if you think about it, there will even be reasons for places like New York State to allow wrongdoing in order to cash in for the settlement a few years later. The more you think about it, the more this “big fines but no jail time” settlement practice we now have in place seems like a way to legalize and tax crime.
Anyhoo, we might be getting ahead of ourselves (although, equally, we might be late to this game) and so we’d like to follow the money. Where does the settlement money go? Do the funds earmarked for “victims” actually go to victims? Is this information available beyond vague statements like “S&P parent McGraw Hill Financial Inc, said it will pay $687.5 million to the U.S. Department of Justice, and $687.5 million to 19 states and the District of Columbia, which had filed similar lawsuits over the ratings“? Can we build an infographic to see who might be compromised in terms of demanding and enacting a more functional white-collar crime system?