Only a few weeks into his second term, Donald Trump and his billionaire buddies are doing their best to dismantle the federal government’s regulatory agencies. So today, we’re revisiting a compelling conversation we had in 2020 with journalist and podcast host Michael Hobbes about a piece he wrote in HuffPost titled “The Golden Age of White-Collar Crime.” Initially reported against the backdrop of Trump’s first presidency and its alarming erosion of regulatory oversight, Hobbes breaks down the staggering prevalence of elite deviance—where the wealthy evade accountability for crimes that cause immense social harm—and also offers insight into why white-collar crime often goes unchecked. It’s a timely reminder of the consequences of allowing the ultra-wealthy to operate above the law.
This episode originally aired on March 10, 2020.
Michael Hobbes is a journalist, podcaster, and former senior reporter for HuffPost, known for his in-depth investigations into social issues, economics, and media narratives. He is the co-host of If Books Could Kill and Maintenance Phase, and previously co-hosted You’re Wrong About, where he debunked cultural myths and misconceptions. Hobbes has also contributed to outlets like The New Republic, Pacific Standard and Slate covering topics ranging from housing policy to moral panics.
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Goldy:
Hey, Pitchfork listeners, Goldy here. What with Donald Trump and his billionaire buddy doing their best to dismantle the federal government’s regulatory agencies over the first few weeks of the new regime? We thought it might be a good time to re-air our conversation with podcaster Michael Hobbes about what he calls “The Golden Age of White-Collar Crime.” If you thought it was bad four years ago, you ain’t seen nothing yet.
Speaker 1:
The so-called Pharma Bro has been sentenced to seven years in prison. Martin Shkreli convicted of defrauding investors.
Speaker 2:
Corporate bigwigs inflated Enron’s earnings by several hundred million dollars.
Speaker 3:
A New York Times investigation claims the president was involved in multiple instances of tax fraud.
Speaker 4:
Bank executives wrecked the global economy. Only one Wall Street banker was jailed.
Speaker 5:
White-collar criminals differ from other types of criminals in one important way, they’re much worse.
Speaker 6:
This is Pitchfork Economics with Nick Hanauer, a podcast about how to build the economy from the middle out. Welcome to the show.
Zach:
Hey, it’s Zach. I’m the president of Civic Ventures, and I have the pleasure today of talking to Michael Hobbes. Michael is one of my favorite journalists. He does some of the most incredible writing and thinking about current American life, and the podcast he hosts digs into some of the most interesting stories. Today, Michael and I are going to talk about The Golden Age of White-Collar Crime, his most recent piece in HuffPost. This is about elite law breaking and how out of control it is. And the subhead here is, “This is the grotesque story of an existential threat to American society.” So Michael and I are going to discuss his piece and really the general gist of it is, the rich are enjoying a golden age of impunity that’s unprecedented in modern history. He uses a term called “elite deviance,” and elite deviance is all the illegal and illegal social harms that are caused by the wealthy.
So for example, one year of white-collar crime is equal to two decades of street crime. That’s one of the statistics he points out, which is to say, when you commit a white-collar crime, you are committing millions and millions and millions of dollars of social harm. And then where this really is prominent is in tax evasion, which has gotten a lot of play, and Michael talks a lot about that both in the piece and when we talk today. And tax evasion siphons 10,000 times more money out of the economy every year than bank robberies do. So these are the kind of elite deviances that Michael talks about in his piece, The Golden Age of White-Collar Crime. I hope you enjoy the pod. Michael, super excited to have you here.
Michael Hobbes:
Zach, excited to be here.
Zach:
Thank you so much for coming. Could you tell people about yourself?
Michael Hobbes:
I’m from Seattle, so that’s why I’m able to be here today. I am a reporter for the Huffington Post. And I am the co-host of a podcast called You’re Wrong About.
Zach:
That’s one of our favorite podcasts here in the office.
Michael Hobbes:
Thank you.
Zach:
Yeah, it’s really awesome to have you here. And you wrote, I mean, really the reason we are having you in, in addition to you being a fellow Seattleite and incredible podcast host, you wrote a piece for the HuffPost, and we found it to be incredibly insightful and provocative. Will you talk a little bit about the piece and your approach, and then let’s just get into digging around on it.
Michael Hobbes:
So one of the most interesting things doing a piece like this was we basically set out to find out why aren’t rich people going to jail anymore? Why does this feel like there’s this avalanche of what’s known as elite deviance in the academic literature, and yet elites aren’t going to jail the way that they used to be? And when I was talking about this with my editor, he said, “I really want to get the sense of the cat and mouse game, this kind of catch me if you can, chasing criminals across the world, moving money around.”
And then the minute I started looking into this, the first thing that I found was that there kind of isn’t a cat and mouse game. And what it really requires to bust rich people, the most damaging form of crime we have in this country, is just the blunt application of resources. And it’s just something we don’t dedicate resources to anymore. It’s something that we know where to look for it, we know exactly the forms that it’s taking, we know how to get money back from The Bahamas, but it just takes months of work and we’re not willing to invest in it anymore. So that’s a boring answer, but it’s the true one.
Zach:
Huh. What do you think, first of all, can you track when you think this new age, I mean, you call it The Golden Age of Impunity, where the very wealthy, very powerful are able to commit really, you’ve point out a lot of financial crimes, but we can also look at other types of crimes that they’re committing. I mean, obviously Epstein is in the news and he’s committing these crimes over a long period of time without real consequence until very recently. And there is this kind of age of impunity. When do you track it back to if you had backcast?
Michael Hobbes:
Well, there’s a couple layers to this. So the impetus, the most obvious finding that we began the story with was this idea that there are now fewer white-collar prosecutions than at any time since we started tracking them. Since researchers started looking into this in the 1990s, we now audit only about 3% of millionaires.
Zach:
How about that?
Michael Hobbes:
It’s in the triple digits somewhere, the number of white-collar prosecutions. And so this is something that, the easiest way to illustrate this is that for the Savings and Loan Scandal in 1989, 700 people were convicted. For Enron, in 2001, about 40 people were convicted. And then for the financial crisis in 2008, one person was convicted. And so there’s a very clear sort of line downward of just how much interest we have in this anymore. But what’s really interesting is that it’s really a nesting doll type of catastrophe. So the first layer of it is just we’re doing fewer white-collar prosecutions. But the second layer of it is really that white collar is not a very accurate term because when you start looking into this, what you find is that most of the “white-collar prosecutions,” I’m making air quotes, are actually low level stuff. It’s like identity theft. I read somewhere that four out of five people convicted of embezzlement made less than $10,000 a year before they were convicted. It’s middle managers using the company credit card to buy themselves an iPhone. It’s not high level Enron banker securities fraud stuff.
Zach:
And you point out in the piece that this is partially due to the statistics around white-collar crime are inflated. So if you’re reading the statistics, you might assume, “Oh, we’re actually prosecuting quite a lot of white-collar crime, but it turns out what we’re prosecuting are these relatively minor players for these kind of minor crimes, and the uber wealthy committing really egregious tax evasion or other types of fraud or abuse are getting away with it.”
Michael Hobbes:
Yeah, I mean, the most damaging forms of crime are those committed by the powerful. I mean, if you look at something like the Flint Water Crisis, that’s 100% done by elites. You look at something like the Opioid Crisis. You look at something like Enron jacking up the prices of energy by faking all these blackouts in California and the price of energy spiked by, I believe, eight times in California. I mean, these are huge effects on people’s lives, and yet our entire system of criminal justice is really meant to go after bad apples.
Its individuals working with no institutional support. But then the way that one researcher put it to me was, we can’t go after bad orchards when there’s entire organizations that are acting terribly like the Catholic Church or Goldman Sachs or one of these other big financial firms in the financial crisis. It’s really impossible for the criminal justice system to pluck any single person out of that and say, “You were doing wrong,” because the responsibility is so diffuse across the organization that it is almost seen as unfair to say, “Well, this one person was at the heart of it,” because you can’t really prove it.
Zach:
So it’s difficult to track to win. But we know that over time, and I thought that was an incredible outline, but you’re going from hundreds of prosecutions to dozens of prosecutions to one prosecution, so we know that it’s declined. And you interrelated in the piece with the fact that we have really deprioritized this as a government, like our federal government in particular, although I assume that this is also trackable at the state level, it takes really time and resources. It’s not a game of clue or catch me if it can. It’s actually just really hard drudgery work that takes real human time and capital and purpose and attention by these agencies. And that’s just been wiped out.
Michael Hobbes:
Yeah, I mean, what the pattern that has repeated itself over and over again since the 1980s is you have these regulation agencies that are supposed to be looking into polluting in the rivers or toys that are going to kill us or these kinds of background risks to the population. And what happens is these agencies, when Republicans are in government, they cut their budgets, and then when Democrats are in government they increase the amount they want those organizations to do. So over time, you have fewer and fewer resources and more and more obligations. And so what this does is it adds up to this thing where every time a scandal reveals how weak these organizations are, Congress steps in and makes it worse.
So after Enron, for example, we passed Sarbanes-Oxley that puts all of these extra obligations on the SEC. They have to review tons more companies, trillions more in assets, and they get, I believe it was like 200 more inspectors. So it’s like they’re asked to do twice as much and 10% more staff. And then by the time we get to the financial crisis, again, Congress says, “Well, you were asleep at the wheel. Why weren’t you doing this?” And then they come in, they pass Dodd-Frank, which again gives the agency way more to do, and then they again give them 5% more staff. And so we’ve just set ourselves up for the same thing to happen again, because we’re only going back and correcting the mistakes of 20 years ago rather than bringing these agencies up to where they need to be now.
Zach:
One of my favorite moments in the piece is you actually attend this conference.
Michael Hobbes:
Oh, yeah, OffshoreAlert. Yeah.
Zach:
Which I love the name of the conference. It’s a little fraud guarantee. It’s a really clever… Could you talk about going to this conference? I assume in the piece you had so much to cover, I wanted to even hear more than what you ended up talking about.
Michael Hobbes:
Oh, my God, I could have written five essays on that conference.
Zach:
Can you give people context for what it is and how you ended up there? And then just pull out some stories from this experience.
Michael Hobbes:
Well, it’s basically a conference that happens twice a year that is basically like a cops and robbers conference. It’s people who investigate offshore wealth and it’s people who hide wealth offshore. So it’s a bunch of tax lawyers for the wealthy, and it’s a bunch of IRS and SEC agents and senate staff who are investigating this stuff. And it has this weird sense and it has this surreal kind of vibe where you’re watching IRS agents, one of the people that I spoke to there, she can’t afford to get her business cards printed. The agency won’t pay to print her business cards anymore. So she prints her own business cards with like IRS email at Kinko’s. She’s spending her own money on this.
And then you have these extremely wealthy tax lawyers that have just flown in from the Cayman Islands. They’re wearing Rolex watches. And you see these two people chatting over guacamole and just kind of like, “Oh, how’s your year been like?” “Hey, how are you?” And it’s this very strange thing where it’s like this truce has been declared. But then what you find when you talk to these people is it’s not that these people are really at war with each other the rest of the year, and they’ve called it truce, it’s that both sides of this equation know exactly the same thing, which is that the ways that rich people hide their money offshore and avoid taxes is actually pretty easy to unravel if you have the time.
So one of the guys that I was speaking to there was, I mean, he mentioned the average millionaire, billionaire, their tax returns are 900 pages long, and they have hundreds of bank accounts and dozens of companies. And so you get a subpoena, you find out his Bank of America account has all these sketchy transfers from The Bahamas. Then you contact the bank in The Bahamas, you get a warrant from The Bahamas, you get judges and you finally find out what all these transfers into his Bahamas bank account are. And he says, “Congratulations, that took you six months and cost you $150,000,” to do all of that because there’s all this procedural stuff.
You have to go down there. They won’t let you look at the documents from abroad, et cetera, et cetera. And so it really is, you just need the money to do this. There isn’t a lot of intrepid guesswork going on. It’s really just money. And we just don’t invest in this. And so there isn’t really any risk of the cops and the robbers to be hanging out with each other and going to bowling happy hours because they’re not going to accidentally reveal anything about their clients because the cops already know where their clients are hiding money. They know exactly how. It’s just, “We can only do this once or twice a year.”
And the way that another researcher that I met there put it was, there’s this upper tranche of people that have enough money that they can hide their money really well, and they know that we’ll never get to it because by the time you unlock that Bahamas bank account, it’s actually getting all these transfers from the Cook Islands. Then you have to go to the Cook Islands. It’ll take you 10 years to unravel all this. The only people they can really go after are this middle tranche of people who have enough money to hide it, but not enough money to do it very well. So it’s not the super rich that they’re catching, it’s people that are, maybe they’re doctor or maybe they get an inheritance of a million or two, but we’re not talking about the Jeff Bezos’s of the world that are even sort of possible to go after anymore because it’s literally just such a labyrinth to find what they’re doing.
Zach:
Wow. We talk a lot on our podcast and we think a lot about these ideas of-
Michael Hobbes:
I like your podcast. Yes.
Zach:
Oh, thank you. Welcome to it about this idea that there are some very basic human norms that are at play. The most important one is this idea of reciprocity, and that kind of informs our principles of justice. And this whole system, this breakdown, you have an elite group of people who are perpetually getting away with what is pretty self-evidently harms, it does seem to seep into the culture. Part of, I think, our idea behind people being angry enough to grab pitchforks is they’re very angry about these circumstances.
Interestingly enough, you can kind of trace it along the numbers that you put out. People were certainly angry in the nineties. They got more angry after Enron and the collapse of a lot of the dot-coms who are also similarly shady and very, very shady accounting schemes. And then we end up to the 2008, and some people actually explained some of the great underlying anger that has been out of that because no one paid a price. Everybody understands that when somebody does a harm, there should be some consequence, but no one really paid a price out of that.
As you said, there was only one prosecution, and that was obviously a set of choices that were made. And interestingly, one of the interesting thing is that this goes back and forth between Republican administrations and Democratic administrations. I agree certainly that Democrats want these agencies to do more, but they don’t seem willing to give them the kind of resources that are necessary to do more. And of course, it was Barack Obama who made choices about not prosecuting people after the 2008 collapse. What do you think about that notion of reciprocity and where it sits with our current angst? And it’s not just angst here in America, it’s angst really across the western world.
Michael Hobbes:
Well, I think the two most pernicious myths about elite deviance are, first, that people aren’t mad about it, and secondly, that people struggle to understand it. When you look at things like there’s these technical terms of stock buybacks and these large-scale embezzlement schemes, they’re stealing. We’re talking about lying and stealing. And if you explain it to people in those terms, it’s not hard to understand. You can gussy it up as much as you want, but it’s lying and stealing. And so when you describe to people what’s actually going on, people are not as dumb as we think they are. And nobody watches Erin Brockovich and is like, “Well, the company didn’t do anything wrong.” People are mad about powerful people using their privilege to gain even more. That’s something that hits us on a gut level.
And so I think that’s a way, those two myths are ways of blaming us somehow for the reason that these people aren’t going to jail. But the fact is that the anger is, if anything much greater than it was in 1989, and the scale of the wrongdoing, it’s also much greater than it was in 89. But the systems that we have to prosecute these things have just completely broken down. So our anger doesn’t get channeled into anything. We don’t get this catharsis of having 65 bankers from the financial crisis go to jail. That would’ve felt really good. And we don’t have anything that feels good. And so we end up channeling that anger into other things, into Occupy Wall Street, into NGOs, into feisty podcasts, into wherever we can put it. But the energy and the anger still very much there.
Zach:
Yeah, I think so too. We see it all the time. It’s one of the things that was really readily identifiable to us when we were thinking through, this was prior to Trump, by the way, we, Nick Hanauer famously wrote this essay for Politico that was called The Pitchforks Are Coming… For Us Plutocrats. And it was very much identifying this basic dynamic, of course, it was because of the concentration of wealth and the hollowing out of the middle class, but simultaneously, it was violating these basic reciprocity norms that are about justice and what’s fair. And when you combine those two things together, you get a really potent mix of anger.
Michael Hobbes:
Yeah.
Zach:
Yeah, there’s no question. We talk a lot about laws, and we talk a lot about the idea that laws often are codifying norms, but one of the things that was in place in corporate America for a long time, there were some internal norms that were at play about how people would perform. And so for a long time, part of that was your employees. Certainly it was owners or the stakeholders or stockholders of the company. And you also had an obligation to society in some way. And one of the things that we definitely noticed, and obviously, it’s kind of famously done in the movie Wall Street, where greed is good, is the kind of culmination of this idea that you did not have an obligation to society at all in your corporate behavior.
And once you decoupled that, it allows for just, you are unmoored from any morality, and that seems to be part of what is going on. Not to say that there weren’t always bad actors, there were bad actors in the Gilded Age, there were bad actors throughout all of human history. But there was a very brief period in time in American history anywhere where there was the social contract construction of the corporation that, “We’re going to give you certain privileges, but that’s going to come with certain responsibilities.” Some of those are codified into law, and some of those are just a normative set of standards, and that just got just totally broken apart.
Michael Hobbes:
Yeah. I mean, I think one of the most important things to realize about these kinds of crimes is that they’re not crimes of passion, they’re crimes of calculation. And so to me, cultures grow in the incentives that we give them. And I think that we think that it’s like the culture of corporations changed and then the laws followed, but I actually think that it’s the erosion of the law change, and then the culture has changed with it. Because once there aren’t people watching you, there’s no, I mean, one of the researchers that I spoke to said, “There’s no such thing as beat cops for white-collar crime. There’s no such thing as undercover stings. We don’t really have hotline numbers that you can call. You can’t really call 911 and say like, ‘This product is mislabeled and it might be harming people.’ That doesn’t really work.”
So we don’t have any of these sort of low level, small reliable punishments, broken windows stuff, we don’t have any of that for the corporate sector. And so the example that I use in the article is self-checkouts, which we all know self-checkouts from grocery stores that mostly when grocery stores install them, shoplifting doubles. And it’s not that people become worse human beings, it’s that self-checkouts make it really easy to steal and really easy to write it up as a mistake like, “Oh, I didn’t know,” or, “I thought that object scanned,” or, “I typed in the code for carrots when it was really apples,” or whatever and they’re cheaper. It’s really easy to get away with that because you’re never really going to get caught for it. You can always explain it away.
And we’ve duplicated those exact conditions across the corporate sector, that we have a profit motive, but we also have a court system that allows rich people to file hundreds of appeals. Whenever they get convicted of anything, they can appeal and appeal and appeal on these tedious technical technocratic grounds. And oftentimes their cases get thrown out. I mean, Jeffrey Skilling the CEO of Enron got 10 years cut off of his sentence through these technical appeals that the law to convict him was too vague, blah, blah, blah. And it was, it’s not a particularly good law, but of course most of the laws in America are not that good. If you challenged grand theft auto, you would probably get your conviction overturned.
Zach:
I think you could probably find something vague there.
Michael Hobbes:
Yeah. A lot of people in the legal community, I’ve gotten salty emails from people saying like, “Well, the tools that rich people are using are really constitutional protections.” And so we don’t want to get rid of constitutional protections, but of course, in practice, the only people that have the means to make these endless constitutional challenges are rich people. And so over time, you’ve had public corruption law is completely gutted now. There’s no longer usefully this concept of honest services fraud that companies can lie to you to get your money. We lost insider trading laws through this, that those have been weakened. I mean, if anyone else had the resources to do this, we would also see an erosion of those laws, but we don’t have the money behind that.
And we also don’t have judges that are willing to hear out these defendants, right? If judges that are from the same demographic groups as the defendants, they’re mostly white, they’re mostly male, they’re old, their base salary is $210,000 a year. And I talked to prosecutors who used to prosecute gangs and now prosecute white-collar criminals, and they said the kinds of challenges that rich people are bringing against the laws used to convict them or the search warrants or whatever, that you’d get laughed out of court if you tried to do that as a gang member. They’d be like, “LOL. Nice try.”
But then when it comes to CEOs, it’s like, “Oh, we’d really better hear him out. There might’ve been a miscarriage of justice here.” It’s really, I think, disingenuous to not see this as a problem. The legal system really can’t maintain convictions. The one that I think about all the time is that the only person in the Catholic Church that was higher than an actual abuser who was convicted of the child sex abuse scandal, there’s only one person, this is the sad epilogue to the movie Spotlight, he had his conviction overturned by arguing that by telling the jury about the Catholic Church’s history of covering up sex abuse, that biased the jury against him.
So he’s no longer convicted. It’s not clear how he’s going to be retried, whether he’s going to be retried, one of the witnesses is now recanted. It’s very complicated. And so on some level, you can say, “Well, it probably did bias the jury against him.” And it is maybe a little bit unfair to say, “You work for this organization, that’s bad, and you must be bad too.” But on the other hand, we have an extremely gross crime, a systematic crime that we’re essentially incapable of prosecuting that nobody above an abuser is going to go to jail for this. Because at every level, if you reconvict him, he’s going to find some other reason, he’s going to say the jury instructions were wrong, he’s going to say the venue was wrong. These guys can always get these convictions overturned on these challenges that kind of seem reasonable, but overall in the aggregate is like, “No, this is bad.”
Zach:
Yeah. And particularly, and I think your point about that and the judge’s is, it is at that level of a kind of structural racism and built-in biases where that judge has sympathy for that defendant but would not have sympathy for a young Black man, for example.
Michael Hobbes:
In ways that are invisible to them, in ways they don’t realize.
Zach:
That’s right. They would never self-identify in this way.
Michael Hobbes:
Yeah, of course not.
Zach:
They were just admit it’s their injustice. And then simultaneously, of course, the resources that Catholic official has to be able to go back over and over and over again and chip away at their conviction are just not available to other people inside the system.
Michael Hobbes:
Yeah.
Zach:
Yeah. I thought that was very interesting. I also thought, the other thing that struck me in reading this is how judges think about their role in this legal system, which is they do think that they are protecting some constitutional rights here. I mean, they see themselves as administering justice when they are helping people get off.
Michael Hobbes:
Right. Yeah. I mean, I think there’s a lot of willful blindness on the part of the legal community basically looking at each case individually without looking at them in the aggregate. Because if you look at any case individually, you probably will find reasons that the jury was biased against this defendant or the search warrant written to convict an HSBC executive was a little bit vaguely worded. You can find those, and so they’ll often defend it on those grounds, “It would be really unfair to imprison this HSBC guy with a bad search warrant because that that’s a precedent for the rest of the system, et cetera.”
And on their face, those arguments are good. But then if you zoom out to the level of one person went to jail for the financial crisis guys. We’re not looking at the sort of outcomes and the general tenor of what the legal system has become, that it’s essentially become what researchers called the Sporting Theory of Justice, where it’s just a competition between two people, both lawyers, who can use the rules the best. And oftentimes judges are these referees in the middle who are like, “Well, Bob, you use the rules the best, so your person who may have covered up systematic sex abuse is just going to go free. Sorry, everybody. That’s the way the cookie crumbles.”
And there’s never been an attempt by Congress to go back and fix these laws by people within the legal community to say like, “Hey, sorry, wait a minute. We need to think about our entire culture here that maybe we can let some of these go. Maybe we can strengthen these things. And maybe we can look at the extremely capricious way that the criminal justice system goes after much lower level offenders who don’t get this benefit of the doubt, who nobody ever says, ‘Oh, let’s hear this guy out.'” If it’s some low level gang member who’s serving 25 years for being in the same vicinity of a shooting and didn’t even know about it, I mean, we just don’t have the same standards.
Zach:
For much of the piece, I was assuming you were going to conclude by calling for tougher consequences or this kind of idea of if we could just put away a couple of people in some harsh way, that that would actually solve this problem. But actually at the end of the piece, you kind of turn in a way that I didn’t fully anticipate when I was starting the piece.
Michael Hobbes:
Yeah, it turns out rich people are really good. We just let them get away with it. That’s why I finished the piece, if I recall.
Zach:
It was a shocker. But you did, you kind of pivoted away that kind of thinking actually won’t help the real problem that we’re trying to get at, that it’s… I’d like you to unpack a little bit, ’cause I was surprised at where you ended up. And in some ways I was surprised by it because thought we were heading towards a more obvious conclusion, but it’s a slight pivot and it’s in actually a more rich and nuanced argument that you’re making, that I think is really important for people to understand.
Michael Hobbes:
Well, my starting point was that one of the most consistent findings in criminology is that the severity of the punishment matters a lot less than the likelihood of the punishment. So if you’re a bank robber and that 99 times out of a hundred you get away with it doesn’t actually matter if the punishment is one year or 10 years or the death penalty. Bard if you’re not going to get caught, it’s a moot point anyway. Whereas there’s been all these studies about how if you catch people very quickly and you give them a night in jail, not something that completely disrupts and destroys their life, but just it’s like, every single time you get caught, you spend one night in jail, you go home, you’re free, that’s fine, that affects their likelihood of law breaking far more than this thing where we’re jacking up mandatory minimums, which nobody even knows about until they get on trial anyway.
And so for the corporate sector, for elites, we basically have total impunity, nothing, nothing, nothing, 50 years, right? That if you look at the sentences you can do 25 years for securities fraud, you can pay a $25 million fine. I mean, it’s the sentences that we have for these crimes are plenty long. They’re plenty harsh. We don’t need to make them longer. We don’t need to jack up the fines, the things that would make us feel good, like put them away for life, if we’re only prosecuting five or six of these guys every year, and there’s a million of them throughout the economy, like the top 1% of income earners are 3 million people. So if your chances are lottery winner low of ever getting busted for one of these things, it doesn’t really matter what the punishments are.
And so what researchers talk about is this thing called the ladder of accountability, where you need to catch people when they do small stuff like, “Hey, we’re watching you. We see you. And we’re not necessarily going to throw everybody in jail, but we see exactly what you’re doing. We see something is in danger of escalating here.” And then if there is an escalation, it’s like, “Okay, somebody’s going to go to jail for three months, six months, something,” or we just take a ton of your money. One of the nice things about this is that rich people have a lot of money, and so if you find them, $50 million, a lot of these people can absorb it, and that money can go to actual good things, but that hurts them in a way that sort of going on trial and beating the charge doesn’t.
And so there’s all of these lower level things that we can do up to, obviously for the most egregious offenders and most egregious companies, yes, put them in jail for 25 years. I’m completely fine with that, but we need to have, that can be a rare thing. That can be as rare as it is now, but then we need to have this entire iceberg of other consequences and other surveillance on these companies underneath it. So would it feel good to put a bunch of bankers in jail? Sure. Great. But I don’t think that that’s going to solve the problem. It’s not going to prevent the next crash. The way you prevent the next crash is building all these systems to find it before it becomes a crash.
Zach:
Yeah. Well, that’s great. So Michael, do you have anything that you want to say that we might not have hit?
Michael Hobbes:
I think the last point to hit is that we seem to have these high profile prosecutions of companies and Martin Shkreli and the guy that organized the Fire Festival and Martha Stewart. And I think it’s just really worth noting that the reason why the agencies do those, and they do them very deliberately, is so that they can get the biggest bang for their buck. So when somebody like Little Kim or Wesley Snipes or somebody goes to jail for tax evasion, it makes us think like, “Well, if they’re catching Wesley Snipes, there must be thousands of other that they’re getting every year.” Not really. This is a tactic that they use, and I think very understandably, to make themselves seem like they have more capacity to do this kind of thing than they do, and that these are routine. It’s happening all the time, millionaires going to jail over tax evasion, it’s not that big of a deal. But what they’re actually doing is prioritizing the Fire Festival dudes and Martha Stewart’s of the world-
Zach:
Because they’re so high profile they know that people pay attention what it happens.
Michael Hobbes:
Yeah. And then when you say, “Oh, prosecutions are way down,” they’re like, “Well, what about Wesley Snipes? He just went to jail. I heard about that. I read about it in the newspaper.” And so it’s a pretty smart strategy on their part, but I think it’s just whenever you see one of those high profile cases, we need to ask ourselves, how many other cases, is that the rule or is that the exception? And what it has increasingly become is the exception. It’s a PR play much more than it’s an actual quest for justice.
Zach:
So we have one question that we often ask our guests, why do you do this work, the work you do?
Michael Hobbes:
Oh, God. I think the honest answer is that I like finding out how things work. And when you look at a big problem like elite impunity, this is the way that it works. And I kind of wish that it was more sexy and there was a big case or some cat and mouse stuff, but it’s really just boring, like we need to fund our public agencies, and we need to let people that are experts in this, low level people in the SEC, low level prosecutors, people that actually care about this stuff. We need to trust them and just give them, how much does the SEC think that it needs to actually fulfill its mandate.
Let’s ask those people. And if it means quadrupling their budget and hiring 10,000 more inspectors, then yeah, let’s trust people that know what they’re doing about this. We’ve had this top-down helicoptery approach. And I just think we just need to ask the people that care about this stuff and know more about it than we do and see what they need. And so that tends to be my answer to every problem that I look into as a journalist, but it happens to be extremely relevant in this case.
Zach:
Great. Well, thank you so much for coming in.
Michael Hobbes:
Thanks for having me.
Zach:
Yeah.
Speaker 7:
Pitchfork Economics is produced by Civic Ventures. If you like the show, make sure to follow rate and review us wherever you get your podcasts. Find us on other platforms like Twitter, Facebook, Instagram, and Threads @PitchforkEconomics. Nick’s on Twitter and Facebook as well @NickHanauer. For more content from us, you can subscribe to our weekly newsletter, The Pitch, over on Substack. And for links to everything we just mentioned, plus transcripts and more, visit our website pitchforkeconomics.com. As always, from our team at Civic Ventures, thanks for listening. See you next week.