You're Wrong About - Why Didn’t Anyone Go to Prison for the Financial Crisis?

Episode Date: February 10, 2020

“Every big fish you catch, you end up with a hole in the net.” Mike tells Sarah how America’s white-collar crime spree got so bad. Digressions include self-checkout kiosks, Barbie dolls and moonshine. Homeless shelters and teacher pay feature prominently. By the standards of this podcast, this episode is relatively upbeat.Continue reading →Support us:Subscribe on PatreonDonate on PaypalBuy cute merchWhere else to find us: Sarah's other show, Why Are Dads Mike's other show, Maintenance PhaseSupport the show

What am I supposed to do? Start being attracted to healthy people? [♪ upbeat music playing in the background. Welcome to You're Wrong About, the show where we learn about how the greatest injustice is dull. [♪ laughter. So you're previewing this episode by saying it's going to be super tedious. Good. No.

Here's your interpretation. I am saying that whenever we talk about the most terrible injustices in this country, they're not being carried out by the baby stealing gangs, they're being carried out by these sort of boring beige corporate slash governmental systems of power rather than by flamboyant individuals. Ooh. That's a good tagline. That's it.

I just watched Aladdin on a plane recently. I'm picturing Jafar. I am Michael Hobbs. I am a reporter for The Huffington Post. I'm Sarah Marshall. I'm researching a book on the Satanic Panic. Today, we're talking about why nobody went to jail for the financial crisis, but the episode is more about kind of like the history of white-collar crime and the way that the

types of crime personified by the financial crisis are no longer of interest to the people who should be prosecuting them. I've been working on an article about this for nine months, and the first thing that I started working on it was that the problem goes much deeper than the financial crisis. The financial crisis was kind of a culmination of all of these factors that had been building slowly in the background and not really noticed for decades. It wasn't that the whole system was sustainable, but that a small group of bros started doing something unsustainable within it, but that rather maybe the whole thing was falling apart.

We'll get there, but yes. This is Kalma tonight on Dallas. We're just flashing forward a little bit. This is the whole thing. It's like the golden age of white-collar prosecutions wasn't all that golden. You're speaking exclusively in taglines now. Do you want to give me your description of why nobody went to jail for the financial crisis? What's your understanding of this world?

Because those guys all get together after the hearings and jerk each other off, basically. I mean, everything I understand about how power functions in America, I learned from the Godfather movies. I feel as if finance and government kind of have this five families relationship where they're like, we're not going to start a war unnecessarily because blood is too high a cost. Why would the Justice Department wage war on the financial powers that be in America when in some way they depend upon each other? That's my very general understanding.

One of the things that's really interesting, actually, one of the first myths to bust about white-collar crime is that we often say that people don't care about white-collar crime and it's really hard to get people to care about big banks and people stealing from other people's pension funds. Not true. I mean, if you look at public survey data, people get really pissed off. There's a reason we like Aaron Brockovich and other stories of people going after corporate malfeasance.

There's a reason people are so mad. Yeah. Americans have always had an easy time, at least in narrative rallying against the big company. One thing you come across when you start looking into this is the fault is not actually in the American people for not taking this stuff seriously. We are pissed, but all of the systems that we use to go after these people have basically broken down. There's all this data about how prosecutions for white-collar crime are now at their lowest

levels ever. In 2018, only 3% of American millionaires had their tax returns audited. Our anger doesn't get funneled into action anymore. That's what has changed is that all of the ways that the public turns anger into sentences and prosecutions for the people at the top, all of those mechanisms have broken down. This is what we're going to get into today. Okay. Where do we start?

I have a four-part structure. I'm sorry. This is insufferable. I realize this. Before we started, you were like, I'm just going to wing it. I don't know how I'm going to begin, but apparently you do know. This is your version of winging it, I see. Okay.

I have some vocabulary terms. Okay. This is so fun. I'm sorry. I'm like this as a person. No, I love it. I said the word fun. I have four vocabulary terms that I want to go through one by one because each one of

them explains one component of this. This is such a great show for Sarah to reveal how tragically little she knows about how American government functions. I'm so excited. I think most of us, I mean, I didn't nine months ago. None of this stuff is common knowledge, right? But now you're a parent and you do. Okay.

So the first term that we're going to discuss is elite deviance. Oh my God. Have you ever heard this term? Is that a series of young adult novels? Number 17 in the elite deviance series, Chastity's Revenge. I mean, this term, the minute I read it, I heard an audible click in my brain that one of the things that's really difficult about reading and writing and researching white color crime is that white color crime is a super shitty term because we sort of have

this artificial distinction between sort of their street crime and then there's like white color crime. Yeah, but there's no such thing as blue color crime, which I guess would be like embezzling from construction funds. I mean, what's actually interesting about that is most of what we call white color crime is actually blue color crime. It's interesting. It's crimes against companies.

So when you look at the people who are convicted of quote unquote white color crime over the course of a year, it's like people who do car insurance scams. It's people who fake their mortgage application to get a loan. It's people writing bad checks. I mean, in 2018, 18,000 people went to jail for drug crimes. Do you know how many people went to jail for white color crime who worked at companies with more than 50 employees, like at large companies? 18.

16. Your extremely dark guess was correct. My joke answer was too optimistic. Yeah. I mean, this is the thing. It's like even within white color crime, the vast majority of people that are going to jail for things like embezzlement are people that work at small companies, like their mom and pop shops.

They're not people that work at Halliburton. Okay. So there's no differentiation in terms of scale. Exactly. And so this is why the term elite deviance is so useful. And so is it deviance, d-e-v-i-a-n-c-e? Yes. Elite deviance.

Okay. So elite deviance is the deviance of like people being deviant on an elite scale. Yeah. It's basically what the researchers call it is all of the harm caused by the wealth. Oh my God. Which is like a dope ass definition. Wow. And so it's interesting, there's a lot of different categories of elite deviance.

And so some of them are things like Enron price gouging in California and making all of the energy prices go up 10 times, which that's not illegal, right? It's extremely harmful, but it's not illegal because it's just price gouging. It's profiteering. Right. It's immoral, but it's not illegal. It's considered. Exactly.

This price gouging is part of a complete breakfast. Yeah. You know, it's like part of all the business strategy that everyone who regulates business is like, well, we have to protect people's abilities to do this thing that is terrible for the American consumer. Exactly. Yes. It's like, it's how the system works.

And also things like putting your money offshore, that's not illegal in most cases. Yeah. All of this stuff is completely ridiculous. So one of the statistics I came across is that America loses 5,000 times more money every year to tax evasion than to bank robberies. There's also one statistic that American corporations steal more from the US economy every year than street criminals do in two decades. Yeah, that makes sense.

So yeah, that's basically the concept of elite deviance. The idea that wealthy people are harming society in all of these large-scale ways, but that the criminal justice system isn't really set up to deal with these things because a lot of them aren't illegal. And we don't even have a language to talk about them, basically. That's not 100% of the reason why nobody went to jail for the financial crisis, but it is relevant. But this is like the floorboards.

Yes. This is the foundation for the beautiful house that we're going to build where injustice will live. Yes. Okay, second vocabulary term. Do you know the term learned helplessness? I do. I know that from my domestic violence research.

Oh. Yes. Do you know where it comes from? Well, doesn't it come from when, I don't know, probably in the mid-20th century, because I was the golden age of terrifying lab experiments on animals, they would put dogs and kennels that I think would give them electric shocks that they tried to escape. And after a certain period of time, even after the electricity was turned off, the dogs would stop trying to get away.

Yes. And so it's become a generalized term for basically if you're subjected to abuse and the abuse is taken away, you'll still behave as if it's happening or could happen. Oh, that's interesting. That's a different application than I was going to use. Well, I haven't read the definition in a long time, so I might be off, but that's my understanding of it. From a women's studies perspective.

Yeah, exactly. I think the government researchers have taken it in one direction and the domestic violence researchers have taken it in another direction, probably, because the way I've always heard it was it's a room where half of it has an electric shock on the floor, so if you touch it, you get shocked and the other half doesn't and there's a fence in between them. And so the dogs will kind of learn, like, hey, this side of the room shocks me, so they jump to the other side of the room. And so what researchers do is they make the fence higher and higher and the dogs will

try harder to leap over the fence, but then once the fence gets high enough that the dogs can't, like they physically can't jump over it and get to the side of the room where they're not getting electric shocks, they'll just lie down on the floor and just take the shocks over and over and over again and just basically give up on even trying. And so this is the metaphor that government researchers use to explain the way that the regulation agencies work now. Wow. It's dark.

That's bad. That's not good. That's not something that you want to work metaphorically to describe any part of your country's governance. It's not good. Good God. So basically, like, I kept trying to figure out why does this keep getting worse? Like, why do we crack down on elite deviants less now than we used to?

And basically the cycle that has gone on at every single agency that's meant to be catching the crimes of the rich is that they're basically underfunded, and then there's a scandal, then Congress steps in after the scandal and makes it even worse. And so scandal by scandal, these agencies have had less and less power over time. So the best example of this, are you familiar with the Consumer Product Safety Commission? You say the most intriguing tone possible. Are you aware of the five most boring words I can say? I'm not.

I mean, I can guess what they do, but no, I can't think of any memory I have of these people. Okay. So the Consumer Product Safety Commission is exactly what it sounds like. It is in charge of making sure that every product in America is safe, right? It doesn't have, like, sharp corners on it. It's the packaging is not going to give you cancer. Like everything in America is just, like, not going to kill you, basically.

For the most part, to the best of everyone's ability. Yes. And so what happens to the Consumer Product Safety Commission over time, of course, is it's founded in 1974, everything seems fine, and then Reagan comes in. And like he did with everything, he just turned out, he like, Reagan did to federal funding what Godzilla did to Tokyo. He just stomped all over it. And then I was like, have a fun decade, guys.

Bye. Yes. And this is like, I mean, it's hard to describe the story in a way that isn't super predictable because it's like, yeah, Reagan came in, big government, government way, Star of the Beast, blah, blah, blah. He cut the agencies funding by 25%. Like it's exactly what we would expect. But the pattern of the Consumer Product Safety Commission and all these other agencies is

that when Republicans are in office, they crack down on government waste, right? Because they want to cut the budgets as much as they can. When Democrats are in office, they increase the mandate of the organization. They make them do more. So after Reagan comes in and cuts the commission's budget by 25%, then Clinton comes in and says, well, we want to have all these government transparency, government accountability programs. So he passes all these laws aimed at making government more accountable to the people, making government more responsive, all stuff that sounds great.

And so what happens is the agency gets more and more obligations. So basically, it has to start producing statistics every year that measure its performance, quantitative, like how many inspections did you do this year and how many complaints did you handle and all this other stuff. But it doesn't get any extra budget to do this. And so it also starts getting hauled in front of Congress a lot more in these theatrical hearings to be like, why aren't you inspecting this thing? Oh, and then it's like those hearings where you get to be browbeaten by senators.

Yes. And where the public gets to be like, yeah, public servants are getting yelled at. My tax dollars are being spent well, and they're shivering while they drink their tiny bottles of water. Yeah. And this exact dynamic plays out in 2007. I'm sure you've heard of this. Do you remember all this lead paint stuff in 2007, 2008?

No, apparently I was off at my art dude college dancing my feelings away. No, what was happening with lead paint? So basically the company Mattel, we all know Mattel and their toys. Yeah, they made Barbie. Yes. They announced in 2007 that nearly one million of their toys across 85 different product lines were contaminated with lead paint. Including Barbie?

Yes. Oh my God. Which is actually like really bad. Like kids who eat even a little tiny bit of lead can like get severe developmental disabilities. Yeah. Okay. I just had a whole thing on Twitter about this where I was like, tell me about how you

played with Barbie. And you know what everyone does with Barbie? They eat her. They like nod her to pieces. Everyone has not everyone, but most people apparently have memories of spending childhood with like Barbies foot in their mouth. Yeah. This is how kids interact with basically everything, including their toys.

And so Mattel has to recall all of these toys. And it's a huge thing because then the entire toy sector, everybody starts asking questions because I think it's 80% of American children's toys come from China. And Chinese factories have like no health and safety standards. Essentially they actually have good standards, but they have no enforcement. So the conditions in the factories are really bad. And Mattel had between 50 and 100 subcontractor factories that it never visited. So it's like, this is elite deviance, right?

Like they knew their products were for children and they just didn't check. Right. They're like, it'll probably be fine. I mean, they probably won't put any lead in there. Yeah, whatever. And so Mattel obviously is like the primary villain in this. But then the secondary villain in the eyes of the public is the Consumer Product Safety Commission because the question is how did these toys get in?

Like it wasn't actually the safety commission that discovered that the toys had lead. It was a store. It was a Mattel store in Europe was like, hey, this tastes like lead. And then called Mattel. Did some child familiar with lead chew on a Barbie and be like, hey. Yeah, this day. Well, the problem with lead is it tastes sweet. So you can actually taste the difference between lead paint and non-lead paint.

Oh, really? Yeah. So someone's like, these dolls have been sweetened. Yeah, like they taste great. That's one of the major problems that lead tastes awesome. But so it turned out at this time that the safety commission only had 15 inspectors in charge of all U.S. imports. Shit, that's not enough people.

I don't think the port where all of the like basically all the children's toys from Asia come in and LA, the port only had one inspector and they only worked two to three days a week. I'm picturing like a Lucille ball sketch where it's like there's a conveyor belt of Barbies and she's like, has to paste all of them and they keep going faster and faster. So the Barbie licking system was clearly not working. And so, of course, Congress calls all these hearings and what's really interesting in this is the cycle that happens every single time there's a scandal

that reveals elite deviants, there's all these hearings where they demonize the product safety commission. There's all this sort of like pillaring, government waste, wasteful spending. Why didn't you catch this blah, blah, blah? And then what Congress does is it doubles the agency's budget, which is great. But then it also at the same time gives the agency like 10 times more things to do. This is so typical. Not only do they give the agency more money, but they micro manage

how the money should be spent. Oh, God. Oh. So it's like when you're a babysitter and you're like, I was wondering if I could go up to nine dollars an hour from eight dollars an hour. And the mom is like, OK, but you now have to coordinate swim class, drop off and pick. Yeah, yeah, yeah, yeah. And you're going to use the dollar to buy raisinettes when you take the kids to all agree on choosing a video at the video store tonight. Yes. And you're like, I don't think that's worth it.

That creates a lot of work for me. Yes. And this is basically what happened with the Safety Commission that Congress says, OK, fine, we'll double your budget. But we want you to update your toy testing labs. We want you to put more people at ports. We want you to update the standards on lead toys. They also mandated that the agency should create a publicly available safety database where consumers can report like this piece broke off and stabbed my child.

Which is a great thing to have, but also like a huge thing to implement infrastructurally. I mean, we all saw how healthcare.gov went for everyone. I mean, this is the thing. And this is what the agency tries to tell them is that like what you are proposing is like a fucking it's basically Yelp for every single consumer product in the entire country. Yeah. So the the agency sets this up and immediately people just start posting like comments with no basis.

In fact, they're like the cell phones are giving my kids brain cancer or like these products like murdered my child. And then the agency is like, well, do we follow up on this? Like, is this person making up that their kid died? Or like, do we just assume that it's like some crank making a joke? So basically, this database is a ridiculous idea that the agency never would have come up for itself if it wasn't micromanaged by Congress. There's also amazing congressional testimony from 2011 where the head

of the commission tells Congress that the agency is now spending 100 percent of its time working on lead abatement in children's toys. He's like, there's more than a million consumer products in America. And we are spending all of our time on one. Because there was a lead panic. Yes. Think of the children. Yes, exactly. Think of the children. And also what he says, as in all, think of the children panics.

He's like, children do not only play with children's toys. Good point. They use blankets that might be flammable. They open doors that might have sharp door knobs on them. They stick their heads in plastic bags. Yes, exactly. Like there's a million other products that if you wanted to keep children safe, we would be looking at. But we're not looking at any of those other products now. One of the things he says, we had all these people looking at table saws

and we're not looking at table saws anymore. We're like, we're all safe from table saws now. It's all barbie all the time. And so again, it's like if Congress had just given the agency this extra money and been like, hey, keep kids safer. The agency probably would have come up with some good stuff. Like I don't think the people who work at the agency are like, how can we destroy children today?

Right. Like it was the micromanaging and this extra, quote unquote, accountability that made all of these extra measures totally ineffective. The same pattern has happened with every other agency. So when it comes to the financial crisis, you look at the SEC, right? The Securities and Exchange Commission, they're the ones in charge of policing the entire financial sector. So after the savings and loan crisis in 1989, there's all these new rules about banks, like how much money banks can hold, et cetera.

After Enron, Congress passes Sarbanes-Oxley, which again puts all kinds of extra disclosure requirements on companies and says, like, well, CEOs can go to jail if they sign off on their financial blah, blah, blah. And then also after the financial crisis, we get Dodd-Frank, which again, gives the SEC more to do after every single one of those scandals. You can't say that they got no extra funding because every time they get like a little bump extra of funding, but the amount of activity that they're supposed to do totally overwhelms the funding before they can

even get started. So one of the people I interviewed, the metaphor that he used was it's like telling a pilot, you have to fly from New York to LA, but we're only going to give you enough fuel to get to Chicago. And then when the plane inevitably crashes, you're like, OK, we're finally going to give you enough fuel to get to LA, but you have to fly to Tokyo. It's like the shoe bomber approach. It's like, what if we stop people from doing the exact same thing that happened

before? Basically, yeah, the perfect example of that is after 9 11, the FBI moved one third of its people on to counterterrorism, like terrorism intelligence. But again, it has this bigger mandate. It has to stop all the terrorist attacks, but it doesn't get any more money. So basically what it amounts to is they just moved all of their agents off of white collar crime. So like in 2007, right before the financial crisis, the FBI only had 15 staff members dedicated to looking at the housing market, like fraud in the housing market, 15 people.

Well, we guess we have this idea that like, oh, the problem is this. Yes, we're going to focus all our efforts on this. And it's like, no, the problems, the problem overall is that there are so many areas where something that could take down our infrastructure can really flourish, you know, or our whole government is like a moist area where crimes can just flourish along the panty line. And so this is where the Learned Helplessness thing comes in, because the former head of the EPA, William Ruxell House, actually called it Battered

Agency Syndrome, which is like. That's taking it a little far. I know, like calm down, William. I'm sure it's very terrible to work for another funded government agency. But what he says is that the reason why these agencies have become so useless isn't necessarily the budget cuts. It's how they're adapting to the budget cuts. So when you're in a situation where Congress keeps cutting your budget

and if you admit to Congress, hey, we can't carry out our mandate because we don't have enough fucking money. You can't tell Congress that because then they'll accuse you of being ineffective and they'll cut your budget even more. That's the problem with America. It's all a numbers game. Yes. I mean, I don't have time to go into this in my article, but like I do think

that the obsession with quantification is behind so much. Yeah, because you become captive to the needs of whatever quota. Yeah. Your ability to keep your job has been attached to. Yeah. And your job becomes producing a hundred audits every year. It doesn't become rooting out elite deviants. Yeah.

How many people whose job is allegedly justice is really quotas? Yeah. So one of the researchers I interviewed for this, whose name is Erskovilikonia, she looks at the SEC's numbers, like the reports that it puts out of, you know, we did this many prosecutions and this many enforcement actions this year. And she went through them case by case and she found that for years, the SEC has been triple counting its numbers. Really?

Yeah, of like, if you commit fraud, they don't like you. They'll try you for fraud and then they'll also separately get your license revoked. And then they'll also say, like, well, you can't be part of the trading floor anymore. But instead of counting that as one case, like one fraud, they count that as three different enforcement actions. Oh, I see. So they're just they're little cheaters. Exactly.

So it's like they're saying, like, oh, you know, we prosecuted 300 cases this year. Like, well, kind of you prosecuted 100 people. Yes. Right. She's very clear. She's like, OK, we know the SEC is basically faking its numbers, but also a fucking course. The SEC is faking its numbers.

It doesn't have enough people. Right. The SEC is is doing essentially a pump and dump. Yes, exactly. And she said she said it's basically the same thing that Enron was doing, where it's like you fudge the numbers a little bit. Yeah. And then the next year, you're like, oh, shit, we have to increase the numbers. Yes, so you can keep going. Oh, my God.

Yeah. And so they're basically doing accounting fraud in exactly the way that the agencies they're going after are. They're doing accounting fraud about the accounting fraud they have detected. But this is one of those things where you never it's so hard to tell how much elite deviance people are getting away with because the SEC over the course of the last 20 years, like they'll say, like, oh, yeah, our enforcement numbers are going up. Like we're prosecuting all this white collar crime.

And you look at that and you're like, yeah, that looks OK. But then you have to know people that work at the agency or who go into the numbers to be like, well, these prosecutions are of much lower quality than they used to be. They're not catching like big bad guys. They're catching much smaller types of violations. And Velikonia finds this, too, that they're prosecuting much smaller things like they're prosecuting people for turning in their paperwork late. Really? Yeah, they're doing all these.

They're called strict liability cases where it's just like, yeah, you were supposed to disclose this to investors and you didn't. So they're doing what just like shitty beat cops are doing as far as making everything into a numbers game. And the easiest thing to prosecute is what they choose to detect and prosecute. It's really obvious, too. It's like when you're a teacher and you're going through the papers that have been handed in, you're like, someone wrote in triple space this time.

God bless them. And what's interesting, I mean, what Velikonia said, and I'm totally stealing her argument from my article, is there's this sense in which government efficiency means waste. There's a lot of things that government is really good at. And we haven't invested in those things. So there's all this data about like every dollar of IRS auditing brings back six dollars in fraud.

Once you start looking for tax evasion, you find it and you get money back from those people. But like the return on investment has never been part of the calculation. It's only been about getting out waste, fraud and abuse. Why is that? I mean, I think it's just like this bipartisan understanding that like government is inherently ineffective. I mean, I hate to like bring everything back to the issues that I'm obsessed with.

But I think you see the same debate a lot in cities where people talk about how bad the homeless shelters are and the homeless shelters are overcrowded and they have bed bugs and the people aren't trained and blah, blah, blah. And those things are all true. But then the reason why those things are true is because we don't fund homeless shelters. And so it's like, well, you're creating chaos by not giving us enough money to do our jobs and then you're saying, why should we give you more money? You're ineffective.

There hasn't really been at every level an acknowledgement that like it costs money to do stuff, it costs money to provide services, especially high quality services done by well trained, sorry, well paid people. Right. I mean, it reminds me also of just the way that we so dramatically underpay and underfund teachers in America. Totally the same thing. Yeah. Yeah.

And it seems like there's a real belief there of like, well, if you love what you do and if you're passionate about it, you can be able to do it, you know, while not being paid a living wage and having to buy your own markers. Right. Right. It's this idea of like, if you really love it, you should be able to do it with absolutely no resources supporting you. And it's like, no, like that human beings can't do that. You can't ask them to do that.

People, you know, even if they're doing a vocation that they're passionate about and love and are great at, they need to be supported. And it's also the same logic, too, where it's like, well, why should we pay teachers more? Look how badly behaved their classes are. Like, look how bad the kids do on the standardized tests. It's like, well, yeah, if your classroom is 36 kids, surely if we pay them less, those problems will go away. Exactly.

But it is the same sort of logic where it's like, why should we reward you for bad performance without an acknowledgement of like, did we create the bad performance? Like, did we, did we set you up for failure? Yeah. So we have another, we have one more. More vocabulary. Yes, we have another. So the next vocabulary term, and I think you're going to have like many,

many thoughts on this category. OK. Have you ever heard of the sporting theory of justice? No. Does that mean when you let someone have a head start? What? You know, like when you're hunting man, the most dangerous game. Oh, yeah. Because of a head start.

So this this entire thing is about court system and how difficult it is to try white-collar defendants. And one thing I found when I started interviewing lawyers who have tried these cases, like defense lawyers, prosecutors, everybody, was the extent to which the entire court system has slowly become a much more administrative system than a moral system. So what's happened is a lot of judges have taken the stance of like, it's a sport.

It's a sport. It's like you use the rules correctly. And so I'm just going to rule in favor of the person who uses the rules the best. I already know how I feel. I don't like it. It's bad. Oh, yeah. It's bad. It's a very subtle and very, I think, interesting shift where when you read these

old decisions from the early 1900s, judges will rule against companies, not on sort of like technical, legal grounds, whatever. But just like, yeah, big companies are bad. And like, this is a case of a worker versus a company. And like, we like workers better, so we're going to rule against the company. And it's like, oh, OK, like it was a much more moral act. Yeah, people had fun back then. Exactly. Whereas what happens, you know, what you see in white-collar cases,

and this is like the most depressing thing. If you take any white-collar case from the last 15, 20 years and look at what happened afterwards, fucking like all of them get overturned. Really? So the epilogue to the Enron story, which we didn't have time to get into in that episode, is that Jeffrey Skilling, the guy who was the CEO of Enron, knew about the fraud, knew the entire company was a house of cards, defrauded 4,000 of his own employees out of their retirement savings.

He basically got his sentence shortened by filing appeal after appeal after appeal. So he was originally sentenced to 24 years and then immediately he started appealing it. He ended up serving only 11 years because the prosecutors in the case came to a deal with him that they would cut 10 years off of his sentence if he agreed not to file any more appeals. So they were just like, please stop. Yeah, because it was expensive and it was a pain in the ass. There you go. I mean, there's sentence reduction for you.

You just keep throwing huge amounts of money at it and eventually some of it will stick. I mean, this is essentially the tactic of white-collar criminals is that you can challenge everything. So one of the things that Jeffrey Skilling challenged was like a form, like a questionnaire that was given to jurors to tell whether they were biased against companies, like the wording on the questionnaire. It's obviously bullshit, but it's also just in a purely technical level. You can just file endless technical appeals of every single procedure, right?

Of the search they used, of the law they used, of the definitions they used. Well, it's just proof that when a defendant can really afford lawyers, like the whole thing is completely different than we're used to it being. So what's amazing is these technical challenges work. There's an HSBC executive who got his trial overturned because one phrase in a wiretapped conversation, he said, prejudice the jury. There was another banker who said that the search warrant used to search his house was too vaguely worded, so that vacated his conviction.

Like these are the things that rich people use to overturn their convictions. They're reasonable things. Yes. It's just that no one else has the resources to like find or take issue with this kind of thing. Yeah. I mean, this is the thing is that when you talk to legal scholars, they're like any drug dealer, if he had the money to challenge every single aspect of his arrest and trial, half of those convictions would be overturned too.

And it's probably more because the cops are so sloppy with low level criminals. Yes. And this is also, I mean, a big part of it is actually, you know, once you look into the white collar statutes, people point out that like white collar statutes are pretty bad. Like many of them are very poorly worded. But one thing I didn't know is that essentially all of American law is really poorly worded and really arbitrary. One thing that happened that I think this is also kind of Congress's fault is

that oftentimes Congress will pass new laws. You know, we talked about in the gangs episode that they made carjacking illegal, even though auto theft is already illegal. Yeah. Then you have essentially two different laws that are both criminalizing the same thing. And then there's the question of like, well, which one does the prosecutor choose? Like prosecutors can choose to try you under either one of those statutes. And either one of those statutes have different definitions of like, what does car

mean? What does steel mean? Like they have all these different definitions. And then that's where the challenges come from, right? Of like, well, why was this one chosen and not this other one? So our America's laws like share Horowitz's closet and Clueless, you know, you just like scroll around until you find the perfect fit. And you're like, that one. I mean, yeah, yeah.

This is where judicial and prosecutor discretion come in, right? The prosecutors can decide to charge you for like anything they want to charge you with, like they have huge power. Prosecutors are like Bob Ross. They're like, let's put some clouds over here because I feel like it. So what's interesting is, you know, what we've seen in this explains the financial crisis is that all of these laws that we use to prosecute white collar criminals have all been cut back every time a court says, oh, you can't use this

for Jeffrey Skilling. Well, now it's gone. You can't prosecute other people with it anymore. So like, right, there's something called honest services fraud. Yeah. And it was basically like, I have a right for businesses not to lie to me. And then eventually courts were like, nah, that seems like a fake right. You don't really have that right.

So like that law is gone now. A public bribery law, it only prohibits bribery that's like direct quid pro quo. Like I give you an envelope of cash and I'm like, you need to vote yes on this law in like a way that I can prove. Whereas things like if I take you up to golf 10 times and then I call you like a month later and I'm like, hey, I need you to vote yes on this law. That's not bribery anymore because it's not direct. It's just a lot of golf groups.

Some reason. Exactly. It's like I've created a reservoir of goodwill for you. And then I sort of pull a favor out of that. That's not bribery anymore. So it's like each one of these laws, it gets tighter and tighter and tighter because these white collar criminals, whenever one of them gets convicted, they challenge it and then courts end up striking down the law.

Interesting. So for every big fish you catch, you end up with a hole in the net. Yeah. And this is another reason why it's been getting worse over time, right? Is that, you know, in the savings and loan crisis in 1989, hundreds of people went to jail for that because like the laws hadn't been weakened yet. But one of the reasons why, and there's lots of extremely tedious law review articles written on this, but like the main reason why nobody went to jail

for the financial crisis is that everything they did wasn't illegal because these laws have been cut back so much. And one of the real challenges of white collar crime is that it all comes back to intention and motivation. So selling somebody a crappy mortgage bond is not in itself illegal because I might not know that it's a crappy mortgage bond. Like I might sell it to you genuinely thinking like, hey, Sarah, this is a good investment. And then if it crashes, it's like, oh, well, we both lost out.

That sucks. But there's no law being broken there. The only way to prosecute somebody for an act like that is to prosecute their intentions and their motivations, right? They're like, I knew it was fake when I sold it to you. So what's interesting is like the facts in white collar cases are almost never disputed. It's like, yes, you sold this product, you wrote this check that bounced. Right.

Because there's always a paper trail, right? Yeah, it's always emails and, you know, financial stuff is really easy to track. But what it really comes down to is your motivation and what you knew. And so so many of the defenses of white collar criminals are, I'm an idiot. So I talked to this great prosecutor in Manhattan who was telling me that all of her cases, she's saying like, you knew this was fake. You sold this to somebody maliciously. And their argument is always like, I had no idea what this meant.

I didn't know that these numbers in red meant the stock was plummeting. I had no idea. And it's actually really hard to prove to a jury that someone isn't stupid. Or I guess that they had certain information at a certain time, right? Yes. And I mean, you know, she'll she said that they've got cases where people will email another person like, LOL, this stock is bad. And they'll say, well, you knew this stock was worthless.

And they'll say, well, I thought he was joking. We joke sometimes. It's hard to convey tone over a text message. Yes. And so one of, I mean, one of the things I can't get over is, you know, there is all of this anger. Like I said, there's all this anger at the financial sector. People are so mad that none of these guys went to jail on almost all of the

cases where bankers have actually gone on trial. They get acquitted. The perfect example of this is there's this case in 2014 where a city group marketing executive is put on trial for selling a bunch of crappy stocks when his own company was betting that they would fail, right? Which sounds like a complete open and shut case. Slam dunk. Yeah.

Yes. And so in their closing arguments, his lawyers hold up a Where's Waldo book for the jury. Millie? Yeah. And they try to say basically that like he is part of a much larger group of people. Like Waldo?

Yeah. That like he's blending in in a culture that is essentially so criminal and so much fraud was going on that it's unfair to pick out one person and charge him. I don't see how Waldo is relevant, though. What a weird visual aid. But I mean, it worked, though, in that the jury acquitted him. And what's amazing is the jury, you know, they hand their note of, you know,

their verdict to the judge. You're like, we like Where's Waldo? Nice. In the actual verdict, in the envelope, they put in a note to the prosecutor saying, we want you to prosecute more financial sector guys. Just not this one. I think like that is the duality that makes these cases so difficult to prosecute because as a group, you're like the banks were con artists like

fuck these guys. But then any individual case, you can find reasons to be like, well, is it really fair to prosecute this one guy for everything city group was doing? Well, it's interesting that we we do that with other kinds of crime. And we are immune to the argument that we're sort of using someone as a sacrificial scapegoat for a larger, you know, say a mugger gets really overzealously prosecuted.

They're obviously being used as a stand in for like the problem of street crime. But yeah, defense attorney is going to get anywhere making that argument, right? Has the jury response be like, well, he's still committed the crime. So like who cares if we're being disproportionate? So it's very interesting that the argument works here. I mean, what's that about?

Well, I mean, this is the thing is like there's a lot of willful blindness. I think going on within the legal community because there's a lot of defenses of well, of course, nobody was prosecuted for the financial crisis. Nothing they did was illegal. This is the way that the law works. And it would be a perversion of the law if we were to use it to go after people whose mental state we couldn't. And this is exactly the sporting theory of justice, right?

Where it's like the effects of the financial crisis are just like, it happened. And, you know, what's more important than some sort of sense of justice for what happened in the financial crisis, that's less important than keeping the administrative procedures of law as pure as possible, right? Like it would be a greater injustice for somebody to go to jail who wasn't at the center of the financial crisis. It's so interesting how people are such procedural purists as soon as

their weird way of doing something is being challenged. Yes. And this is also what stuck out to me in the gangs research too, is that it's exactly the opposite of the logic that we apply to street criminals, right? If you say, oh, well, you know, the culture of the Crips made me do more crime, we give you a harsher sentence because you were part of this evil criminal organization.

And why didn't you know that this was a criminal organization? If you say the culture of city group made me commit crime, we give you a lesser sentence because it's like, well, how could we possibly blame you for this company's culture that was out of control, right? So it's really, it's the way in which we struggle to prosecute legitimate organizations, right? When there's a thin line between the way your company is supposed to work and the way you are using your company to do something bad, the

legal system is not set up for that. We're really only set up for these bright lines of kind of, you're a bad guy, you're in a bad organization. You individually chose to do this one thing. When we have an entire culture that's totally corrupt, there's no way to pull any single person out of that culture and say, well, you should go to jail because I mean, if everybody's going 70 in a 55, it does seem to people and especially to juries, a little

unfair to pull one person over. Like obviously we live in a system, whether it's masculinity or the kind of capitalism that we're all experiencing. I say that like it's a bad acid trip. It kind of is. If you feel that this kind of abuse is just a necessary inevitability in the way the system, you know, it has to function in order to continue existing, then you just, you can't punish it that oversellously because

you could be the very next one to be punished for it. Yeah. It's like, well, listen, like we're all, we all do this, right? Well, there's, I mean, I also think there's a lot of willful blindness going on. Like almost every white collar case is heard by a federal judge just because state and local agencies really don't have the capacity to do any elite deviants work anymore.

All their white collar crime cases are like super like low stakes. It's like people cheating to get on Medicaid and shit. It's like super low level. So I had to fucking look this up because it doesn't show up at any of the law review articles, but you know, there's 670 federal judges, four out of five of them are white, three out of four of them are male, and their average age is 69. And I don't want to put everything into the bias box because there's

points of bias throughout the system. And so putting everything on to judges, I think is a little bit unfair, right? Because there's prosecutor bias, there's bias about, you know, cops, how much investigation they do. Like there's all these points of bias in the system and it's unfair to say like judges are the really racist ones or whatever. Judges are, though, responsible for, you know, a lot of the laws based

on their discretion. Yes, and they do the sentencing and the vast majority of fraud cases get sentences below the federal recommendations. Really? There's also two dudes who own a farm in Colorado who caused a Listeria outbreak that killed 33 people. Oh my God. And the judge gave them, I think it was six months of probation and also

said that, you know, it would be unfair to send them to prison because then they wouldn't be able to help their families earn money. Right. And if we're talking about deterring people from causing those kinds of outbreaks, I mean, it does seem to be one of the cornerstones of our society that harmful actions need to have consequences, right? That's one of the things we tend to agree on as Americans. But it's also a really good example because the real problem, like,

you know, everybody focuses on the judge afterwards, like this is an outrage and it is, but also there's all these other points of bias in the system. So the crime that they were charged with sort of willful killing of people through corporate negligence is a fucking misdemeanor. You can't get a long sentence for that because it's not really a crime in the same way. Like also killing your workers, a misdemeanor.

Really? Killing your workers is a misdemeanor? Yes. So it's just once again, you just kind of, you just kill a few here and there until you finally get caught. Another one is, you know, these sentencing guidelines, right? There's these like recommended ranges. Judges are explicitly instructed to give shorter sentences to

defendants who have appealing life histories, like people who have employment and a family and kids. Yeah. Because like they're less likely to reoffend. You know, who has an appealing life history, elite deviants. Yeah, exactly. There is also one where they're supposed to give shorter sentences to people who can pay their fines and pay their restitution, which again,

helps wealthy defendants. Really? I, oh, really? I didn't notice that. Yeah. They often give much longer sentences to people who fail drug tests when they're out on bail. But of course, wealthy defendants are much less likely to take drug tests

and they're much less likely to be drug users. Like blame judges fine. I'm not going to defend the judges, but it's also there's all these other forms of bias that are part of the system. Blame judges, but also blame everyone. Yes. Blame the whole thing. Okay.

Last, last vocabulary term. This one's shorter, I promise. Okay. Is the word, have you heard the word criminogenic? Criminogenic? Yes. I fucking love this word. Does that mean that you look like a criminal?

No, it's basically, it's an environment that encourages criminality. Oh, that's great. Criminogenic. So exactly the thing I was saying before about the moist areas. Exactly. Yes. It is the moist area. Criminogenic.

Okay. Bear with me. This is going to sound like a tangent, but I'm going to bring it all together. Do you know what I've been weirdly obsessed with over the last couple of months? No. Self-checkout machines. I hate self-checkout machines.

Tell me about this. I refuse to use them. Actually, wait, do you want to just say what self-checkouts are in case people live in a part of the country that doesn't have them? A self-checkout machine is something that I think started showing up in grocery stores about 10 years ago. It's where you scan your own items and put them in bags. And inevitably the computer gets confused and it tries to call over the teenager who's

surveying the area with all the self-checkout stations. Yes. Or it goes like place item in bag. Oh my God, I know. It's a technology that almost works. And it also puts all the responsibility on you, right? Like you have to type in the four-digit code for naval oranges. Yes, which is terrible.

Yes. It's terrible. I cannot overstate how terrible it is. I don't like it. I don't use them unless I have to. Don't worry. This episode is not going to culminate in me defending self-checkout. Oh, thank God.

So what I found out once I started looking into the economics and politics of self-checkout is that shoplifting doubles when stores install self-checkout. Yeah, seems to make sense. That was my response too. And one thing that's really interesting is, you know, in all things, most crime is committed by a small percentage of people. Like 4% of the population commits like 80% of the crimes. I don't know what the actual numbers are, but it's like some small percentage of people

commit the majority of crimes. And so what's really interesting about self-checkout is that it doesn't increase shoplifting among shoplifters. It's not like it makes people more brazen. Oh, normal people start shoplifting. Exactly. Because it's so fucking easy. I mean, who among us hasn't felt tempted? Yes.

Especially if you're sitting there scanning something eight times in a row. You start to feel like you work in the store. Totally. It's really easy to just sort of slip something into your bag, like out of your basket and into your bag, or if something doesn't scan eight times, you're like, ah, fuck it. I'm just going to put this in my backpack. I'm not in the mood for this. There's also, it's really easy to type in a different item than you're actually scanning.

This is like how most of the shoplifting happens is like shiitake mushrooms are like 30 bucks a pound and then carrots are 79 cents. And so you put your mushrooms on the scale and you type it in as carrots and you save like 20 bucks. Like that's how a lot of it happens. And it is like normies. Like it's people who would never think of putting a Snickers in their pocket and walking out of a store because that feels like stealing. I used to write the code for a millet on quinoa.

Ooh. Yeah, I'm bad. But I think like you are like most of the population. Right. Because it's not an iconic crime. Yes. It's just a little soups on of crime. The academics call it folk crimes where you think of things like speeding as very different than beating somebody up

because a folk crime is one where it's like you're giving in to temptation. And so we don't think of like you're a bad person for speeding. We're like, well, you know, there was nobody on the road. It was early in the morning. So you went 60 when you should have gone 40. Right. Well, you're also just like who is it really? It's not going to hurt the store if I built them out of $3 worth of grain.

And so the really big thing with self-checkouts is not only do they tempt you to steal, but they also give you an excuse because you know that if you get busted for typing in carrots when you actually had shiitake mushrooms, you can be like, oh, I didn't know. Oh, I pressed one digit wrong. I like accidentally hit the wrong letter, whatever. And so, you know, they can't really catch you for that. You could also use your privilege be like, well, I'm a middle class person and like, I'm wearing a button up shirt and like, I would never do this.

Button up shirt wear is never steal mushrooms. It's part of our criminal code. So this to me, like after my obsession with self-checkout, this became my like guiding principle for like how companies work. Like why, why does it feel like the private sector is becoming increasingly criminogenic? It's like, why is it inviting the people within it to commit more crime? And I really think that there's been a culture of criminality that creates the exact same circumstances as a self-checkout where it's really easy to commit fraud and it gives you an excuse.

Yeah. And so the really depressing conclusion that I came to after interviewing like 60 people about this is that we can't prosecute our way out of this. Okay. It's seen as sort of a crisis that there's not enough white collar prosecutions. Like in every number, white collar prosecutions are way down. But what a lot of people said is like, we've already increased the sentences for white collar crimes a million times.

Like you can do 25 years in jail and pay a $25 million fine for securities fraud. Every single scandal, we've increased the sentences for white collar crime. What if upper middle class white men are targeted as a class and whole generations of them are incarcerated because that was how we waged the war on drugs. Yeah. That's how we got rid of gangs. Yeah. Right.

So should we just traumatize whole generations? Should that, should we try that? It's probably not it. I guess I throw that out there. Okay. But what should we do? I mean, it's an interesting debate going on within law right now of whether you should level up or level down.

Well, I mean, leveling up is just going to put everyone in prison. This is what really frustrates people. And I, I understand the frustration, right? That, you know, somebody like one of these people that was busted for the college bribery scandal gets like, what did she get? Like two weeks or something. Felicity Huffman. Say her name.

And then a lot of people are saying like, well, that's fucked. She should be getting way more. And then somebody else pops up and says, well, actually everyone else should be getting less. That's me. I'm that person who always pops up and says, well, actually everyone else should be getting less. Yes.

Like poor mothers of color should be treated by the courts as if they're Felicity Huffman. But this, this pisses people off. Like with all the anger against the financial sector, elites generally, people want to put that anger into something that feels like justice. Right. And it doesn't feel like justice that some rich asshole gets two weeks and like, no, no, we need to do years of reforms so that everybody else can also get two weeks. Like that doesn't feel cathartic.

And it also is like, well, wait a minute. Why is it only when a rich white person gets these short sentences that all of a sudden we're like, oh, short sentences are actually good. It's like, well, where were you? Let's talk this through. Like would we, okay, first of all, I'm always there. Yeah. I mean, you're always there.

But also, I mean, let's think this through. Like how would we feel if Felicity Huffman went away to the pokey for a long time? What would happen really? And how long would people feel better? I mean, what, what really would happen is that we would feel good for a moment and then we would be able to forget about it because the kind of justice we're, we're kind of clamoring for a lot of the time is the kind that allows us to move on. And actually we should be sitting here uncomfortably.

Like we should feel uncomfortable about this outcome so that we have to actually be like, I'm dissatisfied with the justice system. Well, I mean, it's, it's, it's the question of like, what is the criminal justice system for, right? Like if you think of it as purely retributive, then like, yeah, give her 50 years. Like that feels like justice. Yeah. But if we think of it as something that delivers deterrence, like if what we want less of is,

you know, lead in children's toys and giant financial crises, then you really don't get deterrence with longer sentences, that there's all this research about this, that what actually deters people from committing crimes is the probability of getting caught, not necessarily the harshness of the punishment. That's interesting. So if, if you're a bank robber and there's a one in 1000 chance that you get caught, it doesn't really matter whether you'll do one year in jail or 10 or 100 because you're not going to get caught.

I think it essentially mimics the way that, that wealthy white people are policed where it's like the police are not patrolling your neighborhood to try and get you in trouble unless you get like really noisy or really out of hand. They will probably leave you alone. Yeah. What researchers say is that there isn't what's called a ladder of accountability that it's like, you fuck up. There's a small punishment.

You fuck up again. There's a bigger punishment. You fuck up again. There's like a way bigger punishment. Like we don't have any intermediate steps. We just have, you don't get caught. You don't get caught. You don't get caught.

Boom, you get 50 years. And so you're never going to reduce bad behavior that way, right? Because there's actually, there's one study that indicates that when the chances of getting caught are low and the punishments are high, it results in more criminality because people feel like everyone is doing this and I got caught. So fuck the system. I feel like I'm learning that the reason we don't prosecute white color crime is because no one wants to.

Yes. Okay. I mean, it sucks. Because we admit that the purpose of prosecuting criminals isn't really to deter crime, but to do something else, I suppose. Tell me what you think based on your earlier explanation that it was dudes back patting and taking each other to golf. What do you, what do you think about it now?

I said jerking each other off, but thank you for that. It feels to me like what this is, is a tacit acknowledgement of the fact that the financial systems we have have to remain criminogenic in order to keep existing. You know, like we're not going to start over and have a non criminogenic system of finance, right? That would be impossible. So, I mean, essentially it feels like being sheriff of a town where like 90% of the people there are making moonshine, you know, it's a totally moonshine dependent economy.

You're not going to bust all the moonshine makers. Right. That wouldn't work. You just every year you have to like bust one guy, right? And be like, no, you shouldn't be so obvious with your moonshine making. Right. Like these guys I'm not arresting. But obviously we're going to keep making moonshine because that's what our economy

is dependent on. Yeah. You know what's interesting too that I just kind of thought of is that no one thinks of themselves as a potential victim of white collar crime, even though we all are, and we all are actually victims of it, like over and over again. But everyone thinks of themselves as a potential victim of violent crime as we talked about in our victims rights episode. Yeah.

It's just so interesting how we're motivated to crack down on a kind of crime that may not intersect with our lives at any time. But we are like, oh, let's go soft on the thing that affects all of us constantly. I mean, it's actually, I mean, you find this in the academic literature too that people are angry at white collar crime, but they're not afraid of it. Right. In the same way. That makes sense.

Which is when you think about it completely bananas, right? Because like your kid buying a toy that has fucking lead in it is like genuinely horrifying. This really connects with my sense that our ideas about crime in America are really just all about racism. If white collar crime is literally poisoning our children, you know, if there's lead on the Barbies, which is like the embodiment of an urban legend, you know, that's like the kind of thing we normally have to make up. But it really happened.

And we're like, well, let's not put anyone in jail. Yeah. You know, right? Like, what's that? I mean, you said something very wise the other day when I was saying that because I live in on the West Coast, I have people in my life who like believe in chemtrails and stuff. And you said it's interesting that people focus on things like chemtrails when like there is evidence that there are chemicals that are affecting us, right?

Like lead in gasoline was fucking true. They slid in all of the municipal tap water in Milwaukee, you know, you don't need to be chewing on a Barbie in many parts of America to get lead poisoning. Yes. And when you said that, it sort of clicked for me that it's interesting people make up these conspiracy theories about like dark and shadowy networks when the real dangers aren't dark and shadowy. They're right there.

Right. Like you can look up EPA reports about like how many playgrounds still have lead in the gravel. There's been many scientific documents written about this. Like it's not, right. It's not all that shadowy. It's just kind of boring. It's just to be afraid of white collar crime.

We have to make up shit like chemtrails, right? We can't be afraid of the actual, the real dangers of like my retirement savings could get wiped out by the CEO of my company who's been telling me to invest in the company and then it's all just going to crash, right? Like that's, people aren't afraid of that the way that they're afraid of like the glinting knife in the moonlight kind of mugger. Yeah, it's true. It's like we have to find a way to metabolize the real fears that affect our daily lives

as something that doesn't cause an adrenaline rush every time we think about it because you have to be kind of cavalier about the stuff that affects you every day. The same way that people who live in war zones have to go grocery shopping. So yeah, what are our lessons? What are you taking away? What have we learned? I mean, once again, I've learned that our legal system is more of a loosely defined thing than any of us have learned from TV because there's this whole world of crime

where we're like, well, you know, it's fine. It just feels like once again, when we get into how our legal system actually functions, it's like prison and being called a criminal, being branded a criminal, being incarcerated is like, it's not about what you've done. It's not about whether you've committed a crime. We all say that, but we don't mean it. It's about race and it's about economic status. That's what the word criminal means.

It clearly doesn't mean a person who commits crimes because that applies to people who it benefits no one to destroy their lives or incarcerate them and so we don't. That's much better than my lesson. I was going to say, don't bite your Barbies and make sure to memorize the four digit code for Millet. Right. Right.