Who should be culpable for Citigroup’s bad dealings?

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As we read about the latest bank settlement with the federal government, it may seem that $7 billion is a hefty fine to be paid by Citigroup. Apparently it’s not. Citigroup’s shares were up 3 percent after the settlement, so someone must think it’s a good deal.

Some may argue any settlement is better than ongoing investigations, and therefore even $7 billion is a good deal. No officer or director ended up in jail. These “decision-makers” or “job-creators” are never touched. Are they above the law? Are they too rich to prosecute?

It’s a given that moral considerations aren’t part of the algorithm Wall Street mavens use to make profits. It’s also a given that we shouldn’t judge banks’ performance by their moral aptitude or social contributions alone. So, if we simply judge banks by their financial performances, Citigroup and its sister banks and hedge-funds are very clever indeed.

Knowingly commit a crime (fraudulently sell collateralized debt obligations tied to sub-par mortgages), make a huge profit for years, and years later, only if you are caught and convicted (possible but highly improbable), pay a fine. The billions made along the way (whose value increases as you lend it again and again) remain yours, minus the fines.

Let’s translate this to a language the rest of us can understand. You and I steal money from unsuspecting people, make a profit off it, and pay a fine down the line if we get caught. If moral principles were invoked at the very beginning of the process, or better yet, before the crime is even conceived or committed, the awful things that follow would never happen.

The fact that the entire American economy (and much of the global economy) came to a halt because of such cavalier, criminal behavior may be worth recalling. It’s one thing to lie to secondary markets about the integrity of CODs; quite another to create a financial bubble that is bound to burst. The “economy” isn’t hurt. People are hurt, flesh and blood.

The most successful program that the Bush/Obama administrations undertook under the Troubled Asset Relief Program initiative (close to $1 trillion in bailout funding) was “Cash for Clunkers” (Car Allowance Rebate System). The program lasted a few short months in 2009 but the allocated $3 billion led to 690,000 dealer transactions.

Whether the original intent was energy savings, greater fuel efficiency of trucks or stimulation of the industry amid the recession remains unclear. Giving a credit toward buying a new car helped get reluctant consumers into dealerships, 690,000 of them, and helped car sales.

Just think what would have been the impact if the same system of $2,500-$4,500 credit went to homeowners. What if not $3 billion but $300 billion (still much less than went to large banks) was allocated to homeowners with vouchers worth $5,000-$9,000 each? Simple arithmetic would suggest 34.5 million transactions could have taken place, enough to avert the housing collapse, and the suffering of those facing foreclosures.

Instead of feeling relief that justice is being exacted on corporate giants, we should pause and think again: Is this the kind of country we want to live in? Is this the kind of capitalism we are willing to endure? Fines may assuage our outrage but justice requires more than a slap on the hand. 

To put this $7 billion fine in perspective, Citigroup has a larger annual profit (on average) than the fine. Just like other costs, paying fines here and there is the “cost of doing business.” Can you imagine that someone would routinely drive recklessly and threaten the lives of others and agree to pay a fine here and there when caught without ever being threatened with a driver’s license revocation?

Would we feel sanguine to live in a community where known criminals get a pass no matter what they do? Citigroup’s crime was not victimless; its profits were at the expense of others; houses were lost, savings evaporated and marriages dissolved. This was a crime, indeed, as egregious and heartless as outright theft.

The idea that we can separate money from morals is false. The belief that my profits are never at your expense is also not true in all cases. So, before you decide what to make of Citigroup’s fine, remember those you know who suffered in the Great Recession. Their sufferings were real; Citigroup’s weren’t (no matter what the Supreme Court says about corporations being citizens).

And the culture of calculated fraud shouldn’t be ours.

Raphael Sassower is professor of philosophy at UCCS. He can be reached at rsassower@gmail.com.