Some Thoughts on the Just-Too-Big Corporation (and Other Stuff)

This past Wednesday, UBS agreed to pay $1.5 billion in fines after admitting to fraud and bribery in connection with efforts to rig key interest rates.  While criminal charges were also filed against the Japanese subsidiary of UBS, The Wall Street Journal reported that:

Some U.S. lawmakers chided the Justice Department for deciding not to prosecute the corporate parent. One of the factors in the decision was whether criminal charges against UBS might undermine the bank's stability or damage the global economy.

In other words, UBS might be too-big-to-prosecute.  So, we can add that moniker to the list that includes too-big-to-fail (i.e., too big to be subject to the “creative destruction” at least some argue is necessary for capitalism to function effectively), too-big-to-compete-against, and too-big-to-regulate.

What follows are some additional items I came across this week that I felt were worth sharing.  I leave it to you to determine the degree to which they are related to the foregoing and one another.

• Bainbridge on institutional versus individual wrongdoing:

[I]nstitutional liability punishes the wrong people…. [W]hen a corporation pays a large fine the resulting balance sheet effect is to reduce assets on the left side. On the right hand side, liabilities remain constant. To offset the decline in net assets, accordingly, shareholder equity must fall…. As always in corporate accountability, both efficiency and morality require that punishment be directed solely at those who actually commit wrongdoing. In this context, it would be the directors, officers, or controlling shareholders who actually [committed the crime].

• Michael Hudson’s review of Häring & Douglas’s “Economics and the Powerful” in the most recent World Economics Association Newsletter (page 5), which led me to this summary of the book on Amazon:

“Economists and the Powerful: Convenient Theories, Distorted Facts, Ample Rewards” explores the workings of the modern global economy – an economy in which competition has been corrupted and power has a ubiquitous influence upon economic behavior. Based on empirical and theoretical studies by distinguished economists from both the past and present day, this book argues that the true workings of capitalism are very different from the popular myths voiced in mainstream economics. Offering a closer look at the history of economic doctrines – as well as how economists are incentivized – “Economists and the Powerful” exposes how, when and why the theme of power was erased from the radar screens of mainstream economic analysis – and the influence this subversive removal has had upon the modern financial world.

• Hayden and Bodie on The Bizarre Law & Economics of “Business Roundtable v. SEC.”  (Self-explanatory?)

• From Bloomberg: “IBM Judge Questions SEC on Foreign Bribe Settlement.”  (Also self-explanatory?)