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House Republicans Try to Create a World Fit for Criminals

Why are politicians getting away with deliberately creating a system in which elite white-collar crime can flourish?

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In criminology, we recognize that one of the leading restraints on the effectiveness of law enforcement is what is known as “systems capacity.”  Indeed, my mentor, Henry Pontell (UC Irvine), defined the concept.  In the context of crimes of the street (other than Wall Street), there is normally no lobby trying to allow the typically lower class criminals to commit their crimes with impunity.  In crimes of the business suites, however, it is the norm that there are well-funded, powerful, and seemingly legitimate lobbyists for the elite criminals who seek to allow them to commit their crimes with impunity.  Similarly, it is rare for street criminals to consult a lawyer before they commit their crimes.  Elite white-collar criminals often consult with expert legal counsel before, during, and after they commit their crimes in order to try to minimize the risk of being sanctioned.

One of the most obvious ways to produce a criminogenic environment is to create systems incapacity to detect and sanction crime.  House Republicans are doing that in the context of elite white-collar crime.  That context also happens to be the leading campaign donors for both parties.

On June 9, 2012, The New York Times published an important editorial entitled “Lost the Vote?  Deny the Money.”  The editorial will be ignored by the Obama administration and Republicans but it is well worth reading in full.  Here are some key excerpts.

If you wanted to reproduce the conditions that led to the Great Recession in 2007, the easiest way would be the plan unveiled last week by House Republicans: gut the regulators who are supposed to keep the worst business practices in check.

At a time when the economy is still reeling from the downturn, House Republicans released a spending bill that would severely cut the budget of the Commodity Futures Trading Commission, which would keep it from regulating potentially toxic swaps and other derivatives. It refused to give the Securities and Exchange Commission the extra money it needs to carry out the Dodd-Frank financial reform bill.

And the bill would cripple the Internal Revenue Service, limiting its ability to detect tax avoidance, particularly by businesses and the wealthy. (The I.R.S. cut, designed to impede the agency’s role in health care reform, will inevitably increase the deficit.)

With 710 employees, the C.F.T.C. staff is barely big enough for its current responsibilities, let alone its new mission under Dodd-Frank to oversee the huge over-the-counter swaps market. Its budget is $205 million, which President Obama proposed increasing to $308 million for 2013 to deal with swaps. The House Appropriations Committee has proposed slashing next year’s budget to $180 million.

The agency’s chairman, Gary Gensler, said: “The result of the House bill is to effectively put the interests of Wall Street ahead of those of the American public, by significantly underfunding the agency Congress tasked to oversee derivatives — the same complex financial instruments that helped contribute to the most significant economic downturn since the Great Depression.”

As Mr. Gensler pointed out, the market in swaps, at $300 trillion, is eight times larger than the futures market his agency has been regulating, and yet the House wants to cut the agency’s budget significantly. The House committee chairman, Harold Rogers, said the agency should return to its “core duties,” a statement that brazenly ignores a new set of duties Congress put on the books.

In this essay I make four brief points.  First, the House Republicans’ proposals would produce the most criminogenic environment in the world that risks an even larger financial crisis and outright depression.  This isn’t simply the lesson of the current crisis.  George Akerlof and Paul Romer explained the point in 1993 in their classic article (“Looting: the Economic Underworld of Bankruptcy for Profit”).  They made this paragraph their conclusion in order to emphasize the message.

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