Why don't we care about financial crimes?
Why don't we care about financial crimes?
Not Pretty, Not Rich is a newsletter about money, finance, and the economy written by me, Sam Becker.
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It’s Friday, October 2, 2020.
What’s shaping the world this week
Here comes the pain? Two airlines let a combined 32,000 workers go, Disney, Goldman Sachs, and Shell also announced mass layoffs. With no additional stimulus measures in the pipeline, companies are cutting costs — and jobs.
Pessimism abounds. The economy contracted at a 31.4% annual rate during Q2. A recovery is expected, though, of around 30% in Q3. However, experts are becoming more pessimistic about the economy’s long-term health, even decades out.
That debate. Bleh.
Why don’t we care about financial scandals?
Massive scandals have rocked the biggest banks repeatedly over the years, but we seem to forget about them almost immediately.
A couple of weeks ago, a fairly major story broke regarding a financial scandal that involved many of the world’s largest banks and financial institutions. That story, called the “FinCen Files,” was published on September 20 by BuzzFeed News and the International Consortium of Investigative Journalists.
Here’s what the story was about, in short, from Buzzfeed News:
“The Financial Crimes Enforcement Network, or FinCEN, is the agency within the Treasury Department charged with combating money laundering, terrorist financing, and other financial crimes. It collects millions of these suspicious activity reports, known as SARs. It makes them available to US law enforcement agencies and other nations’ financial intelligence operations. It even compiles a report called “Kleptocracy Weekly” that summarizes the dealings of foreign leaders such as Russian President Vladimir Putin.”
Now, this was a fairly big story, but it was little more than a blip in the news cycle. I, personally, pay a lot of attention to the financial news, and even I barely remember hearing about it. That’s understandable, on some level, as the news cycle over the past few weeks has been absolutely bonkers, but still — I found it strange how little we, the public, tend to care or find financial scandals interesting.
And yet, they can have more of a direct impact on our lives than many of the other big news stories that dominate headlines and our attention. There are exceptions, of course. All of the jiggery-pokery going on on Wall Street leading up to the 2008 financial meltdown is one — but it took a near-collapse of the entire system and a global recession for people to pay attention. And even now, if you ask the average person what happened during 2008, they likely wouldn’t be able to tell you.
But that was more than a decade ago. Since then, there have been numerous other financial scandals, and yet, they’ve come and gone and we hardly ever give them a second thought. Meanwhile, we’ve been arguing about Benghazi or “Deflategate” for years.
Just as a sampling, here are some of the big companies that have been involved in financial scandals or stories that made a brief appearance in the national consciousness, only to be pushed aside or sexier headlines:
And perhaps the biggest one, The Panama Papers
Even just this week, JPMorgan was fined nearly $1 billion for manipulating the markets. These things are happening all the time, but they tend to fly under the radar. We see the headlines, and minutes later, have forgotten all about it.
That brings me back to the FinCEN Files. It’s a big story, and one that we should care about. Although, again, with a pandemic, a presidential election, and all kinds of other things going on, it’s understandable how this story wouldn’t hold the public’s attention at the current time.
The gist of the FinCen Files is that, for nearly 20 years, financial institutions including JPMorgan Chase, HSBC, Barclays, and Deutsche Bank facilitated and processed a whole lot of suspicious transactions. Essentially, they were laundering dirty money for crooked politicians, criminals, rogue nations like North Korea, crime syndicates, drug cartels, and terrorist groups.
It’s the type of stuff that, if you or I were to be caught doing, would send us to jail for a long time. But it’s unclear what, if anything, will come of this. Typically, these companies end up getting slapped on the wrist and paying a fine that amounts to a fraction of the money they made conducting the crime.
It’s like robbing a 7-Eleven, getting away with $100 in cash, and then a judge asking you to pay a $20 fine to alleviate the damages. That’s an oversimplification, of course, but you get the idea.
But getting back to my point: This is a big story, one that was drowned out in a noisy news cycle, and one that will be quickly forgotten. We should be angry about it and demand better from our financial institutions. But we won’t. Most of us don’t care.
So, why is that? Why do we not care about financial scandals? I’ve given this a lot of thought, and I think it comes down to two things that most of these scandals have in common: They’re complex, and they lack sex appeal.
I think the complexity of these scandals is really what makes them so easy to ignore. If somebody robs a bank, it’s a fairly easy sequence of events to digest and understand. If a bank conducts a decade-long securities fraud by manipulating the markets, most of us tune out by the time we get to “securities fraud” in that sentence.
Even the big scandals aren’t easy to comprehend. I’ve read “The Big Short” twice, and still have a difficult time explaining the 2008 financial meltdown. These stories are complicated and can’t be explained in a sentence or two. You often need a whiteboard and a whole lot of patience to even get through the preamble, if you were to try and explain it to somebody.
So, the complex nature of these scandals is, in my opinion, the biggest reason that they’re underappreciated.
Second, they lack sex appeal. And by that, I mean that financial fraud and questionable accounting practices are...kind of boring. While some scandals are meatier than others, these stories don’t often involve violence, bloodshed, or fireworks. They typically involve some guy sitting at a computer, or a middle manager looking the other way while a subordinate does something sketchy while sitting at a computer.
While my thinking on this may evolve with time, I do think that for a financial scandal to really stick in the public psyche, it needs to either involve a celebrity or high-ranking public official (Trump’s taxes, for instance, seems to have interested people), affect the pubic in a very obvious way (the 2008 meltdown), or otherwise have some “sexy” story elements attached — like as shootout.
I think we should all take the time to read the FinCEN Files and try to pay attention to what’s happening in the financial sector, even though there are many other things going on. Because it’s only once we do start paying attention and showing a little emotion over these things — as we did in 2009 — that we can usher in change.
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This week’s numbers and links
Something smart I read this week (and a thought that I’ve long harbored): Cars are too expensive for the average person, and are a big reason why everyone’s broke.
The median price of a single-family home in Bozeman, Montana increased by $90,000(!) between July and August.
40%: The percentage of the world’s plant species that are at risk of extinction, per a new report.
130: The number of Tesla semi-trucks Walmart recently ordered.
1,000 years old: The age of a runestone dug up in a field in Sweden.
$64 billion: The economic output generated by NASA during FY19, triple its $21.5 billion budget. Space is sustainable!
Read this piece by Michael Lewis — especially the last paragraph.
Until next time,
Sam