The protests on Wall Street and elsewhere throughout the world are gaining strength. Clearly, many people are unhappy with the current system, which works well for the privileged few. Many remain confused about these protests. What are their goals?
It didn't take me long to find an example of how the system functions for those at the bottom of the ladder. Roy Brown was out of a job, homeless and hungry. He reportedly walked up to a teller at a bank in Shreveport, pretended he had a gun and demanded money. The teller handed him three stacks of bills. He took only $100, left the balance, and told the teller he was homeless.
The next day he surrendered to police, stating that his mother didn't raise him to be a criminal. He was sentenced to 15 years in prison.
For those at the top, it's not nearly as bad. Citigroup reached an agreement to pay $285 million to settle charges it defrauded investors who bought toxic housing related debt. The investors weren't told by Citigroup that it had taken a short position against the $1 billion of collateralized debt obligations sold to them. Internal memos called the portfolio "possibly the best short EVER!" and noted that "the portfolio is horrible." Citigroup made $160 million of fees and profits on the deal.
As is customary in these cases, Citigroup settled with the SEC without admitting that it had done anything wrong. This a legal fiction that permits miscreants like Citigroup to escape additional civil liability by preserving their right to argue that this settlement is not an admission of guilt. If it did nothing wrong, why would it agree to pay $285 million? No criminal charges were brought against Citigroup for its appalling conduct.
Former Taylor Bean & Whitaker CEO Paul R. Allen was not so lucky. He was sentenced to a 40-month prison term for his role in a $3 billion fraud scheme involving mortgages sold two and three times to investors. Mr. Allen pleaded guilty to conspiracy to commit bank, wire and securities fraud and making false statements. Prosecutors sought a six year term, but the Court showed Mr. Allen some leniency. According to one report, sentences for those involved in this scheme have ranged from three months to eight years.
Based on this limited sample, in my opinion, here's how the system is currently working:
If you are homeless and poor, and steal the equivalent of the cost of bag of groceries to feed yourself and your family, you could spend a decade and a half in prison.
If you are a rich and powerful bank, and you engage in a massive financial fraud reaping $160 million in fees and profits, you may have to return your ill-gotten gains, plus interest and few bucks. You won't be charged with any criminal conduct and you don't even have to admit you did anything wrong.
If you are a white collar executive who engages in blatant criminal conduct that topples a major bank, you could be subject to criminal prosecution. But don't worry. If you have to do any jail time, it will be modest and no doubt served at a minimum security facility, with plenty of perks. You will get out and rebuild your life, while Mr. Brown continues to languish in a Mississippi prison. At least he is getting three square meals a day.
This is worthy of Wall Street protests.
Dan Solin is the author of the New York Times best sellers The Smartest Investment Book You'll Ever Read, The Smartest 401(k) Book You'll Ever Read, and The Smartest Retirement Book You'll Ever Read. His new book, The Smartest Portfolio You'll Ever Own, was released in September, 2011.The views set forth in this blog are the opinions of the author alone and may not represent the views of any firm or entity with whom he is affiliated. The data, information, and content on this blog are for information, education, and non-commercial purposes only. Returns from index funds do not represent the performance of any investment advisory firm. The information on this blog does not involve the rendering of personalized investment advice and is limited to the dissemination of opinions on investing. No reader should construe these opinions as an offer of advisory services. Readers who require investment advice should retain the services of a competent investment professional. The information on this blog is not an offer to buy or sell, or a solicitation of any offer to buy or sell any securities or class of securities mentioned herein. Furthermore, the information on this blog should not be construed as an offer of advisory services. Please note that the author does not recommend specific securities nor is he responsible for comments made by persons posting on this blog.