Quit Passing Laws and Enforce the Ones on the Books

This is the best blog post that I have seen in a long time. It comes from the Glittering Eye, a blog I highly recommend to you if for no other reason than the author eschews dogmatism, partisan politics and all other manner of bias in favor of just getting at the common sense of most issues.

Here he talks about a thoroughly obvious point that the Wall Street Journal found worthy of an article. I apologize in advance for excerpting most of the post but it’s too good to pass up.

A new report which doubtlessly required millions of dollars to produce has determined that low wage workers are exploited by their employers all too often:

Low-wage workers are routinely denied proper overtime pay and are often paid less than the minimum wage, according to a new study based on a survey of workers in New York, Los Angeles and Chicago.

The study, the most comprehensive examination of wage-law violations in a decade, also found that 68 percent of the workers interviewed had experienced at least one pay-related violation in the previous work week.

If we had reporters, scholars of labor law, or legislators who’d actually worked for low wages, it might not have come as so much of a surprise. Presumably, this is why we need lots more people who’ll work for low wages as is urged on us on practically a daily basis by advocates from the Wall Street Journal to The Nation.

The one, singular important thing that should be recognized in this is that new legislation won’t do a thing to reduce this sort of offense. It’s already against the law. This is an enforcement problem and if Congress had 10% as much commitment to enforcing the laws it passes as it does to passing new laws reports like this would have very different findings.

Please pay attention to the last paragraph. We have become a nation of rules and regulations that are rarely enforced in a meaningful manner. Mortgage brokers steered their customers into suspect loans and failed to properly disclose their consequences not because it wasn’t illegal but because they knew the odds of being caught and prosecuted were ridiculously low.

Realtors pushed their clients to buy more house than they knew they could afford secure in the knowledge that there would be no repercussions though it might well have violated their fiduciary duties.

Investment bankers packaged and sold securities which were indecipherable to the investor without fear of prosecution.

Simply put, the rules exist, enforcement is ephemeral. Everyone knows it and acts accordingly. If traffic rules or even the laws against what one would normally call criminal acts were so routinely ignored the society would be unlivable. As it is, trust which needs to exist between advisers and their clients is being severely strained. The educated and informed are beginning to assume that there is no fair shake in the market while those less able to fend for themselves are targets whose feathers are either plucked or they develop a suspicion of all things offered which leads them to pass both the good and bad opportunities that happen by.

Basically, a bunch of bad apples are spoiling many a bin. Credibility among professions is ebbing to the point of disappearance.

The solution is simple. Seek and destroy the evil doers. Any law enforcement professional will tell you that it is impossible to capture all of the bad guys. What is possible is to capture some, put them in jail for unconscionably long periods of time and scare the bejesus out of anyone contemplating a similar transgression. How many professionals have you seen heading for the slammer and how much do you think the message has been delivered to those who would follow in their footsteps? Not many, right.

So Congress may pass new rules if it so chooses, but for a change providing adequate funding for enforcement would go a long ways towards truly ending the transgressions. Any good cop can tell you how to go about correcting the situation. Why can’t Congress and successive administrations figure it out.

Comments

[Tom Armistead:]

This is as true of securities laws as anything else. We have the Securities and Exchange Act of 1934, it has not been enforced in any meaningful way for about 30 years, and the SEC does not have personnel who are experienced in actually enforcing the law. It has a bunch of hopelessly dysfunctional types who have learned to vet every proposed action at least 19 times to be sure they don't offend anyone who matters.

The result, a succession of p/r enforcement actions against the likes of Martha Stewart and Mark Cuban, while Bernie Madoff and numerous more skillful and better placed offenders operate free from any form of regulatory hindrance.

It's about enforcing the laws we have.

Sep 03 12:39 PM

[Bruce Mc:]

The congress could spend the next 50 years simplifying and removing onerous laws and regulations.
The main problem is that if all the laws were enforced a lot of the people to be prosecuted are in Cdongress.
The foxes are in the henhouse and the only reason to shut the gate is to keep other foxes out.

Sep 03 12:55 PM

[Bruce Mc:]

The congress could spend the next 50 years simplifying and removing onerous laws and regulations.
The main problem is that if all the laws were enforced a lot of the people to be prosecuted are in Congress. Especially the one that abuse our tax system.
The foxes are in the henhouse and the only reason they want to shut the gate is to keep other foxes out.
It is sad when the crooked persons in Washington, DC are always outshining the dedicated public servants.

Sep 03 01:02 PM

[Leftfield:]

Complexity favors skilled evaders. Even with the ridiculously onerous, ever-growing burden of the present laws so easily run afoul by all normal people now, we have this parade of untouchable offenders at the top of the food chain.
The actual idea of Congress and their lobbyist-scripted reams of new legislation seems to be to create loopholes for the well-heeled to exploit. The deadening cumulative effect of this pile of crap has not been to reduce wrongdoing, but to enable the elites to seize unaccountable $trillions good taxpayer money thrown at the mistakes they belong in jail for, or at least face clawback.
If light begins to shine anywhere on this self-serving feedback mechanism, it may bring down much of Wall St. and DC, so they continue to fiddle while Main St. burns.

Sep 03 01:36 PM

[ctjaeger:]

I spend around 50% of my time dealing with auditors - both from the private and public sectors - at the financial institution for whom I work. After each review over the past 25 years, I have made notes as to the focus of the review. It is amazing to me that over 80% of the focus is on non-financial/non-risk oriented issues. Rather, the "punch list" that each auditor carries as their Bible gets completed with rather cursory questions about risk management and financial condition with the thornier questions focus on anti-money laundering and similar (more law enforcement) types of issues.

The more specific the legislators try to make a law, the more loopholes they create. (Why is embezzlement a completely different crime than robbery?) Some organizations make it their mission to find a way around the regulations, and their lawyers are always happy to try to prove that they're smarter than the lawyers in Congress.

In any case, I have been saying that this is an enforcement issue rather than a regulatory issue (other than for a few specific regulations that should be on the books) for quite some time. Illegal activities begin to have a less than illegal cast about them if enforcement is never brought to bear. I'm not justifying illegal or unethical behaviour, I guess I'm just agreeing with the author on this point.

Sep 04 09:47 AM

[Jimbo:]

It is my understanding that one of Mr. Madoffs' daughters was married to a lawyer employed by the SEC. I also understand that employees regularly moved back and forth from the SEC and the institutions they were supposed to be supervising. This sets up an unbelievable conflict of interest situation. If a mere mortal such as I can see this, I can only conclude that the decision makers are completely aware and just don't give a damn. No wonder we are in the shape we find ourselves.

Sep 04 12:08 PM

[Moon Kil Woong:]

This largely mirrors what Sheila Bair said when arguing against the Fed's attempt to create a new regulatory superstructure. The problem is not the laws but that regulators are rewarded for not enforcing them and seldom do.

There were plenty of laws to prevent mortgage fraud, derivitaves fraud, and reckless and bad management even after removing Glass Stegall (our best defense against the dark art of criminal banking). Sadly the SEC and others refused to enforce proper disclosure, abusive risk taking, and outright lying and stealing. Madoff was just a sensational story. The level of bordeline criminal actions at that time was monumental and still largely kept in the closet.

Sep 05 06:21 AM

[Mark Bern:]

"If traffic rules or even the laws against what one would normally call criminal acts were so routinely ignored the society would be unlivable."

An Interstate highway not far distant from my home has a speed limit of 65. However, the DMV has monitored traffic there for years and publicly reports that the average speed traveled on that highway is in excess of 80 mph. And that is "with" enforcement (albeit sporadic). What would it be without enforcement? Heaven only knows. But this one example provide support to the author's theme that a lack of enforcement is the root cause of moral decay in our society.

Those are my words, not his. But I think we're saying much the same thing. If people can get away with breaking the laws with little risk of getting punished, some people will break the laws. The more obvious it becomes that the laws are not likely to be enforced, the people who will ignore the laws and do whatever pleases themselves.

We are cultivating a society in which fewer and fewer people live within the laws, fewer and fewer people respect the rights of others, and fewer and fewer people are motivated by what might be termed as the "common good."

As we strive to become a more diverse society and culture we divide our population into dissimilar groups and encourage them to maintain their own cultural heritages rather than to conform to the one into which they are merging. It seems like a good concept, but when other cultures has even less respect for laws we are inviting even more chaos.

There are may other factors, such as those discussed by the author, but they all point to the same conclusion: we are moving in the wrong direction as a society toward greater disrespect for authority and more self over country.

Sep 05 09:53 AM