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> If a bank does hundreds of billions of dollars of transactions globally and several hundred million of those are tainted, the sanctions in question should be

by magpi3 8y ago

> If a bank does hundreds of billions of dollars of transactions globally and several hundred million of those are tainted, the sanctions in question should be based on the tainted transactions, not the annual revenue or profits If the penalty is meant to be a deterrent, then it should hurt. Otherwise it will not be a deterrent. You have to consider the bank's annual profit if you want it to hurt.

sokoloff 8y ago
I believe that the annual profit on that tainted line of business is typically proportional to the size of that line of business, not to the sum of unrelated lines of business and that fines based on the size of fraud/error are appropriate deterrents. Imagine if See's Candy has a product recall due to malfeasance or NetJets has a crash based on pilot error. Should any penalties be based on the facts and circumstances of the situation or on the entire profits of Berkshire Hathaway?
leetcrew 8y ago
depends on your philosophy regarding fines/punishment. personally I think punishments, particularly fines, should be proportional to the damage done to society, not jacked up as high as you feel is necessary to discourage the behavior. I don't think a large bank that does $50mm in illegal transactions did any more harm than a small one that did the same volume. also, as we see in criminal law, setting huge penalties doesn't work very well if you can only get a few convictions. it just turns into a game of hot potato where everyone still does the illegal thing to stay competitive and some unlucky firm occasionally gets stuck holding the bag. a free society should strive for reasonable penalties that are consistently enforced.
- sokoloff 8y ago
  I would say that deterrence is a valid goal. Imagine tax fraud. If the revenue office estimates that approximately 10% of tax fraud is caught, then the penalty for tax fraud should be at least 10x the amount of the fraud. Anything less than that makes it +EV to cheat. (Obviously, it's not perfect and relies on estimations, but I do think that mathematically sound deterrence is desirable.) This of course is still proportional to the fraud (and the societal damage), not to the overall revenues or profits of the taxpayer in question.
  - leetcrew 8y ago
    I should have elaborated more on my original post. I think creating a negative EV is a reasonable goal, but only under certain conditions. > If the revenue office estimates that approximately 10% of tax fraud is caught, then the penalty for tax fraud should be at least 10x the amount of the fraud. this, imo, is the exact situation that creates the game of hot potato. people stop making decisions based solely on EV when the variance gets too high. setting a huge penalty to create -EV may discourage the largest, most forward-looking institutions from engaging in the bad behavior (or at least directing it in a top-down fashion), but most companies and individuals with a shorter time horizon are just going to ignore it. and since everyone does it but almost no one gets caught, it creates an easy way to single out politically useful targets and throw the book at them. rather than just increasing the penalty to gain ratio, I think it is more productive to ask why it is so hard to enforce these laws in the first place. tax law, for instance, can be so complicated that it is unclear to everyone involved (enforcement, accountants, defense counsel) whether a particular strategy is legal. when wrongdoing is difficult to understand, let alone prove, the government should simplify the laws, not make them more draconian. it wouldn't hurt to spend a little more on enforcement either.
- Retra 8y ago
  >I don't think a large bank that does $50mm in illegal transactions did any more harm than a small one that did the same volume. The large bank can continue to do damage if they are caught, while the small one cannot. Thus they definitely do more harm, and at the very least will be perceived to have effective immunity from the law. If you only fine thieves proportional to the value of the stolen goods, then all you're doing is saying it's ok to steal so long as you are sufficiently wealthy. (And if you became wealthy through theft... then you've made a legitimate living through damage to society.)
  - sokoloff 8y ago
    We could also be saying that we (as a society via our laws) try to curtail stealing by setting penalties at a level such that the expected value from thievery is negative. You don't need the equivalent of capital punishment for stealing and, by extension, don't need to take away all of a caught thief's money, just a sufficient multiple of their stealing to make it unattractive to enter into a career of it.
    - Retra 8y ago
      That is essentially what I'm saying. The complication is that you can't reliably measure EV for certain acts. (E.g., What is the dollar-value loss for murder? How much should you fine someone for doing it?) In this case, to calculate the dollar-value loss for creating a subset of society which is above the rule of law which uses wealth as a barrier to entry... the penalty needs to take that into account. So the point is not simply that you need to defer thieves from entering a career of it, but that you need also to deter thieves from considering it as a one-time option for when their quarterly earnings are due, and that you need to do so sufficiently well that even a highly skilled thief with a multi-million dollar company salary won't consider it. So either it can't just be fines (asset seizure/prison, maybe for repeat offenders) or those fines must be legitimately severe as measured by the one committing the act.
  - heavenlyblue 8y ago
    Yeah, but this way the banks will just start splitting into the smaller ones, and the one’s which get caught will be later on hired by the one which didn’t.

by magpi3 8y ago

sokoloff 8y ago

I believe that the annual profit on that tainted line of business is typically proportional to the size of that line of business, not to the sum of unrelated lines of business and that fines based on the size of fraud/error are appropriate deterrents. Imagine if See's Candy has a product recall due to malfeasance or NetJets has a crash based on pilot error. Should any penalties be based on the facts and circumstances of the situation or on the entire profits of Berkshire Hathaway?

leetcrew 8y ago

depends on your philosophy regarding fines/punishment. personally I think punishments, particularly fines, should be proportional to the damage done to society, not jacked up as high as you feel is necessary to discourage the behavior. I don't think a large bank that does $50mm in illegal transactions did any more harm than a small one that did the same volume. also, as we see in criminal law, setting huge penalties doesn't work very well if you can only get a few convictions. it just turns into a game of hot potato where everyone still does the illegal thing to stay competitive and some unlucky firm occasionally gets stuck holding the bag. a free society should strive for reasonable penalties that are consistently enforced.

sokoloff 8y ago
I would say that deterrence is a valid goal. Imagine tax fraud. If the revenue office estimates that approximately 10% of tax fraud is caught, then the penalty for tax fraud should be at least 10x the amount of the fraud. Anything less than that makes it +EV to cheat. (Obviously, it's not perfect and relies on estimations, but I do think that mathematically sound deterrence is desirable.) This of course is still proportional to the fraud (and the societal damage), not to the overall revenues or profits of the taxpayer in question.
- leetcrew 8y ago
  I should have elaborated more on my original post. I think creating a negative EV is a reasonable goal, but only under certain conditions. > If the revenue office estimates that approximately 10% of tax fraud is caught, then the penalty for tax fraud should be at least 10x the amount of the fraud. this, imo, is the exact situation that creates the game of hot potato. people stop making decisions based solely on EV when the variance gets too high. setting a huge penalty to create -EV may discourage the largest, most forward-looking institutions from engaging in the bad behavior (or at least directing it in a top-down fashion), but most companies and individuals with a shorter time horizon are just going to ignore it. and since everyone does it but almost no one gets caught, it creates an easy way to single out politically useful targets and throw the book at them. rather than just increasing the penalty to gain ratio, I think it is more productive to ask why it is so hard to enforce these laws in the first place. tax law, for instance, can be so complicated that it is unclear to everyone involved (enforcement, accountants, defense counsel) whether a particular strategy is legal. when wrongdoing is difficult to understand, let alone prove, the government should simplify the laws, not make them more draconian. it wouldn't hurt to spend a little more on enforcement either.
Retra 8y ago
>I don't think a large bank that does $50mm in illegal transactions did any more harm than a small one that did the same volume. The large bank can continue to do damage if they are caught, while the small one cannot. Thus they definitely do more harm, and at the very least will be perceived to have effective immunity from the law. If you only fine thieves proportional to the value of the stolen goods, then all you're doing is saying it's ok to steal so long as you are sufficiently wealthy. (And if you became wealthy through theft... then you've made a legitimate living through damage to society.)
- sokoloff 8y ago
  We could also be saying that we (as a society via our laws) try to curtail stealing by setting penalties at a level such that the expected value from thievery is negative. You don't need the equivalent of capital punishment for stealing and, by extension, don't need to take away all of a caught thief's money, just a sufficient multiple of their stealing to make it unattractive to enter into a career of it.
  - Retra 8y ago
    That is essentially what I'm saying. The complication is that you can't reliably measure EV for certain acts. (E.g., What is the dollar-value loss for murder? How much should you fine someone for doing it?) In this case, to calculate the dollar-value loss for creating a subset of society which is above the rule of law which uses wealth as a barrier to entry... the penalty needs to take that into account. So the point is not simply that you need to defer thieves from entering a career of it, but that you need also to deter thieves from considering it as a one-time option for when their quarterly earnings are due, and that you need to do so sufficiently well that even a highly skilled thief with a multi-million dollar company salary won't consider it. So either it can't just be fines (asset seizure/prison, maybe for repeat offenders) or those fines must be legitimately severe as measured by the one committing the act.
- heavenlyblue 8y ago
  Yeah, but this way the banks will just start splitting into the smaller ones, and the one’s which get caught will be later on hired by the one which didn’t.