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>>The point is to deter future violations >>has been priced into Facebook's stock So, the fine has failed its purpose already - considering FB stock price has

>>The point is to deter future violations >>has been priced into Facebook's stock So, the fine has failed its purpose already - considering FB stock price has now gone up when compared to when the scandals became public (choose any point on the timeline that you wish). Anyone who thinks FB is going to change their behavior after this fine (I hope that's not what you are implying) is - how to put it nicely - not a very bright person.

tptacek 7y ago
On the contrary, I think FTC's willingness to fine companies $5B --- a sum squarely in line with what investment banks were fined during the 2007-2008 crash --- will absolutely influence Facebook's behavior in the future. People conceptualize Facebook as a single entity pursuing a single goal, and that's understandable given the company's management structure. Nonetheless, it is not that; it is a collection of organizations and product teams with differing incentive structures. The consent decree targeted specific operations in Facebook, not the company as a whole --- and those operations were idiosyncratic and outside the main flow of revenue to the company, to begin with. A business unit that makes $50MM and nets -$4.95B is one not long for this world. And, once again, you can't know how the market priced the fine, because it was priced in long ago, and you don't have a counterfactual price-without-fine to compare it to.
- panarky 7y ago
  The bank penalties for fraud and money laundering might be instructive here. The headline penalty amounts were inflated with bogus dollars that the banks never actually paid. A great example was Bank of America's purported $17 billion settlement. https://www.justice.gov/opa/pr/bank-america-pay-1665-billion-historic-justice-department-settlement-financial-fraud-leading https://www.justice.gov/opa/pr/bank-america-pay-1665-billion... This was really $7 billion in actual cash, plus double-counting $3 billion of pre-existing penalties that BofA hadn't paid yet, and then juiced further with totally bogus $7 billion in "homeowner relief". That "homeowner relief" consisted of adding up "principal reductions" on bad debt that the bank had already suffered because they made bad loans, plus "new loans to credit worthy borrowers". Like when there's a class action lawsuit for criminal corporate behavior and the "settlement" is a coupon for 20% off more purchases from the company. The details aren't out on the Facebook settlement, but if the bank penalties are any guide, the cash actually paid could be a fraction of the $5 billion headline number.
mayankkaizen 7y ago
Few years back, 5B $ fine was kinda unthinkable. Sure, FB is a big elephant but this fine is by no means a small fine. Who knows future fines might be even bigger. After all, repeated offences are generally punished harshly. Assuming FB actually has to cough up this fine and also assuming FB won't mend its ways (logical assumption ;) ), it would definitely affect the FB in serious manner. But yeah, I am pessimistic that FB won't mend its ways and won't pay any fine either. The will power to do that is just not there.

tptacek 7y ago

On the contrary, I think FTC's willingness to fine companies $5B --- a sum squarely in line with what investment banks were fined during the 2007-2008 crash --- will absolutely influence Facebook's behavior in the future. People conceptualize Facebook as a single entity pursuing a single goal, and that's understandable given the company's management structure. Nonetheless, it is not that; it is a collection of organizations and product teams with differing incentive structures. The consent decree targeted specific operations in Facebook, not the company as a whole --- and those operations were idiosyncratic and outside the main flow of revenue to the company, to begin with. A business unit that makes $50MM and nets -$4.95B is one not long for this world. And, once again, you can't know how the market priced the fine, because it was priced in long ago, and you don't have a counterfactual price-without-fine to compare it to.

panarky 7y ago
The bank penalties for fraud and money laundering might be instructive here. The headline penalty amounts were inflated with bogus dollars that the banks never actually paid. A great example was Bank of America's purported $17 billion settlement. https://www.justice.gov/opa/pr/bank-america-pay-1665-billion-historic-justice-department-settlement-financial-fraud-leading https://www.justice.gov/opa/pr/bank-america-pay-1665-billion... This was really $7 billion in actual cash, plus double-counting $3 billion of pre-existing penalties that BofA hadn't paid yet, and then juiced further with totally bogus $7 billion in "homeowner relief". That "homeowner relief" consisted of adding up "principal reductions" on bad debt that the bank had already suffered because they made bad loans, plus "new loans to credit worthy borrowers". Like when there's a class action lawsuit for criminal corporate behavior and the "settlement" is a coupon for 20% off more purchases from the company. The details aren't out on the Facebook settlement, but if the bank penalties are any guide, the cash actually paid could be a fraction of the $5 billion headline number.

mayankkaizen 7y ago

Few years back, 5B $ fine was kinda unthinkable. Sure, FB is a big elephant but this fine is by no means a small fine. Who knows future fines might be even bigger. After all, repeated offences are generally punished harshly. Assuming FB actually has to cough up this fine and also assuming FB won't mend its ways (logical assumption ;) ), it would definitely affect the FB in serious manner. But yeah, I am pessimistic that FB won't mend its ways and won't pay any fine either. The will power to do that is just not there.