(By Sri Ramamoorti) On February 13, 2015, Joe Koletar posted an entry that mentions, “…the fines (relatively insignificant in amount to the offenders), often go unpaid!” The fines levied on the big banks following the Wall Street financial crisis exceed $100 billion, and even for the big banks, these are are significant and material numbers…note that $100 billion, is 10 raised to 11, or 1 followed by 11 zeroes…We really have no idea whether these amounts are being actually collected by the U.S. Department of the Treasury, and what they are doing about it.

But the more important point is the one regarding jail time…why isn’t anyone going to jail? Indeed, if there exists an implicit guarantee that the most egregious sins in banking won’t get you jail time, then that’s an incentive to take the biggest possible risky bets, in the hope that if you get lucky, the windfall gain can easily make you millions, and if the bets go sour, well, there are others who can pay the fines for you (and the organization is a “too big to fail” candidate for a bailout). Economists call this “moral hazard,” but simply put, whenever transparency and accountability are missing, we must expect to see bad actors and bad behavior, “no punishment = increase in crime.” It appears that the unholy alliance of money, power, and politics is leading to “double standards” in our nation when it comes to justice and fairness.

For maximum deterrence, here’s a thought experiment: imagine a world where for people making $100,000 or less, fines of $ 1 million or more are levied for transgressions, and for those making more than $100,000, if proven guilty, a mandatory prison sentence of 5+ years, in addition to any applicable fines constitutes the punishment. I suspect that Wall Street will quickly change its ways in such a scenario…but who is going to “bell the cat?” as the Aesop’s Mice Council fable has the old (wise) mouse asking. Thought experiments, like impossible remedies, are easier proposed than enacted in law and implemented.

Join us for more insights into behavioral forensics (behind fraud and similar white collar crimes) from the authors of ABCs of Behavioral Forensics (Wiley, 2013): Sri Ramamoorti, Ph. D., Daven Morrison, M.D., and Joe Koletar, D.P.A., along with Vic Hartman, J.D.  These distinguished experts come from the disciplines of psychology, medicine, accounting, law, and law enforcement to explain and prevent fraud.  Because we are inspired to bring to light and address the fraud problems in today’s headlines, we encourage our readers to come back and revisit us regularly at BringingFreudtoFraud.com.

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