This will be a short but simple post, to clarify some fundamental misunderstandings about the purposes of laws, regulations, and codes of conduct in society.

Laws do not prevent crimes. We can legislate all the criminal laws we want, but there will still be bank robberies and drunk driving and murders. We pass laws not to prevent these acts from taking place, but rather, to make sure there is a very high cost to committing them.

In fact, we legislate criminal laws for three broad reasons:

1. Let people know exactly what is acceptable and unacceptable behavior.
2. Punish people who violate these norms.
3. Remove the dangerous people from society for the protection of everyone else.

We create corporate regulations in order to effect similar broad policy purposes:

1. Inform companies what is unacceptable economic behavior.
2. Punish corporate management who violate these norms.
3. Remove dangerous economic behaviors from society.

By economic behaviors, I refer to any impact a company has in the broader economy. This ranges from externalities such as pollution or financial risk to pushing the entire global economy to the abyss.

When it comes to laws, there is always a trade off: My freedom ends where your nose begins. Anything I do that threatens your health, safety or general well being is fair game for criminal laws; Anything a corporation does that threatens these same things is fair game for regulation.

There is a nefarious group of corporate cronies who abuse the word “Freedom.” They employ the word to mean curtailing everyone else’s freedom. They seem to believe Freedom is a license to behave recklessly, to endanger third parties, to risk the economy.

It is not.

The sooner we recognize these simple truths, the faster this society will be heading in the right direction. I suspect that the longer we delay recognizing these truths, the slower our economic recovery will be.

Category: Legal, Regulation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

30 Responses to “Laws Don’t Prevent Crime, They Punish It”

  1. Amen, Barry, and yet another reason why the mortgage “settlement” is so galling.

    http://financeaddict.com/2012/02/more-easy-living-for-misbehaving-banks/

  2. TLH says:

    The big problem is that white collar crime is not prosecuted around the country. District attorneys want easy cases. If MF Global is not criminally prosecuted, the green light to white collar crime will continue.

  3. AtlasRocked says:

    The chief executive is the chief problem. He is the nations’ chief law enforcement officer, yet…..

    CBS exposes Obama’s own commission’s report on criminality behind the crisis was disregarded.
    Financial Crisis Inquiry Commission (FCIC):
    http://www.cbsnews.com/8301-504803_162-57336046-10391709/behind-the-financial-crisis-a-fraud-investigator-talks/?tag=cbsnewsMainColumnArea.3

    THIS IS THE BEHAVIOR OF A POLICE CHIEF BEING PAID BY THE LOCAL MAFIA TO NOT PROSECUTE THEM FOR CRIMES IDENTIFIED BY HIS DETECTIVES.

    Obamacare, all by itself, violated 3 parts of the constitution: (1).Forcing citizens to purchase a service (2) it was not voted on by both houses, and (3) Amendment 10 says powers not granted in the Constitution are left to the states.

    SS and medicare being accounted for with crooked books – their total “mandatory” obligations are not counted in the national debt. This is a violation of standard accounting practices.

    During his term, the SEC is routinely fining, instead of jailing, executives caught with accounting violations.

    THE WORST PROBLEM: His advocates do not care at all about these flagrant and bold violations of black letter law.

  4. Greg0658 says:

    I get the sentiment in ‘Laws Don’t Prevent Crime, They Punish It’
    I liked the double microscope shot (yesterday) of science & art with the overlap of deep space
    isn’t there an instance that the trajectory of crime is prevented by a law or a system design?

    like a world without stocks .. only has bonds backed by accounts with #s .. a work effort / not a perception

    I present AppleInc. as a wtf are investors thinking .. (another yesterday I liked) .. was it a Buffet story on 68 sq yards of gold in pile A vs. land and corporate stock in pile B .. I mean when and IF everyone cashes out at the same time – the corporate stock does not hold its value – it holds its value only to the point of replacement value in the terms in existance of the economy of tomorrow .. further when & if that cashout happens – it transfers ownership to insiders who road the train all along

  5. MayorQuimby says:

    I think we all know that the revolving-door-SEC, WS-brown-nosing-Congress and Senate and wall street itself are all part of the same cabal.

    And they have put into power an overconfident, patsy (Bernanke) to turn the entire monetary system into a giant counterfeit printing press for themselves.

    And many here fall for it!!!

    Money is not created by the Fed, it is created with collateral. 90 percent of all new money goes to the aforementioned cabal. So they call Greenspan or Bernanke every time THEIR wealth is threatened and those STOOGES inject more credit which preserves their cash flow.

    So we are now nearing the endgame of this bs credit ponzi and when it collapses (they still have more lies, scams and inflation to subject us all too first just you wait), I hope YOU ALL have enough self confidence to realize YOU we wrong about deficits and government stimulus and ‘free prosperity’ and REPUBS are worse than dems or vice versa and why SHOULDN’T cops get $130k pensions as the property taxes that pay for those pensions double in 5 years etc etc etc

    Because once you admit that, we can toss both parties out on their asses and hopefully improve our society.

  6. Greg0658 says:

    above probably should have been 2 seperate thoughts .. and to add another tangent to TLH
    our Laws of today are hardly libertarian (hands off) – can’t be any longer – the world is to complex
    - can we say lawyers & accounts must eat too – a tax on everything we buy (everything we need to survive)

  7. Chad says:

    So many words are used incorrectly today: socialism, communism, fascism, freedom, patriot, traitor, self reliant, etc.

  8. Greg0658 says:

    Quimby I think you have company – another exchange I saw yesterday – at 1h18m08s
    http://www.c-span.org/Events/Bernanke-Questioned-on-Economy-Interest-Rates-Stay-at-Current-Levels-Until-2014/10737428609/

    yes I failed to include bankers in the ‘must eat too’* .. one wonders how much ‘it just happened’ in the past decade+ and how much was fabricated for food

    ps – that Dodd/Frank remark was a running joke(teach) thru the session

    *coda – yes jet set crowd – we love how you make demand .. it all, available for all

  9. rootless says:

    Laws do not prevent crimes. We can legislate all the criminal laws we want, but there will still be bank robberies and drunk driving and murders.

    The second sentence presents a fact. However, if the fact in the second sentence is supposed to prove the statement in the first sentence it’s a non sequitur. The fact that there are still crimes despite having criminal laws only proves that those laws can’t prevent all crimes. It doesn’t prove the absence of any prevention effect on crimes.

    We pass laws not to prevent these acts from taking place, but rather, to make sure their is a very high cost to committing them.

    Which would be a pointless effort, if those costs didn’t have any prevention effect at all.

  10. PeterR says:

    To paraphrase Anatole France:

    The law, in all its majestic equality, forbids the rich as well as the poor to sleep under bridges.

    “Some pigs are more equal than others.”

    http://en.wikipedia.org/wiki/Animal_Farm

    What was that ritualistic chant from Lord of the Flies, about ending the life of pig, doing something to her throat, and spilling her blood?

  11. A says:

    The world is a corrupt place: and until the human race is universally recalled and put through a badly-needed redesign, this will always be the case. Live accordingly.

  12. Sechel says:

    “People have short memories” on Wall Street” was Mary Schapiro’s response to why wall street repeatedly break the same rules. This quote helps illustrate why Schapiro does not get it. When the fine is less than the transgression and the company doesn’t admit wrong-doing, there’s no incentive to stop the transgression. The punishment needs to be in excess of the benefit of committing the crime, otherwise it doesn’t work. And the regulators can’t be concerned with putting the company out of business. It’s not the regulators who would be causing it but the firms and people that broke the rules.

  13. ComradeAnon says:

    Laws don’t punish. Enforcement punishes. We ain’t got no enforcement. Got to have will to have enforcement.

  14. Rossva says:

    My understanding was that one of the basic reasons for criminal laws was in fact to prevent/deter crimes.

    http://legal-dictionary.thefreedictionary.com/deterrence

    Fear of punishment (in theory anyway) prevents one from committing a crime.

  15. ComradeAnon & Rossva

    Yes — but that is what “letting people know what is unacceptable behavior” is about.

    And while we may deter some crime, lots occurs anyway — especially when there is no enforcement. We are teaching people that crime does pay.

  16. VennData says:

    If people are corporations, then they better damn while act the way people are supposed to act.

    And when they say they want “smaller gov’t” as a principle, they really want you to become an expert in mortgage language, insurance products, bank fees, portfolio management, repair maintenance and purchase of a whole host of products, pills and potions. …then on the other hand they want you out there working your ass off while staying current with the various trends and technologies. Ah… Paradise… a treadmill of consumer research. Life.

    Enjoy.

  17. Tyler K says:

    “Laws do not prevent crimes. …. Let people know exactly what is acceptable and unacceptable behavior.”

    In principle, I disagree with some of the sentiment expressed in the former part of the quoted text, and the very proof that lends to that disagreement is found in the latter half of that above. Specifically, the existence of the law itself is a preventative measure. Sure, they (laws) are not bullet proof; some individuals will still commit crimes regardless of laws.

    Lastly, I note that you (Barry) are a bit inconsistent upon that logic point: (See, for example, http://www.ritholtz.com/blog/2012/03/mortgage-settlement-makes-fraud-a-business-expense/ 4:45min mark: “it keeps everyone in line”). You can’t say that they (laws) are an incentive not to commit a crime on one hand (i.e. they are a preventative measure), and then claim they do not prevent crimes on the other. I believe you’d have to acknowledge the inconsistency of that position. . (I’ll give you some slack though, of having been under the duress created by the interview environment)

  18. mathman says:

    According to Jesse Ventura and Alex Jones, it goes a lot further than these financial crimes:

    http://www.youtube.com/watch?v=6Dys3xE2Bnk&feature=player_embedded#!

  19. glengarry says:

    This is crucial. The shape of the law must be guided by our shared history. We are in grave trouble if the lesson we take from the past 15 years is that in the name of “economic growth” – and I am a fervent Capitalist – we must loosen social restrictions on Wall Street and corporate America: so that they can engage in self-help and take our property without due process of law; so that they can take outsized risks which endanger our future; so that they can lie to their investors or customers.

    As Holmes wrote: “The life of the law has not been logic; it has been experience… The law embodies the story of a nation’s development through many centuries, and it cannot be dealt with as if it contained only the axioms and corollaries of a book of mathematics.”

  20. bear_in_mind says:

    It’s really lazy to take the cynical position, “Things will never change”, because history has shown us time and again that change is the only constant.

    Whether uttered by Margaret Mead or not, the saying holds true, “Never doubt that a small group of thoughtful, committed citizens can change the world. Indeed, it is the only thing that ever has.”

    So, one broad question: How do we reclaim the rule of law — and facilitate its enforcement? I’m not talking about finding Utopia, folks, but just getting our justice system back in the service of Justice.

  21. Schnormal says:

    “Laws do not prevent crimes.”
    They’re even less effective in preventing corruption. And deregulation/non-feasance (i.e., gov’t elites sabotaging state functions in exchange for campaign donations) is the definition of corruption.

    Back when banks held on to their mortgage loans, they had an incentive to keep people in their houses. This was often confused with the idea that “banks provide housing,” but that was just a happy coincidence, a by-product of the primary goal of collecting interest. Once they were able to unload the mortgages, it became apparent that they had no obligation to provide this social function.

    We don’t have a statist system; there are no laws that guarantee home ownership. Without laws and regulations, basic needs like decent food/housing/education/medicine become casualtes of corruption. Social functions that are not profit-driven don’t happen magically, by god waving his invisible hand, but are protected from society’s more rapacious members by well enforced laws.

    Maybe i’m just turning into a curmudgeon, but I think the lawlessness Barry describes is just a reflection of a wider cultural corruption, brought about by years of easy money/technology/spoils of empire/etc). Demand for law enforcement must come from the people, but too many people have internalized the corruption of the elites, or are just trying to stay afloat in the new derivative culture, playing at being players, leveraging whatever underlying commodity we can get our hands on, continuing to trade our citizenship for consumerism, primp our bodies for the meat market, pimp out our education, and brand our identities.

    Which was kinda fun, until we became a nation of pigs. And now many people (mostly young) are getting wise to the fact that they’ve been slowing turning on a spit. Most of them ended up in massive debt to the system before they were old enough to understand the implications, thanks to egregious tuition hikes, credit card scams, mandatory prison sentences for non-violent offenses, and scores of other schemes, few of which were ever put to a vote.

    And instead of going out and throwing a few well placed bricks, today’s young people are advised to stay nonviolent at all costs. Not because violence is evil (how dare you insult our soldiers), but because it’s so… awkward. here, why don’t you try this new anxiety medication. log on and donate to team obama. go ahead and organize your “friends,” preferably into marketable units. what a noble spectacle you are for the rest of us, how you react so peacefully to being pepper-sprayed and tasered. it’s almost as engaging as the movie i’m about to watch.

  22. bear_in_mind says:

    @Schnormal: I think you hit pay-dirt on a number of factors.

    One that I think most salient and least-critically analyzed is the pervasive role of technology in shaping our mores and conduct. How so? We humans are so easily distracted by objects that are ‘new’, shiny and novel, that we reflexively “want” objects and invest precious little time asking if we “need” them — and if so, at what cost?

    It would be fascinating to measure how much creative and cognitive time has been diverted by these dongles, and what costs accrue to these diversions? Could the ongoing chase for technological ‘engagement’ be a significant factor in the erosion of civic engagement and critical thinking?

  23. wngoju says:

    Better late than never.

    This is a great post, thanks BR.

    I’ve been saying this type of thing for years on my very highly traveled blog (~15 hits/day). Eg, at http://tinyurl.com/6m9y6ac I mentioned similar-ish points as BR, but I was reacting to the fact that most of the blogosphere was complaining about what assholes the bankers/loan sharks/ratings agencies/Fed heads whose name starts with G, etc were/are. My point was that it’s not against the law to be a venal bastard, and that most such will go to great length to not go to jail.

    So, if you are an adult, your algorithm should be:
    1. Observe bad behavior
    2. If there is a law agains it, punish; goto 1.
    3. Otherwise, make a law against it; goto 1.

    Non-adult behavior is to say oh, we made some laws, and they just got around them so that’s not effective.

  24. bear_in_mind says:

    “The opposite of poverty is not wealth. The opposite of poverty is justice.” ~Bryan Stevenson

  25. Bill Wilson says:

    Our justice system says a lot about who we are as a people. We’ve turned a blind eye to the criminal behavior of Wall Street, because we’ve think that prosecuting financial crime will hurt the economy. In doing so, we have denied the victims of the financial crisis the justice that they deserve. We’ve sold our soul on the promise of an economic recovery.

    I think that punishing criminals helps to prevent future crimes, but I really don’t care. Some people believe that prison is only for people that we’re afraid of, and not for people who we want to punish. I think that’s crap. You can forgive someone for their crimes, but recognize that they owe a debt to their victims.

  26. Greg0658 says:

    correction: I tripled this bloggers forward of Buffets .pdf quote (pg19)
    the worlds gold mass figures to be a cube of about 68 FEET (and that would fit in a baseball infield)
    http://www.ritholtz.com/blog/2012/02/the-impact-of-bias-investors-economists-analysts/#comment-612509

  27. dsawy says:

    Laws that are enacted without any intention of enforcement instill contempt for the law.

    If we would have people respect the “rule of law,” then we must enforce the law, equitably and without preference.

    As anyone who has lived in the US in the last 40 years knows, that idea left the room in the mid-70′s.

  28. petessake says:

    Atlas: you are correct on the financial crisis; while wrong as rain on the healthcare act.

    Regarding your point #1) from colonial times and well into early generations of this nation the government required all able bodied men to be part of the militia and to furnish (purchase) their own arms, accoutrements, and initial ammunition. There was a far highly sense of civic responsibility then than now.

    Regarding your point #3) that, by any measure is a constipated reading of the 10th Amendment having no grounds in statutory or case law.

    BR’s spot on: punish the behavior. One thing horribly gone wrong in the court-practice is judges playing psuedo-shrink substituting “treatment” for punishment in drug-related crimes (dui, battery, theft, etc.) We should follow the successful example of Portugal, legalizing drugs and at the same time punish behaviors of drug-related crime just as non-drug related other crime.

  29. AtlasRocked says:

    for petessake – No grounds for amendment 10? Great idea. The main bulwark against federalizing every issue we run into as a nation, the constraint that made America unique in keeping 50 states competing with each other in order to force experimentation for efficient solutions, the idea identical to water-tight compartments that has kept many a ship from sinking, the idea that is isolating Greece’s massively failing benevolence policies from the other deficit-plagued Euro nations so they all don’t collapse at once – should be disregarded because liberal policy advocates think it never had any effect.

    All the current budget busting programs, programs with crooked books – hidden, yet “mandatory” payments for SS and medicare, these are the ideas that were blocked from the federal government for 150 years. Financialization and leverage of all manner is killing us, and now by disregarding black letter law, we are letting fools push the federal government to over-leverage on sustenance programs.

    Dumb meets dumber. Duplicate stupidity. Multiply it. If financializing too much product crushes the consumer, by gum lets enable the federal government do it too.

  30. Francois says:

    AtlasRocked,

    Your argument about Amendment 10 run into a big constitutional and settled case law obstacle: The “necessary and proper” clause granted to Congress by God knows how many decisions from the Supreme Court for the last 2 centuries.

    As for “forcing people” see Jacobson v Commonwealth of Massachusetts , 1905 SCOTUS