When something around you breaks, there is one universal response: “I didn’t do it.” Whether you are a child, a businessman, a criminal, or a presidential candidate, you will most likely be inclined to deny everything and to make counter-accusations. We are obsessed with blame, particularly with avoiding it.
The recent presidential debates have been a sad and embarrassing reminder of this self-centered obsession. For the past few weeks, Mr. Obama and Mr. Romney have spent the majority of their time denying any responsibility for the state of the economy and attempting to place the blame on anyone or anything else. The struggle for the title of “least blameworthy” has become the centerpiece of this election. “It’s not my fault,” has become the battle cry of each party, ringing from every news outlet. If these screaming matches have made anything clear it is that both of the men vying for the title of most powerful person in the world fear one thing: accountability.
The main topic of conversation throughout this election has been the economy. Each candidate has his own theories on who is to blame and how best to recover, but these plans often seem to boil down to the same point, “It’s not my fault.” The fact of the matter is that they are right; the poor state of the economy is neither Mr. Romney’s nor Mr. Obama’s fault. However, there are many people who are directly responsible for huge financial failures and economic crimes. We know that these people are at fault, they have been blamed, but are they being held accountable? This is the question that should be debated. Not blame or fault, but accountability. How should we hold people and companies accountable? How can we ensure that we do not end up here again?
For example, the presidential candidates have repeatedly tangled over alternative energy policies and who should be blamed for failed investments in companies such as Solyndra. Solyndra was a solar panel manufacturer that received a $535 million loan guarantee from the Department of Energy (DOE) before declaring bankruptcy in August of 2011. Last week Solyndra’s bankruptcy plan won court approval. The plan allows Solyndra’s parent company, 360 Degree Solar Holdings Inc., to exit bankruptcy court protection with net operating losses (NOLs) of around $975 million. These NOLs can be used by the company to offset future income for tax purposes and could result in tax breaks of as much as $341 million. It is estimated that the government will be repaid, at most, 19 percent of the money loaned and other creditors will likely receive less than a 3 percent return. Further, Solyndra is playing the victim and is suing Chinese solar panel manufactures for $1.5 billion for flooding the market with cheap solar panels. “Don’t blame us, blame China!”
In summary…the DOE decided to invest hundreds of millions of taxpayer dollars in a company, that company failed, over a thousand workers lost their jobs, and the result is that the parent company will enjoy hundreds of millions in tax benefits for years to come. Is that accountability?
In a recent post on this forum, Adam Levy makes the argument that government investment in new technologies is necessary and an essential component of technological progress. I agree. Innovation is difficult, expensive, and often less than lucrative at the outset. Government incentives help to kick start industries that may never get into gear otherwise. The problem with Solyndra is not simply that the government invested in a company that failed, but rather is a problem with misplaced leniency. Most private sector companies do not land on a feather pillow when they crash and burn, they face hard realities. Government investments should come with greater oversight and protections so that the taxes of the masses are not used to benefit only a few individuals. What incentive is there for companies to properly manage public funds if the consequence of failure is tax benefits? Part of the theory of punishment must be deterrence.
Similarly, the presidential candidates have debated who is responsible for the financial crimes on Wall Street and whose plan will better combat these abuses. A good start would finally be to hold companies accountable for their actions. I have previously written about the Securities and Exchange Commission’s policy of accepting settlements from financial firms without admitting or denying any wrongdoing. Last year’s Citigroup settlement allowed the bank to escape liability for $700 million in losses to investors by paying back a small amount of profits and a mere $95 million penalty, without accepting responsibility.[1] These types of settlements have continued over the past year and led many to complain about excessive litigation with little effect. What possible effect could these settlements have if no one is being held accountable? If I get stopped by a police officer for speeding and tell him that I do not admit or deny any wrongdoing, he would most likely laugh in my face and proceed to write me the ticket I deserve. And I would have to pay, in full, for my crime. Why should it be any different for large corporations that have a significant influence on our nation’s economy? Why are the presidential candidates so worried about blaming each other rather than focusing on those who are blameworthy?
I am not saying that punishment must always be doled out to the fullest extent of the law, but in order for laws to be effective there must be some form of accountability. Policy makers, legislators, and judges have it within their power to focus attention on enforcing laws that will safeguard our economy. They have the power to make punishments severe enough that there will not be repeat offenders of financial crimes.
On October 24, 2012, Judge Jed Rakoff made a significant statement on accountability with his sentencing of Rajat Gupta, the former head of McKinsey & Co. and the Goldman Sachs board member convicted of passing inside information to his friend Raj Rajaratnam. Mr. Gupta was widely expected to receive a lenient sentence of probation for his role in the sprawling insider-trading scheme. However, Judge Rakoff instead sentenced Mr. Gupta to two years in prison and a five million dollar fine. Judge Rakoff stated, “Others similarly situated to the defendant must… be made to understand that when you get caught, you will go to jail.”
As Election Day draws near, accountability will continue to be an issue underlying both candidates’ speeches. Most likely there will be more finger pointing and bickering about blame. However, it remains to be seen who will make it a point to hold people accountable for their actions and financial crimes. If Mr. Obama is re-elected, will the policies his administration has enacted actually begin to make a difference on Wall Street? If Mr. Romney wins, will he repeal DoddFrank and ease regulations as he claims? What will accountability look like over the next four years? It is time for Mr. President and Mr. Wants-to-be-President to set the record straight, to take a stand, and to stop allowing companies to escape accountability at the expense of the American people.
[1] The settlement agreement between the SEC and Citigroup is currently pending appeal in the Second Circuit but there is reason to believe that it will ultimately be approved.
