On Corruption
"It’s a big club, and you ain’t in it. You and I, we are not in the club.”
An important Public Service Announcement in the midst of a legendary bipartisan political crime wave.
As an American citizen, each day you have a front-row seat to a shocking amount of corrupt behavior from elected officials, business leaders, crooked insiders and establishment bureaucrats. This goes for anything from insider trading to bribery to tax fraud.
Do not make the mistake of thinking “if they can get away with it, so can I.”
They’ll get pardoned while you go to prison. There is a two-tier justice system in this country, and you’re either in the big club or you’re not.
If you are reading this right now, you are not in the club.
“Laws are like webs that catch the weak and the poor, but are broken easily by the mighty and rich.”
It isn’t just politicians. Look at the early days of megafirms like Amazon, Tesla, or Uber, and you will find that many of our greatest companies were built on fraud. Amazon’s original profit advantage was based on either tax fraud or exploiting a sales tax loophole, depending on how you want to paint it. Bezos came from D.E. Shaw, he knows an arb when he sees one. He made it into the Big Club. Look at Uber. Their business model in the early days was to break as many regulations in as many states as possible until they reached the size where they could lobby, pay off local politicians, dictate terms and then break these same regulations with impunity. They made it into the Big Club. Look at Tesla. Every entrepreneur worships Elon Musk, and deservedly so, but the man has committed securities fraud roughly a billion times and really pushed the boundaries on some of his financial statement reporting. They’re fine now. They made it into the Big Club.
In the early days when survival is questionable, you will see founders brazenly dancing in the grey area, and the line separating “visionary CEO” and “Federal prison inmate” is a hell of a lot thinner than you would think. But once you get big enough, you can break all the laws you want while tweeting stuff like this:
Why is there a two-tier justice system in this country? You have to understand the incentives of government prosecutors to answer this question. This is a much longer blog post, if not an entire book, but I’ll give the short answer. Given the choice between prosecuting a dentist in New Jersey who made $10,000 on an insider trade, or prosecuting Wells Fargo for stealing $10 billion from the American public, the government will go after the dentist. This is because they will win that case, whereas Wells Fargo’s team of corporate lawyers will ensure the case drags on for five years only to result in a fine (approximating .01% of the bank’s annual free cash flow) and a deferred prosecution agreement; basically a slap on the wrist and a “we promise we won’t do it again” before immediately doing the same thing again. The government only goes after cases they can win.
Just be careful confusing legal and moral, like I wrote in Blind Spots, because they are not the same. The legal can be immoral, the illegal can be moral, and if I were to give you the names of the ten worst people I have ever met in my entire life, not a single one of them has a criminal record. In the words of Cato: simple thieves lie in prisons and in stocks, public thieves walk abroad in gold and silk.
Realistically, this is not just an America problem, nor is it just a now problem (see Longitude and Latitude). Governments have been corrupt all around the world since the beginning of time. Qui custodiet ipsos custodes? Same as it ever was — nobody. The big thieves hang the little ones and the globe keeps spinning.
All of this probably leaves you asking the same question that humans have always asked:
Why do good men suffer while wicked men prosper?
If you figure it out, kindly let the rest of us know.
God bless America,
GB
