But when the gap between expected benefits and costs widens, eventually people will grab the opportunity, and then others, seeing the rewards, will join in. If the difference between the expected financial benefits and costs is small, then the incentive is small or even negative, as there are reputational costs to being caught cheating, and most of us feel bad about cheating, also it can be difficult to persuade others to collude in an illegal scheme. That works out to a refund of roughly $25 per account.įrom an economics perspective, this is all standard stuff, falling under the category “moral hazard”: When the expected benefits from cheating greatly exceed the expected costs, there’s an incentive to cheat. These payouts are on top of the $3.2 million Wells Fargo has paid to customers over 130,000 accounts over potentially unauthorized accounts. Yglesias’s quote is about Donald Trump but the issue is more general than that for example here’s Delaney quoting a news report by Matt Egan regarding a banking scandal: You already have plenty of money, and your plan is to get even more. Your punishment will probably be light and will certainly not involve anything more than money. If you end up getting caught, the attempted subversion will be construed as a mitigating (it’s a gray area!) rather than aggravating factor. What a wealthy and powerful person faced with a legal impediment to moneymaking is supposed to do is work with a lawyer to devise clever means of subverting the purpose of the law. Joseph Delaney quotes Matthew Yglesias writing this:īut it is entirely emblematic of America’s post-Reagan treatment of business regulation.
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