Collective punishment: financiers and Nazi collaborators by mattsteinglass
March 17, 2009, 10:55 am
Filed under: Crime, Economics

I thought I’d get the Godwin’s Law violation out of the way right off the bat. Anyway, Megan McArdle argues quite rightly that it’s difficult to apportion blame when, as in the run-up to the financial crisis, the misdeeds are committed by entire classes of people, none of whom feel they’re doing anything wrong because they are not in fact violating any social norm — they’re doing precisely what the rest of society, or their cohort at least, is telling them to do. Bernie Madoff is a criminal, but while massive fraudsters like Madoff certainly exacerbated the crash, they aren’t the primary cause. The primary cause was systematic foolhardiness by mortgage lenders, mortgage borrowers, slice-and-dice SIV wizards, quants and CDS brokers who didn’t know any better because the market kept saying all signals go. How can we mete out punishment, or even rail in fury, at people who didn’t know they were doing anything wrong?

I happen to have just started reading Tony Judt’s Postwar: A History of Europe Since 1945, which has a terrific section on the postwar punishment of Nazi collaborators in various countries, and of actual Nazis in Germany itself. Obviously the crimes and evils wrought by the Axis regimes were vastly more awful than those created by even the most malign players in the global financial crisis. But the problems presented in terms of punishment are in many ways similar: “collaborators” in countries controlled by Nazi-friendly regimes, be it Vichy France or Antonescu’s Romania, had in many cases simply been working for the lawfully constituted national authorities. In practice, people were tried for treason or for other wartime crimes, but paradoxically the fewer people in a given country had collaborated, the more likely serious prosecutions there were:

The contrast between Norway, Belgium, the Netherlands (and Denmark), where the legitimate governments had fled into exile, and France, where for many people the Vichy regime was the legitimate government, is suggestive. In Denmark the crime of collaboration was virtually unknown. Yet 374 out of every 100,000 Danes were sentenced to prison in post-war trials. In France, where wartime collaboration was widespread, it was for just that reason punished rather lightly…In the event, 94 people in every 100,000 — less than 0.1 percent of the population — went to prison for wartime offences. Of the 38,000 imprisoned, most were released under the partial amnesty of 1947 and all but 1,500 under an amnesty in 1951.

A second problem, also similar to the current situation with regard to the global financial community, was that the people who had staffed the Nazi and other Axis governments often had technical expertise necessary for rebuilding their shattered societies. Judt quotes the American military commander of occupied Germany, Gen. Lucius Clay: “Our major administrative problem was to find reasonably competent Germans who had not been affiliated or associated in some way with the Nazi regime,” and continues:

In Bonn, 102 out of 112 doctors were or had been Party members. In the shattered city of Cologne, of the 21 specialists in the city waterworks office — whose skills were vital for the reconstruction of water and sewage systems and the prevention of disease — 18 had been Nazis.

But as Judt says, the greatest impediment to meting out punishment for the destruction the Nazis had wrought was the attitude of the German populace.

Germans in the 1940s had little sense of the way the rest of the world saw them. They had no grasp of what they and their leaders had done and were more preoccupied with their own post-war difficulties — food shortages, housing shortages and the like — than the sufferings of their victims across occupied Europe. Indeed they were likely to see themselves in the role of victim and thus regarded trials and other confrontations with Nazi crimes as the victorious Allies’ revenge on a defunct regime.

Throughout the years 1945-49, Judt writes, a majority of Germans surveyed said they thought “Nazism was a good idea, badly applied.”

The punishment of those who were responsible for collective disasters is not aimed at singling them out for moral turpitude. It is aimed at, first, establishing clear and universal agreement that the behavior in which they engaged was in fact bad — at getting rid of evil norms and establishing good ones. And, second, at excluding people who formed the leadership class that instituted the old, bad norms from the new system. Because the behavior in which such people engaged was universally embraced, it is appropriate that the punishment should not be cruel or severe. But the punishment is necessary in order to establish new norms and to get the old, corrupted leadership class out of the way.

With that in mind, let us take a look at the letter written by AIG president Edward Liddy to Treasury Secretary Tim Geithner explaining why Liddy is going forward with giving $450 million in US taxpayer money as bonuses to the executives at the company’s Financial Products Division, which wrote the CDS swaps that bankrupted the company and put it on the public dole.

I would not be doing my job if I did not directly advise you of my grave concern about the long-term consequences of the actions we are taking today.  On the one hand, all of us at AIG recognize the environment in which we operate and the remonstrations of our President for a more restrained system of compensation for executives.  On the other hand, we cannot attract and retain the best and brightest talent to lead and staff the AIG businesses – which are now being operated principally on behalf of the American taxpayers – if employees believe that their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury.

Why does punishment need to be meted out to the financiers who caused the global economic crisis? It is in order, first, to make it clear to them that their behavior — the excessive leveraging and self-dealing — is culpable for the wreck of the global economy, so that they will not engage in such behavior again. To make it clear to them that they are currently dependent on the goodwill of the taxpayer for their salaries. And, finally, to drive that leadership class among them who are responsible for establishing pernicious norms out of the industry. 

Judt opens his chapter on “Retribution” with a quote from Simone de Beauvoir:

Vengeance is pointless, but certain men did not have a place in the world we sought to construct.


1 Comment so far
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They should be punished in direct proportion to the amount of harm they’ve created and from which they profited. A Nuremburg type trial would be nice. Seizure and liquidation of ALL assets,both personal and business and imprisonment.

Comment by Tom Amans Sr

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