Query: Is there a more anti-business/anti-capitalism "business news" program than Jack Cafferty's "In the Money" on CNN? As evidence for a "no" answer, I put forward Cafferty's co mments on the Enron verdicts:
So it took the government a while but they got 'em. We're talking Skilling and Lay, those two worms that were at the top of the Enron debacle. I suppose some vindication in order for the people who lost their jobs, their pensions, their hope for the future and everything else, because of the malfeasance of these two clowns.
But the thing that bothers me is they walked out of that courtroom on Thursday, they're free men pending appeal, pending sentencing, pending, pending, pending. I mean, why didn't they put them in those funny looking little orange jump suits, slap some chains on them, and throw them in Leavenworth and say, you know, if you win this on appeal, we'll let you out.
I have no wish to defend Lay and Skilling, but at this point Lay and Skilling have only been allowed to remain out on bail pending sentence. Besides making a factual misstatement about the court's ruling, Cafferty also grossly misrepresents the rules governing bail pending sentence or appeal. Under the federal bail reform act, a trial court is not supposed to allow a convicted defendant to remain out on bail pending sentence or appeal unless the court makes a specific finding that he is not likely to flee or to pose a danger if released, that the appeal is not for the purposes of delay, and that the appeal has substantial merit. Hardly, a case of "pending, pending, pending."
Then there's this comment from co-host Andy Serwer:
Yes, at some point, I guess, they are going to do some hard time, Jack. And they are probably going to do the rest of their lives in jail. I don't think it's very surprising, though, the verdicts. And you know, to me, it's not that complicated. These guys were in charge of this organization that just went belly up. They're responsible and that's what the jury found out.
Note the naive assumption that we ought to criminalize agency costs. Just "if the boat sinks on your watch, you go to jail." For a more nuanced view, check out my article Are We Criminalizing Agency Costs? Should You Care? In short, executives who commit fraud ought to go to jail, but sending executives to jail just because they were "in charge of this organization that just went belly up" is just plain dumb:
The problem is that business decisions rarely involve black-and-white issues; instead, they typically involve prudential judgments among a number of plausible alternatives. Given the vagaries of business, moreover, even carefully made choices among such alternatives may turn out badly.
If prosecutors, judges, and juries are unable to distinguish between competent risk taking and criminal mismanagement, however, the threat of criminal sanctions may discourage managers from taking risks.
Yet, risk-taking is precisely what shareholders want managers to do. As the corporation's residual claimants, shareholders don't get paid until all other claims on the corporation are satisfied. Because risk and return are positively correlated, the high returns on corporate investment necessary to leave something for the shareholders require high risks.
The problem of criminalizing agency costs should now be apparent. Obviously, shareholders want managers who steal from the company or defraud investors to be punished. Yet, they also want managers to take risks. If prosecutors and juries can't tell the difference between the two, however, criminal sanctions may leave shareholders worse off by making managers more risk averse.
The problem with Cafferty and Serwer isn't just that they're anti-business; it's that they're either too dumb or too lazy to try understanding how business and the law work.
