Money for Nothing

The Wall Street Journal has looked over some big bank settlements–$110 billion worth—and asked one of the obvious questions: where did all that money go?  Approximate answer: no one has any idea. No one keeps a tally; no one keeps track.

That’s too bad because I’ve been wanting to know. Jointly with Chris DeMuth (former boss of OIRA, former boss of me, dear friend and no stranger to this site) I’ve written about “Agency Finance in the Age of Executive Government.” The subject is every scholar’s nightmare: lousy data, and no explanation that sounds immediately plausible. The idea that the settlements have something to do with law enforcement and deterring criminal conduct is laughable. You then move to the hypothesis that’s first on every public choice artist’s list: rent extraction. But if that’s true, you’d think that somebody (in Congress, for example) would fight or at least care about the distribution. Apparently not: it’s just a ton of cash sloshing this way and that.

The DeMuth & Greve paper describes the trend toward independent agency finance through taxation and “law enforcement.” The final section toys with some plausible-sounding explanations. Comments on- or off-line are most welcome.

Reader Discussion

Law & Liberty welcomes civil and lively discussion of its articles. Abusive comments will not be tolerated. We reserve the right to delete comments - or ban users - without notification or explanation.

on March 11, 2016 at 09:32:35 am

My favorite finding is in the graphics. Some of the cash went to 'The Real Housewifes of New Jersey."

read full comment
Image of JImmy C
JImmy C
on March 11, 2016 at 12:52:51 pm

From the draft (abstract):

"Approaching the administrative state from its most pedestrian front opens a window both into its actual operation and constitutional rule-of-law questions."

Is there any question that the Administrative State is Extra-Constitutional?

From the draft (abstract):

". . . the debate over “the administrative state” has become excessively abstract and formalistic."

OK, so without demeaning the inquiries and studies made in this draft, let us pro-simulate a bit:

We are suffering from an invasion of rats of several species accompanied by their self-seeking, self-serving institutions of fleas (carriers of diseases and infectors of our animals).
They eat of our substance and constantly increase the varieties and extent of their consumption. They befoul our living and work places; impede our working and enjoyments; confuse our activities. We would be rid of them AND their fleas.

We spread some remedies to restrict the fleas, but what of the rats?

Shall we seek at least to control of not eliminate them? Or, shall we study their "diets" and how they expand their sources of sustenance; presumably to the end of reductions or poisons like warfarin?

Shall we simply study how to inoculate against the bacteria of the fleas; or should we find ways to destroy the carriers of their carriers?

Is *anything* in discourse or study "abstract" that does not have the objective of controlling , reducing or eliminating the infestations of the Administrative State and with it the self-serving institutions it carries?

read full comment
Image of R Richard Schweitzer
R Richard Schweitzer
on March 11, 2016 at 13:04:18 pm

To the extent it may be useful;

These incidents are not the first in which Congress has abandoned its prerogatives for control of appropriations.

If one returns to the history of the Universal Service Fee (which may soon be expanded to the internet), although determined (by CRO) to be "illegally formed" that "corporation" resulted in BILLIONS be appropriated by private determinations (extra-legislative) from ** tax** revenues. Yet, it goes on and on, and grows.

read full comment
Image of R Richard Schweitzer
R Richard Schweitzer
on March 11, 2016 at 17:00:45 pm

These are my comments from an initial reading. First a technical writing note and then the meat.

You might consider the reading flow in the document. It has lots of colons, semicolons, em dashes, and parenthesis. The inclusion of a lot of "side thoughts" is distracting to the general flow of the document. I found myself frequently having to stop at the end a "side thought" and go back and find my place in the general stream of ideas. The fragmented form is fine for short, light essays, but it wears thin in a longer and more complex document.

As far as the substance goes I found one thing especially problematic. Where are you going to take this data you want?

Will Congress do something with the data? Not likely. The President? I thought that was the problem. The Court? The States?

You can generate all the right data, but with no recipient to take the data and do something constructive with it, the data is useless. There has to be an accepting recipient capable of understanding the data, who is empowered to act on it. I think you touched on that lightly, but you need to call it out more clearly.

My own opinion is that the Senate is supposed to be the body of Madisonian elites whose job it is to "just say no" to bad government. They were not supposed to be a populist body for that very reason. Populism killed the objectivity of the Senate. Without an objective Senate empowered to stop bad government the buck gets passed to its natural stopping point, which is the President's desk. There you have it. The cause of "Presidential" government in a nutshell.

Let's assume you have someone to take the data and who can do something with it. Remember that it has to be consistent. You don't want to have one accounting system for one part of the company and a different accounting system for another part of the company. Everyone needs to be on the same page. Ask for consistent and regulated data.

But having someone empowered and politically protected to "just say no" is the most important thing. If no one is responsible for getting a job done, the job probably isn't going to get done.


read full comment
Image of Scott Amorian
Scott Amorian
on March 11, 2016 at 20:38:41 pm

I may have a slightly different take on this essay.
First, let me say that I have not read the article (and will not - time being a problem right now) so I will not comment on the specifics.

However, from the above comments it would appear that the readers were expecting some recommendations or some form of action. This is, of course, not unreasonable. I would, however, be mindful that at times data, especially if properly sourced, may be of some value to some other researcher / writer or politico.

Having read a number of other items (books, articles, essays, etc.) by Professor Greve I have come away with the impression that Professor Greve is a) an excellent "observer" and analyst,and b) is not necessarily directed toward developing policy prescriptions (although some may very well be found between the lines). (I could add "c" - he has a fine sense of humor).
Yet, to my mind, he adds significantly to not just the debate about issues such as Federalism, Administrative Agency arrogation / usurpation of power, etc. but by the strength of this analysis he adds to the eventual "righting", or possibility thereof, of such wrongs. Others may, and have seen fit to rely upon information / formulations by Greve. What may come of this, I do not know; but i am often content with a nicely structured portrait of what is currently wrong or amiss with our governmental mechanisms.
Perhaps, it is for us to do something about it; are we the "data recipient" of whom Scott speaks?
Or is it that there is some other as yet unidentified recipient, perhaps a Senator Mike Lee, Ted Cruz, etc. who provided with such data may "make hay" in our legislative Chambers.

As an example, some have faulted Professor Phillip Hamburger for not providing a "ready made solution" to the problems of FAS illegality; fair enough. But then I see a Sen. Lee quote him in the Senate; or find reference to him at SCOTUS.

Ain't all we may want - but i suspect it would seem to be beneficial nonetheless; someone in a position of influence may be influenced by it!

Just sayin', folks!

read full comment
Image of gabe
on March 12, 2016 at 11:09:54 am

Then again, there is this:

Wherein the State Department decides that since Congress did not SPECIFICALLY tell State that it can not spend, State arrogates to itself to spend anyway. Where the heck did they get the first $500 million of the $3 billion?


read full comment
Image of gabe
on March 12, 2016 at 13:08:40 pm

Actually, Law and Liberty is funded by the Liberty Fund which has constraints on how its funding is used. From the Liberty Fund site:

"As a tax-exempt, private operating foundation, Liberty Fund’s purposes are educational and intellectual. Liberty Fund does not, therefore, engage in politics or political action of any kind."

There is a story about the physical library that the Liberty Fund is creating. The general public cannot go in and use the library. Only researchers can. It is considered some kind if political advocacy if the general public can use the library. (Whacks palm on forehead.) If you or I wanted to use the library we would have to sign a document saying we are there to do research.

The blog authors are probably likewise limited in what they can address in their writings.

They can however recognize likely audiences of their writings, and possible purposes their writings could be put to. That's a part of good writing.

Because the peanut gallery is open, we can discuss politics and political actions a more freely, kind of like if we were in the Liberty Fund library doing research at the same time, and while we were there we got into a conversation about politics.

Greve did ask for feedback. The essay begins by discussing the fact that it was intended not just for a small circle of government finance specialists, but it also has some applicability to a more public interest. He asked for feedback from the general public. My comments as a public reader are appropriate.

read full comment
Image of Scott Amorian
Scott Amorian
on March 12, 2016 at 13:13:22 pm

"My comments as a public reader are appropriate."

Absotively - never said they were not.

simply wanted to state that sometimes the simple act of shedding light on something may serve to act as a disinfectant. although like R. Richard, I would prefer a strong pesticide be liberally and repeatedly applied.

read full comment
Image of gabe
on March 12, 2016 at 13:39:16 pm

So, having a night to gestate and a morning to reread, I don't have a lot to add.

I'm wondering what an essay for public consumption would look like based on this essay. Would it be used for what Eric Berne called the game of "Ain't it awful?" Or would it be used for partisan head banging?

Probably the former.

As for the latter, the data condemns both parties, so they will probably deny or ignore it, or change the subject quickly if it came up for discussion.

One of the problems I see is the problem of why the data discussed is not already produced and addressed. That seems symptomatic of deeper problems. It seems to indicate that neither the government nor the statistically average voter are much interested in the data.

But in general I still see the essay as yet another analysis of internal goings-ons of the ship as it sinks slowly under the weight of populist government. Populist government is, after all, sycophancy institutionalized.

read full comment
Image of Scott Amorian
Scott Amorian
on March 13, 2016 at 13:40:27 pm


Should have tuned in earlier.

There is, of course, the thesis that "everything" involved in learning, communications and personal relationships is "political."

One is tempted to ask: "What is 'Political'? What does it mean?"

Is that a matter of context? Some academics and many wordsmiths ("intellectuals") say NO - it is anything to influence actions, OR **thinking.**

Thus, we can chat about what things we need to make choices about, but not about the choices themselves or the ways they are to be determined.
I certainly hope that is NOT becoming the constraining view of the Trustees of Liberty Fund.

read full comment
Image of R Richrd Schweitzer
R Richrd Schweitzer
on March 14, 2016 at 02:55:19 am

The idea that the settlements have something to do with law enforcement and deterring criminal conduct is laughable.

Does the paper address this assertion? I didn’t see it – and I don’t know it to be true.

But I also don’t know that it’s crucial to the paper’s larger point: When government agents gain a financial incentive in certain kinds of prosecutions, you could expect to see more of those prosecutions. That doesn’t mean that there is no law enforcement/deterrent motivation, but that prosecutors might have chosen to pursue different law enforcement/deterrent objectives in the absence of the financial interest in certain cases and not others.

The paper cites various examples of circumstances that suggest that financial interest influences government to pursue certain types of enforcement actions rather than others. And the reports from Ferguson, MO, suggest a libertarian nightmare of cops engaging in a wildly excessive enforcement regime against the powerless, while declining to raise taxes on a Fortune 500 company headquartered in the municipality’s boundaries.

But in these cases, I’m not aware that there was any dispute about where the money went: It went into the city’s, or agency’s, coffers. Perhaps it’s worth tracking, but documenting that there isn’t any other embezzlement going on isn’t necessary for the thesis.

What to make of the idea that big settlements arise from industries that are “closely tied” to government? Maybe these industries are “closely tied” to government because they are especially prone to commit abuses against the public welfare, and that when government discovers these abuses, they sanctions are pretty severe? In short, we should expect exceptionally large cases – and thus, settlements – from precisely these kinds of industries.

Do agencies have “reputational” interests that motivate prosecutions? I’d guess so. By the same token, ambitious prosecutors/officials might have their own private reputational interests that might motivate certain kinds of settlements. “If I litigate and win a judgment, the money flows into the federal/state/city coffers. But if I enter into a settlement whereby the defendant agrees to make regular payments into prominent charity in my district, I can get in the paper shaking hands and handing over a big check to the local charity! That publicity is worth more to me than a mere victory with the money going to someone else…”

Search jurisdictions in which the attorney general/prosecuting attorney is from a different party than the legislature/city council, and look for laws that restrict the power of the attorney general/prosecutor to direct the flow of settlement dollars. That might signal that some legislature/council thought that the power was being abused.

read full comment
Image of nobody.really
on March 14, 2016 at 12:20:53 pm


Some good stuff in your comments.

May I suggest a book by Paul Nolette:


slightly different take but one that does seem to demonstrate that these "settlements" are not about law enforcement; rather, they are about policy in many cases.

"That might signal that some legislature/council thought that the power was being abused."

It could also signal that the legislature(s) /council(s) are not quite yet ready to give up their golden goose as some financial benefit may accrue to these bodies.

read full comment
Image of gabe
on March 14, 2016 at 19:00:31 pm

And now stay tuned for the end of free broadband brought to you by the soon to be self funding FCC:

And you kids were worried about net neutrality - ain't nothing neutral about taxing you, is there;


Then again maybe all those Obama phones they handed out a few years ago are due to be replaced.

read full comment
Image of gabe
on March 15, 2016 at 11:34:14 am

And then there is this wherein the CFPB asks of a congresswoman "Why does it matter to you?".

Now, perhaps, we see what they do with some of those fees and settlements they garner.

read full comment
Image of gabe

Law & Liberty welcomes civil and lively discussion of its articles. Abusive comments will not be tolerated. We reserve the right to delete comments - or ban users - without notification or explanation.