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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.

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