Too Big to Jail: On Not Prosecuting the Financial Crisis
Stuart Lecture Series on Institutional Corruption in America
Nolan McCarty, Susan Dod Brown Professor of Politics and Public Affairs, Princeton University
Financial executives and political leaders alike often argue that malfeasance in the financial sector is the work of a “few bad apples.” But such thinking is quite damaging for financial security. First, it is important to remember the entire aphorism about apples: a few bad apples will rot the whole barrel. Without scrupulous enforcement of laws and regulations, the bad apples earn competitive advantages over the other apples – which invariably lead to a greater bad apple market share or the corruption of good apples. Second, changes in the structure of the financial system have made it easier to survive as a bad apple. As financial firms grow in size and complexity, it becomes much harder for large financial firms to monitor activities of their employees. These dynamics have made it harder to hold the financial system accountable as regulators have to make trade-offs between prosecuting financial crime and financial stability.
Nolan McCarty is the Susan Dod Brown Professor of Politics and Public Affairs and Chair of the Department of Politics. His research interests include the political economy of the United States, democratic political institutions, and political game theory. He is the recipient of the Robert Eckles Swain National Fellowship from the Hoover Institution and the John M. Olin Fellowship in Political Economy. He is the coauthor of three books: Political Game Theory (Cambridge University Press with Adam Meirowitz), Polarized America: The Dance of Ideology and Unequal Riches (MIT Press with Keith Poole and Howard Rosenthal) and Political Bubbles: Financial Crises and the Failure of American Democracy (Princeton University Press with Keith T. Poole and Howard Rosenthal). In 2010, he was elected a fellow of the American Academy of Arts and Sciences. He received an AB in Economics from the University of Chicago and a Master of Science and PhD, both in Political Economy, from Carnegie Mellon University.