The Wall Street firms will pay $1.4 billion for their sins of the 1990s, under a settlement reached yesterday. It seems that they instructed their analysts to recommend buying the stocks that their investment bankers were taking public (for a fixed 7 percent share of the proceeds that seems to have been as unaffected by competition as the 6 percent collected by realtors). This happy marriage resulted in an explosion of profits for Wall Street throughout the 1990s.
How discouraged from defrauding investors are they going to be in the future? According to the New York Times, Citigroup paid $400 million or 0.2 percent of their organization’s value (about $200 billion according to finance.yahoo.com). Merrill Lynch paid $100 million or about 0.25 percent of its market capitalization.
Let’s figure out what this would be like for the average American family, whose median wealth was $63,000 in 2001 (before the economy collapsed). 0.2 percent of $63,000 would correspond to one of the family members being fined $126, less than one-third the cost of the average speeding ticket (including insurance hikes) in the U.S.