August 02, 2012
“Fraud is the Business Model”

Here’s L. Randall Wray, an economics professor at the University of Missouri-Kansas City.

…Bill Black joined our department in 2006. At UMKC (and the Levy Institute) we had long been discussing and analyzing the GFC that we knew was going to hit, using the approaches of Hyman Minsky and Wynne Godley. Bill insisted we were overlooking the most important factor, fraud. To be more specific, Bill called it control fraud, where top corporate management runs an institution as a weapon to loot shareholders and customers to the benefit of top management. Think Bob Rubin, Hank Paulson, Bernie Madoff, Jamie Dimon and Jon Corzine.

Long before, I had come across Bill’s name when I wrote about the S&L scandal, and I had listed fraud as the second most important cause of that crisis. While I was open to his argument back in 2006, I could never have conceived of the scope of Wall Street’s depravity. It is all about fraud. As I’ve said, this crisis is like Shrek’s Onion, with fraud in every layer. There is, quite simply, no part of the financial system that is not riddled with fraud.

The fraud cannot be reduced much less eliminated. First, there are no regulators to stop it, and no prosecutors to punish it. But, far more importantly, fraud is the business model. Further, even if a financial institution tried to buck the trend it would fail. As Bill says, fraud is always the most profitable game in town. So Gresham’s Law dynamics ensure that fraud is the only game in town.

As Sherrill said, without regulation, capitalism is thievery. We stopped regulating the financial system, so thieves took over…



Posted by Jerome Doolittle at August 02, 2012 05:30 PM
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One, the bigger dogs are going to eat them next.

Two, corporations have billions hidden away in foreign deposits. Now if your accountant will steal for you, will he steal from you? A lot of multi-million dollar banks don't have a penny deposited overseas.

Posted by: evil is evil on August 2, 2012 5:41 PM

I don't know about that, evil -- I would think they'd not be likely to tolerate having done to them what they've done to others. I bet they have plenty of "resources" to deal with that kind of thing. And I don't know what movie that Michael Douglas still is from, but I do remember that in A Perfect Murder, the Micheal Douglas character took care of his own "wet work."

Posted by: Tim on August 3, 2012 3:28 PM

Bill Black needs to be put in charge of something in!

Posted by: LanceThruster on August 3, 2012 5:18 PM

What is robbing a bank compared to founding a bank? (Berthold Brecht)

Posted by: Peter on August 6, 2012 11:26 AM
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