Criminal fraud was endemic over the last 30 years. That is not a widely debatable statement. Even people that would disagree with me ideologically or would typically have opposing economic views would have a hard time denying that the backdating of stock options, mortgage fraud, accounting fraud, appraisal fraud, and many other types of fraud have gone on without notice from law enforcement, regulators or journalists - the people typically charged with exposing such crime.
Even though such a consensus can be reached on the prevalence of fraud, it hardly garners a mention in the media or in congressional hearings. Typically, the focus will be laid on easier subjects like greed or underfunded regulators who could not keep up with the innovations of "the rabid free-market." The targets are very vague. And therefore the solutions prescribed to address the problems are also very vague and typically avoid the real issues or even endorse them by providing support.
Why is this the case? Well, it should be obvious. The people we have put in charge of tackling the crisis are the same people that would eventually be implicated if the charges of fraud were investigated. Scapegoats and strawmen are sought that will deflect attention away from the true culprits that encouraged the fraud toward their minions that went ahead and carried it out. Nowhere is this more apparent than in the handling of the crisis by the mainstream media, all of whom were cheerleaders of "the great moderation" and the "cinderella economy" that masked such blatantly obvious shenanigans.
However, there are a number of individuals (not to mention entire schools of thought) that have a clean history and are able to speak out without implicating themselves in the process. Among those people is William Black. He is a former regulator of the S&L crisis and subsequently went on to specialize in white collar crime. Two weeks ago he gave a presentation in Iceland on how prevalent fraud was in the bubble economy that has now burst. (Why he needed to go to Iceland in order to gain an audience is supportive of the media's muzzling attempt toward those that would implicate the media itself as accessories to fraud.)
Black is not considered an Austrian, nor does it sound like he has roots in the Minsky-Shumpeterian school. But I was constantly struck by the wisdom (and valiance) of a man who was a former government bureaucrat in telling it like it is. In the presentation he makes references to:
- failures of the neoclassical Efficient Market Hypothesis (EMH)
- how hierarchal power structures perpetuate fraud (what he refers to as "control fraud")
- the benefits of "mutually beneficial exchange" in a truly capitalistic society
- how the implicit endorsement of fraud creates "moral hazard" and a "misallocation of resources"
- that we are and have continued to follow the same regulatory and economic policies which have continually resulted in widespread fraud over decades
The complete presentation can be viewed in two parts: Part 1 and Part 2. The intro is in Icelandic and takes a few minutes to get going. It is well worth the time.
From what I have heard previously, Black's solution appears similar to most in that he argues for "better regulation." But he seems to have a far better grasp than others in that he understands if existing criminal laws were enforced for white collar fraud, the need for excessive regulation would be minimized. For that, Black's common sense is a message worth rallying around.
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