America’s leading bank lobbyists act together with their faux regulators to destroy effective regulation and supervision.
nakedcapitalism.com / By Bill Black / Saturday, January 26, 2013
By Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City.
It is fitting that Goldman Sachs is the recipient of this year’s “Public Eye” designation, but it is even more fitting that it is being announced during the World Economic Forum (WEF) at Davos. Goldman Sachs exemplifies the travesty that WEF has created. It is not the worst of the worst. It is representative of the financial world of systemically dangerous institutions (SDIs) that are spreading crony capitalism through the West. The SDIs are the so-called “too big to fail (or prosecute)” banks.
The ability of the SDIs to commit fraud with impunity from the criminal laws is a defining element of crony capitalism. The impunity and implicit national subsidies to SDIs combine to make “free markets” an oxymoron. The SDIs’ economic power translates easily into dominant political power. Crony capitalism cripples markets and democracy.
The ability of the SDIs’ senior officers to commit massive frauds with impunity from the criminal laws makes “control fraud” a “sure thing.” Control fraud will make the largest banks’ senior officers exceptionally wealthy very quickly – but it will also cause severe harm to the public (and often the bank). Control fraud occurs when the persons who control a seemingly legitimate entity use it as a “weapon” to defraud. In finance, accounting is the “weapon of choice.” It is important to remember, however, that other forms of control fraud maim and kill hundreds of thousands and cause grave environmental damage. We must always remember the infant formula scandal in China where 300,000 infants were hospitalized with kidney stones due to consumer frauds that drove every honest manufacturer out of business.
Large, individual accounting control frauds cause greater financial losses than all other forms of property crime – combined. Accounting control frauds are weapons of mass financial destruction. Epidemics of accounting control fraud drove the national crises that produced the Great Recession. We have reliable information on this in the United States, the United Kingdom, Ireland, and Iceland. Spain has kept the facts about lending too opaque to determine reliably what caused their bubble to hyper-inflate, but the lending pattern is consistent with accounting control fraud. These accounting control fraud epidemics drove crises that caused a loss of over $20 trillion in wealth and cost roughly 20 million workers their jobs.
These epidemics of accounting control fraud were not random “black swan” events. Criminogenic environments produce such intense and perverse incentives that they generate epidemics of control fraud. Our financial policies have been so criminogenic for decades that we are suffering recurrent, intensifying financial crises. WEF is one of the important architects and engineers that have made our financial system so criminogenic. WEF’s dogmas and policies are so perverse that they drive financial crises, create crony capitalism, and make WEF’s leading products (the Global Competitiveness Index (GCI) and Global Risk Reports (GRR) epic embarrassments. The WEF is degrading the state of the world.
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