This article discusses a simmering feud among five of the most prominent economists in the world (two of them Nobel Laureates). It was prompted by the August 8, 2013 article by Raghuram Rajan, who has just been selected to run India’s Central Bank, entitled: “The Paranoid Style in Economics.” (Note: I have deliberately “buried the lead” in my last section.)
The personalities involved have a great deal to do with the feud, but as Paul Krugman wrote on May 23, 2013, “It’s Not About You.”
Despite an enviable predictive track record and the success of our policies when they are (rarely) put into practice, white-collar criminologists re overwhelmingly ignored in our core area of expertise by decision-makers whose policies are so criminogenic that they cause the epidemics of “accounting control fraud” that drive our recurrent, intensifying financial crises.
Control fraud” occurs when the persons controlling a seemingly legitimate entity use it as a “weapon” of fraud. In finance, accounting fraud is the “weapon of choice.”
The Department of Justice’s (DOJ) latest civil suit against Bank of America (B of A) is an embarrassment of tragic proportions on multiple dimensions. In this version I explore “only” seven of its epic fails.
The two most obvious fails (except to the most of the media, which failed to mention either) are that the DOJ has once again refused to prosecute either the elite bankers or bank that committed what the DOJ describes as massive frauds and that the DOJ has refused to bring even a civil suit against the senior officers of the banks despite filing a complaint that alleges facts showing that those officers committed multiple felonies that made them wealthy by causing massive harm to others. Those two fails should have been the lead in every article about the civil suit.
Posted in William K. Black
Tagged accounting control fraud, bank of america, bankster, BofA, DOJ, too big to prosecute
I have written a series of articles recently that focus on appraisal fraud.
I did so because appraisal fraud allows such “clean” tests of what (and who) drove the financial crisis and how many different private and public sector actors could have easily prevented the crisis had they acted against the fraud epidemics.
Posted in William K. Black
Tagged accounting control fraud, appraisal, appraisers, Control Fraud, Great Financial Crisis
The Appraisers’ Warning of the Lenders’ Fraud Epidemic
Two of my recent columns have explained the effort by a very large number of appraisers to combat the “Gresham’s” dynamic that home lenders and their agents were deliberately generating by extorting appraisers to inflate appraisals. A “Gresham’s” dynamics perverts market forces. When cheaters prosper the markets drive honest firms and professionals out of business. Honest appraisers tried to block this dynamic.
Posted in William K. Black
Tagged accounting control fraud, Control Fraud, Great Financial Crisis, gresham's dynamic, MARI
On July 9, 2013 I participated in a radio interview with a lobbyist for the 100 largest financial firms. The San Francisco radio program host asked me what question I would ask the lobbyist and I said that any discussion should begin with allowing him to state his view of what caused the crisis. In the course of his explanation, he bemoaned the fact that there was no warning about the crisis.
By William K. Black
(Cross posted at Benzinga.com)
Laura D’Andrea Tyson (President Clinton’s principal economist) has written an ode to a “carbon tax” that does not acknowledge a single disadvantage or substantive (as opposed to political) concern with such a tax. A carbon tax can have advantages, but her article oversells the idea and ignores the severe concerns about such a tax. Her article demonstrates why the Clinton administration’s anti-regulatory and fiscal policies helped sow the seeds of ongoing financial disaster. (The Bush administration watered and fertilized those seeds and we all reaped the whirlwind.)
Posted in William K. Black
Tagged accounting control fraud, Coase, Control Fraud, regulation, Stigler, Tyson
By William K. Black
(Cross posted at Benzinga.com)
Introduction
This is the sixth (and final) of my series of articles on the work of Roger Myerson, a 2007 Laureate in Economics. Myerson’s work on CEOs is typical of the game theoretical approach to explaining the behavior of CEOs and firms, so I am discussing an exemplar rather than an outlier. This installment discusses some of the fatal flaws that I argue characterize the game theoretical work on CEOs by the Laureates. I will urge that they are weakest where they believe they are strongest – their models. The article explains why the models are specified incorrectly because the models have no coherent theory (or understanding) of fraud or ethics. The game theoretical Laureates (Laureates) make unsupportable implicit assumptions that are belied by the data and internally inconsistent with their explicit assumptions.
Posted in William K. Black
Tagged accounting control fraud, bankster, Control Fraud, crony capitalism, Myerson, plutocracy, plutocrats
This is the fifth installment in my series of article about the predictive and policy failures of Roger Myerson, Nobel Laureate in economics in 2007. My first two articles critiqued his claim that capitalism’s unique advantage over communism is plutocracy because only exceptionally wealthy CEOs can be successfully bribed by their shareholders to “imitate” “good” CEOs who will not cheat the shareholders.
Posted in William K. Black
Tagged accounting control fraud, bankster, Control Fraud, crony capitalism, Myerson, plutocracy, plutocrats
This is the fourth installment of my exploration of the work of Roger Myerson, Nobel Laureate in economics in 2007. It is part of what will be a broader series of articles exploring why economics is unique among the sciences in awarding the Prize to scholars whose predictive work proves profoundly wrong and leads to public policies that cause great harm. The first installment used Myerson’s Prize lecture to explore his paean to plutocracy as the purported unique advantage of capitalism.
Posted in William K. Black
Tagged accounting control fraud, banksters, Control Fraud, executive compensation, Myerson, plutocracy, plutocrats
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