And our regulators are too fearful to act
We invited Bill Black to return to explain whether the level of
systemic risk due to fraud in our financial markets has improved or
worsened since the dire situation he painted for us in early 2012. Sadly, it looks like abuse by the big players has only flourished since then.
In the U.S., our regulators have publicly embraced a "too big to
prosecute" doctrine. We are restraining, underfunding, and dismantling
regulatory oversight in the interest of short-term stability for the
status quo. Which, as a criminologist, Black knows with certainty
creates an environment where bad actors will act in their self-interest
with assumed (and likely real, at this point) impunity.
If you can steal with impunity, as soon as you devastate
regulation, you devastate the ability to prosecute. And as soon as that
happens, in our jargon, in criminology, you make it a criminogenic
environment. It just means an environment where the incentives are so perverse that they are going to produce widespread crime.
In this context, it is going to be widespread accounting control fraud.
And we see how few ethical restraints remain in the most elite banks.
You are looking at an underlying economic dynamic where fraud is a
sure thing that will make people fabulously wealthy and where you select
by your hiring, by your promotion, and by your firing for the ethically
worst people at these firms that are committing the frauds. And so you
have one of the largest banks in the world, HSBC, being the key ally to
the most violent Mexican drug cartel, where they actually did so much
business together that the drug cartel designed special boxes to put the
cash in that they were laundering that fit exactly into the teller
windows so that there would be no delay. This is the efficiency
principle of drug laundering.