Commentary

Commentary

 
 
Posts tagged Fraud
The Scandal is What's Legal

If you haven’t seen The Big Short, you should. The acting is superb and the story enlightening: a few brilliant outcasts each discover just how big the holes are that eventually bury the U.S. financial system in the crisis of 2007-2009. If you’re like most people we know, you’ll walk away delighted by the movie and disturbed by the reality it captures. [Full disclosure: one of us joined a panel organized by the film’s economic consultant to view and discuss it with the director.]

But we're not film critics, The moviealong with some misleading criticismprompts us to clarify what we view as the prime causes of the financial crisis. The financial corruption depicted in the movie is deeply troubling (we've written about fraud and conflicts of interest in finance here and here). But what made the U.S. financial system so fragile a decade ago, and what made the crisis so deep, were practices that were completely legal. The scandal is that we still haven't addressed these properly....

 

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Conflicts of Interest in Finance

Angered by a foreign downing of a U.S. airliner, and frustrated by the ineffectiveness of customary retaliation, fictional West Wing President Bartlet challenged his military advisors to devise a “disproportional response” that would go beyond “the cost of doing business” to deter future attacks and make Americans safe.

Financial corruption does not put our lives directly at stake. Yet, it is easy to imagine how widespread and recurring corruption could lead a future U.S. President – frustrated by the failure of markets, regulators, and the courts to change financial intermediaries for the better – to ask her financial and legal advisors for a similar disproportional response to make Americans safe...

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Truth or consequences: Ponzi schemes and other frauds

In the financial world, the real scandal is often what’s legal, but you still have to watch out for fraudsters. If you don’t pay the costs of screening and monitoring your financial counterparties, you may lose your house.

The never-ending need for financial vigilance came to mind recently when we noticed that the 1920 home of Charles Ponzi was for sale in Lexington Massachusetts. It’s a very large house – 7 bedrooms, 6 bathrooms, 7000 square feet of space (650 square meters) on nearly an acre of land (0.4 hectares).(You can see a picture here.) ...
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