Endemic

It means “prevalent or peculiar to a particular locality, region or people.”

William Black – economist, lawyer and white collar fraud prosecutor – describes the ethical cesspool that lurks behind the scenes of Apple’s glittering success.  The thesis is that fraud is very common in certain areas of the world, areas that are corrupt and do not have the rule of law.  Unlike the US, he seems to believe, where people won’t stand idly by while workers and others are defrauded and victimized.

Would that it were so.

It’s worth quoting at length:

If there is one single thing that drives us white-collar criminologists around the bend it is the implicit assumption that fraud cannot be common. There is, of course, no logical (or experiential) reason for this belief. Nevertheless, it is a common belief and among economists it is a virtually universal dogma. Economists have a tribal taboo against even using the word “fraud” to describe individual frauds. The surest way to be considered an un-serious economist is to use the “f” word to describe frauds by elite economic actors. Economists’ taboo is particularly bizarre because it is economic theory, developed by a Nobel Laureate that explains why fraud can become endemic. George Akerlof, in his famous article on markets for “lemons” (largely describing anti-customer control fraud), explained the perverse “Gresham’s” dynamic in 1970: “[D]ishonest dealings tend to drive honest dealings out of the market. The cost of dishonesty, therefore, lies not only in the amount by which the purchaser is cheated; the cost also must include the loss incurred from driving legitimate business out of existence.”

There’s a lot at stake when a lawyer uncovers official lying and cheating in the legal system.  Of course it will pertain to a particular case and a particular client, but the implications are much bigger.  It is moral poison and contagion, threatening to infect the entire apparatus if not checked.

Black goes on:

Anti-employee control fraud creates real economic profits for the firm and can massively increase the controlling officers’ wealth. Honest firms normally cannot compete with anti-employee control frauds, so bad ethics drives good ethics out of the markets.

This is the dynamic that develops, very quickly.  Unchecked and endemic fraud, extremely destructive in the long term, is short term profitable.  So it snowballs.  The guilty are rewarded and the honest and innocent are driven out.  Pretty soon, as  practical matter, if you’re not committing fraud you can’t even participate.

Fraudulent suppliers, therefore, have compelling incentives to locate in nations and regions in which they can commit fraud with impunity. The best way to evaluate the fraudulent CEOs’ view as to the risk of prosecution for their frauds is to observe whether they take cheap means of hiding their frauds. When the CEOs do not even bother to avoid creating a paper trail documenting their frauds one knows that they view the risk of prosecution as trivial.

To be fair, it is a characteristic of any incorrigible criminal – the psychopaths – that they are brazen, because they never really fear prosecution until it happens.  All too often they are right.  They have nothing to fear.

What’s especially poignant to me about Prof. Black’s observations is this astonishing behavior, where the fraud is openly documented.  The perpetrators are so confident, and so devoid of the normal human instincts of shame and embarrassment they no longer make the effort to hide their conduct.

For those who have been reading here, I needn’t point out that this is exactly the situation in western New York State.  Indeed, it is even worse than what Prof. Black describes:  for not only do the perpetrators have no fear of being prosecuted; they can also assume that the objectives of their frauds will be achieved, even when their fraudulent character is known beforehand.

As long as the perpetrators are police and prosecutors, that is.

I’m not sure that I share Prof. Black’s faith in the efficacy of prosecutions, though.  Perhaps ironically, it is the whole process of prosecuting and convicting that has been discredited.  When criminal conduct of this magnitude is institutionalized and endemic it may be that something else is required.  The game of identifying the villains and externalizing them so that we can punish them and expiate ourselves may not be adequate to the task at hand.

What is to be done, then?  I’m not sure.

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Filed under financial crisis, Judicial lying/cheating, Striking lawyers, wrongful convictions

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