The Lie that Prosecuting Bank Fraud Will Destabilize the Economy Is What Is REALLY Destroying the Economy | The Big Picture
Failing to Prosecute White Collar Crime Guarantees a Weak and Unstable Economy … and Future Financial Crashes
The Departments of Justice and Treasury are
pretending that criminally prosecuting criminal banksters will destabilize the economy.
The
exact opposite is true.
When the I civil police become biased to Iv then they can also be deceptive for their own advantage, for example to cover up their own previous incompetence or corruption.
Failing to prosecute criminal fraud has been
destabilizing the economy since at least 2007 … and will cause
huge crashes in the future.
A weak I-O police cause a disconnect in the economy where Iv-B and V-Bi become separated, this Iv-B component tends to boom and bust with fraud and secrecy.
After all, the
main driver of economic growth is a strong rule of law.
This moderates the disconnect so companies grow more like trees that are stable rather than Iv-B weeds and V-Bi grass.
Nobel prize winning economist Joseph Stiglitz says that
we have to prosecute fraud or else the economy won’t recover:
If I-O is not strengthened then stimulus or new resources will tend to feed the Iv-B weed companies first which mutate and then collapse.
The
legal system is supposed to be the codification of our norms and
beliefs, things that we need to make our system work. If the legal
system is seen as exploitative, then confidence in our whole system
starts eroding. And that’s really the problem that’s going on.
This is part of the cycle of color imbalance, it starts at B where diminishing Gb resources cause weakness and then economic problems spread up the Biv economy. The legal system is composed of Bi normal represented on a normal curve as to what people think is normal behavior or deviant. It also has an Iv component where exploitive and competitive behavior is allowed to some degree even if deviant because people have rights even if abnormal. in between these two there is always uncertainty which is why the legal system tries to chart a middle course between these two.
***
I think we ought to go do what we did in the S&L [crisis] and
actually put many of these guys in prison. Absolutely. These are not
just white-collar crimes or little accidents. There were victims. That’s
the point. There were victims all over the world.
When resources are scarce people turn to O crime rather than just I civil infractions of the law, Y-Oy predatory business looks for prey among Ro-R people in a negative sum game.
***
Economists
focus on the whole notion of incentives. People have an incentive
sometimes to behave badly, because they can make more money if they can
cheat. If our economic system is going to work then we have to make sure
that what they gain when they cheat is offset by a system of penalties.
Often these penalties need to be O criminal because when resources are scarce I civil penalties are just deducted against the profits made. The exception is when resources are abundant and it is easier to make more honest money in a positive sum game than to steal so much that others lose money.
Nobel prize winning economist George Akerlof has
demonstrated that
failure to punish white collar criminals – and instead bailing them
out- creates incentives for more economic crimes and further destruction
of the economy in the future.
Bailing out Iv-B companies is like putting fertilizer on weeds in the hope they will evolve into more stable plants. Better to weed them out and use this fertilizer on balanced Biv companies.
Indeed, professor of law and economics (and chief S&L prosecutor) William Black
notes that we’ve known of this dynamic for “hundreds of years”. And see
this,
this,
this and
this.
(Review of the data on accounting fraud confirms that
fraud goes up as criminal prosecutions go down.)
The Director of the Securities and Exchange Commission’s enforcement division
told Congress:
Recovery
from the fallout of the financial crisis requires important efforts on
various fronts, and vigorous enforcement is an essential component, as
aggressive and even-handed enforcement will meet the public’s fair
expectation that those whose violations of the law caused severe loss
and hardship will be held accountable. And vigorous law enforcement
efforts will help vindicate the principles that are fundamental to the
fair and proper functioning of our markets: that no one should have an
unjust advantage in our markets; that investors have a right to
disclosure that complies with the federal securities laws; and that
there is a level playing field for all investors.
The I-O police are slowly strengthening against Y-V companies after the economy hit the Iv-B ceiling. The Y-V top of the food chain is usually the last to lose money.
Paul
Zak (Professor of Economics and Department Chair, as well as the
founding Director of the Center for Neuroeconomics Studies at Claremont
Graduate
wrote a paper called Trust and Growth,
showing that enforcing the rule of law – i.e. prosecuting white collar fraud – is necessary for a healthy economy.
The problem is color rebalancing follows a set process, the I-O police are still weak after deregulation as Iv agents pressed for more freedom to exploit B clients. The momentum of change has not yet become strong enough, this can also be because of not enough Iv whistle blowers showing the true causes if the GFC.
One of the leading business schools in America – the Wharton School of Business –
published an
essay by a psychologist on the causes and solutions to the economic
crisis. Wharton points out that restoring trust is the key to recovery,
and that trust cannot be restored until wrongdoers are held accountable:
According
to David M. Sachs, a training and supervision analyst at the
Psychoanalytic Center of Philadelphia, the crisis today is not one of
confidence, but one of trust. “Abusive financial practices were
unchecked by personal moral controls that prohibit individual criminal
behavior, as in the case of [Bernard] Madoff, and by complex financial
manipulations, as in the case of AIG.” The public, expecting to be
protected from such abuse, has suffered a trauma of loss similar to that
after 9/11. “Normal expectations of what is safe and dependable were
abruptly shattered,” Sachs noted. “As is typical of post-traumatic
states, planning for the future could not be based on old assumptions
about what is safe and what is dangerous. A radical reversal of how to
be gratified occurred.”
The Bi community had their concept of normal business shattered by Iv-B chaos, this occurred in part because of a bias in the I-O police towards Iv agents allowing secretive problems to become systemically large.
People now feel more gratified saving
money than spending it, Sachs suggested. They have trouble trusting
promises from the government because they feel the government has let
them down.
V-Bi people like to save money rather than look for growth, this creates stagnation. The Iv-B growth parts oft he economy are still disconnected because of mistrust and because the I-O police are no longer believed to be stemming this chaos.
He framed his argument with a fictional patient named
Betty Q. Public, a librarian with two teenage children and a husband,
John, who had recently lost his job. “She felt betrayed because she and
her husband had invested conservatively and were double-crossed by
dishonest, greedy businessmen, and now she distrusted the government
that had failed to protect them from corporate dishonesty.
They were B and chaotically deceived by Iv agents because of weak I-O policing, also because of other deceptive B people using liar loans which fed the deception from below.
Not only
that, but she had little trust in things turning around soon enough to
enable her and her husband to accomplish their previous goals.
“By
no means a sophisticated economist, she knew … that some people had
become fantastically wealthy by misusing other people’s money — hers
included,” Sachs said. “In short, John and Betty had done everything
right and were being punished, while the dishonest people were going
unpunished.”
They ended up as R prey to Oy financial predators, this happened because the middle oft he Roy food chain collapsed with weak policing. Usually these Oy predators would be moderated by O criminal penalties. When they weren't they multiplied exponentially like a contagion.
Helping an individual recover from a traumatic
experience provides a useful analogy for understanding how to help the
economy recover from its own traumatic experience, Sachs pointed out.
The public will need to “hold the perpetrators of the economic disaster
responsible and take what actions they can to prevent them from harming
the economy again.” In addition, the public will have to see proof that
government and business leaders can behave responsibly before they will
trust them again, he argued.
Weak I-O policing happens in a cycle and will return again.
Note that Sachs urges
“hold[ing] the perpetrators of the economic disaster responsible.” In
other words, just “looking forward” and promising to do things
differently isn’t enough.
If the I-O police don't have enough snitches and whistle blowers then they have to wait for things to actually go wrong before they can try to fix them.
Robert Shiller – one of the top housing
experts in the United States – says that the mortgage fraud is a lot
like the fraud which occurred during the Great Depression
notes:
Shiller
said the danger of foreclosuregate — the scandal in which it has come
to light that the biggest banks have routinely mishandled homeownership
documents, putting the legality of one of the main causes of the Great Depression.
Chaos grows like cracks in the shape of B roots and Iv branches avoiding I-O police, where there is little oversight contagion like cockroaches will grow in numbers faster. To avoid this random auditing of these areas is like randomly exposing dark areas to look for cockroaches.
Economist James K. Galbraith
wrote in the introduction to his father, John Kenneth Galbraith’s, definitive study of the Great Depression, The Great Crash, 1929:
The
main relevance of The Great Crash, 1929 to the great crisis of 2008 is
surely here. In both cases, the government knew what it should do. Both
times, it declined to do it. In the summer of 1929 a few stern words
from on high, a rise in the discount rate, a tough investigation into
the pyramid schemes of the day, and the house of cards on Wall Street
would have tumbled before its fall destroyed the whole economy.
This is usually not possible in a color imbalance which has to work itself through the colors in order. The problem is this color imbalance makes these stern words impossible to deliver or ineffective.
In
2004, the FBI warned publicly of “an epidemic of mortgage fraud.” But
the government did nothing, and less than nothing, delivering instead
low interest rates, deregulation and clear signals that laws would not
be enforced. The signals were not subtle: on one occasion the director
of the Office of Thrift Supervision came to a conference with copies of
the Federal
says:
There
will have to be full-scale investigation and cleaning up of the residue
of that, before you can have, I think, a return of confidence in the
financial sector. And that’s a process which needs to get underway.
When the I-O police are weakened Iv-B civil infractions of the law grow exponentially but this seems very slow at first, it appears there is plenty of time to stop it. However exponentially growth can quickly zoom up wards when it develops momentum.