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Huffington Post
Posted: April 21, 2010 04:28 PM
The answer, in this crisis, is "the financial version of Don't Ask Don't Tell,"
The securities fraud case against Goldman Sachs is a powerful reminder that the financial crisis responsible for millions of lost jobs and lost homes wasn't just the result of market vagaries and regulatory failure -- it was also the result of massive fraud at all levels of the financial system.
This epidemic of fraud has gone largely uninvestigated and almost entirely unprosecuted.
And the incentive structures that led so many people to intentionally take advantage of so many others for personal gain remains largely unaddressed by the legislation being considered in Congress.
Indeed, while there's plenty of talk of unwinding big banks, there's been little discussion of undoing the system that rewarded mortgage brokers for getting people to lie on their applications, sent more business to credit raters the fewer questions they asked, and encouraged massive investment banks to hide their losses and pitch investment vehicles designed to crash.
When you start to see fraud at the heart of the financial crisis, you turn to different people to explain what happened -- and to propose solutions. "Once you understand the implications of massively fraudulent practices," said James Galbraith, a progressive economist at the University of Texas, "it changes the professional community that has the principal say about interpreting the crisis."
Economists, he said, should move into the background -- and "criminologists to the forefront."
One such criminologist -- with a personal track record of two-fisted regulatory effectiveness during the savings and loan crisis of the late 1980s -- is William F. Black, now a professor at the University of Missouri and author of the book, "The Best Way to Rob a Bank Is to Own One".
Black sees what he calls "control fraud" at the heart of the financial crisis. "Control fraud," he explained, "is when the people controlling a seemingly legitimate entity use the entity as a weapon to defraud." It's fraud committed by design, by the people at the top. And here is the rest of it.
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