The Shame Prize

The shame prize award was made in Davos during the World Economic Forum as a counter-WEF event.  Shell also “won” a shame prize, but I spoke on Goldman Sachs, the role of epidemics of accounting control fraud, and the WEF’s anti-regulatory and pro-executive compensation policies.  I explained that the anti-regulatory policies were intended to fuel the destructive regulatory “race to the bottom” and why the executive and professional compensation policies maximized the incentives to defraud.  I also explained that WEF was a fraud denier.  Collectively, these three WEF policies contributed to creating the intensely criminogenic environments that produce the epidemics of accounting control fraud driving our worst financial crises.

Goldman Sachs Proof that God hates its Customers

By William K. Black, New Economic Perspectives

Posted on January 26, 2013

Goldman Sachs is a fitting recipient of the “Public Eye” shame prize, but it is vital to remember that Goldman is not a singular rotten apple in a healthy bushel.  It is characteristic of the abuses that become endemic when powerful plutocrats achieve de facto immunity from the criminal laws.

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Indeed, this discussion understates Goldman’s culpability because Goldman’s executives were principal architects of the crisis.  Its former CEO, Robert Rubin, led the disastrous deregulation in the Clinton administration and was a leader in pushing Citicorp to become a major contributor to the hyper-inflation of the bubble.  Henry Paulson, when he was Goldman’s CEO, made Goldman a leading “vector” spreading fraudulent mortgages through the global financial system (and creating Goldman’s holdings of toxic mortgages that produced huge, fictional, accounting income in the short-term – making Paulson’s already large compensation massive).

Goldman Sachs: Doing "God’s Work" by inflicting the Wages of Sin Globally

By William K. Black, New Economic Perspectives

Posted on January 26, 2013

The central point that I want to stress as a white-collar criminologist and effective financial regulator is that Goldman Sachs is not a singular “rotten apple” in a healthy bushel of banks.  Goldman Sachs is the norm for systemically dangerous institutions (SDIs) (the so-called “too big to fail” banks).  Impunity from the laws, crony capitalism that degrades democracy, and massive national subsidies produce exceptionally criminogenic environments.  Those environments are so perverse that they produce epidemics of “control fraud.”  Control fraud occurs when the persons who control a seemingly legitimate entity use it as a “weapon” to defraud.  In finance, accounting is the “weapon of choice.”  It is important to remember, however, that other forms of control fraud maim and kill thousands.

Large, individual accounting control frauds cause greater financial losses than all other forms of property crime – combined.  Accounting control frauds are weapons of mass financial destruction.  One of the crippling flaws of the World Economic Forum (WEF) is ignoring private sector control frauds.  Control fraud makes a mockery of “stakeholder” theory.  Accounting control fraud, for example, aims its stake at the heart of its stakeholders.  The principal intended victims are the shareholders and the creditors (which includes the workers).  Other forms of control fraud primarily target the customers.  If the WEF wishes to effectively protect stakeholders it is imperative that they undertake a sea change and make the detection, prevention, and sanctioning of control fraud one of their central priorities.  WEF does the opposite, it wishes away fraud with propaganda because the alternative is to admit that many of its dominant participants are the central problem – they are degrading the state of the world.

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WEF has been acting for decades to make banking criminogenic.  They have pushed the three “de’s” – deregulation, desupervision, and de facto decriminalization.  They have favored executive compensation systems.  They have pushed for ease of entry.  And they have spread the myth that fraud by corporate elites is “rare.”  WEF has optimized the intensely criminogenic environments that produce recurrent, intensifying fraud epidemics, bubbles, and financial crises.

WEF’s complacency about accounting control fraud has led to its embarrassing failures in finance.  It’s “competitiveness” scales and “financial market development” scales have praised the most criminogenic financial systems – Iceland, Ireland, the UK, the U.S., and Spain – even as the largest banks in those Nations were (in reality) destroyed along with the much of the national economy.  Similarly, the WEF’s “global risks” series has proven unable to identify the major financial risks until the hurricane has roared through the system.  The central problems are the same – the WEF “stakeholder” premise and the WEF’s domination by powerful corporations is an elaborate propaganda apparatus that assumes away the reality of how CEOs running control frauds use compensation (and the power to hire, promote, and fire) and political power to deliberately create the perverse incentives that produce widespread fraud.  The irony is that the WEF’s dogmas have encouraged elite frauds to drive stakes through the stakeholders.