Monday, May 17, 2010

Never Give a Sucker An Even Break

So Krugman finds an old clip of Uncle Miltie propounding his thoughts on corporate regulation...

Thinking about BP and the Gulf: in this old interview, Milton Friedman says that there's no need for safety regulation, because corporations know that if they do harm they'll be sued.

Interviewer: So tort law takes care of a lot of this...

Friedman: Absolutely, absolutely...

It'd be a more entertaining argument, were it not so popular. Somebody probably asked the great man what this implies about the need for a police force to regulate citizens' behaviour, but Google isn't helping me here.

Regular readers will be aware that I know dick about economics and accountancy, but may recall that I'm pretty clued up on crime. Curiously, the basics are fairly relevant to the ongoing financial crisis and corporate shenanigans that have made this such an interesting age to experience.

1. There are no brilliant criminal minds.

Almost all crime - violent, property-related, financial - is all about opportunism. Man sees thing not nailed down, steals thing, usually trades at heavy discount for cash to buy heroin or alcohol; Man needs cash, usually for heroin or alcohol, robs granny; Man has opportunity to dip into the till at work, dips into the till. Schemers and plotters make better careerists than criminals.

2. Hence, there are very, very few brilliant criminal plots.

The major difference between criminals and law-abiding citizens is that most criminals are incapable of self-control or weighing up deterrents. Oh, for a pound every time I've heard of some murderer saying some variation of But I only stabbed him, I didn't mean to kill him. Criminals and consequences are strangers, until the staff sergeant shuts that cell door.

Almost all crime is committed in hot blood on the spur of the moment. The thought process works like this - I could nick that... I've nicked it.

Thus do we get the likes of Goldman Sachs own Fabrice Tourre, who clearly believed he was some kind of astonishing brainbox - "More and more leverage in the system," he wrote. "The whole building is about to collapse anytime now. . . . Only potential survivor, the fabulous Fab . . . standing in the middle of all these complex, highly leveraged, exotic trades he created!"

Allow me to interpret. Tourre sets up epic con, fleeces suckers who foolishly believe Goldman won't screw them. More briefly, I could nick that - I've nicked it. Did Fab pause to consider whether he'd wind up being hauled in front of a Congressional committee for this little scam? No sir, I believe he did not.

Shorter version - that journalist was taking the piss when she called her book about Enron The Smartest Guys in the Room. A thief with a learjet is still just a thief.

3. A successful criminal will usually keep working the same trick until he gets caught.

Consider this genius, who ripped off £78,000 from his employers and left his job, getting away scot free... Then came back a year later, swiped another £60,000 and inevitably got caught. Once a lavish lifestyle is established, criminals seem to find it near-impossible to give it up.

In the private sector, employers expect a small percentage of cash and goods to go walkies, whether accidentally or "accidentally", and they only call the cops when the sting becomes obvious. The petty crook who swipes £100 out of the till a month will be able to do so forever, but they're hugely outnumbered by the greedy fools.

I suggest this might be relevant to shareholders in companies, the employees of which were willing to put them on the hook for debt-to-equity ratios that would make your eyes bleed.

4. Nobody is a bad guy. Don't believe me? Ask a murderer.

Not literally, of course - there are tens of thousands of psychos, headbangers and outright evil bastards out there. Ask them about what they did and you'll suddenly discover that they were compelled beyond their will to act that way. If only the victim hadn't made that smart remark, the poor villain wouldn't have had to stab him. If it weren't for this junk habit, there'd have been no need to rob that granny.

See also, every Wall Street Journal editorial for the last two years.

5. Society only works if you know you can stand in a crowd without being knifed and robbed.

People need to work and play - if we all have to sit in our houses guarding our shit with a shotgun because the neighbours will rob us blind the second we turn our backs, we're no longer a functioning society. We're in Mad Max 2 territory.

Thankfully, the overwhelming majority of people are law-abiding. People by and large don't probe around the edges of the law looking for ways to swindle each other out of their life savings; they don't sit scheming all night on ways to turn their neighbours' misfortune into profit. Those that do can expect the police to take an interest in their activities sooner or later.

Anybody confident that this is how it works on Wall Street?

Update! It also occurs to me that the whole point of corruption is not only to gain an advantage for yourself, but also to protect yourself from retribution by a) making your activities legal where you can and b) ensnaring so many people in your schemes that nobody in authority will dare take you on for fear of also destroying themselves. Think - the police chief and the mayor in Leo's office in Miller's Crossing.

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