“Benjamin Wagner, a U.S. Attorney who is actively prosecuting mortgage fraud cases in Sacramento, Calif., points out that banks lose money when a loan turns out to be fraudulent. “It doesn’t make any sense to me that they would be deliberately defrauding themselves,” Wagner said.”If he wants clarity, Wagner could soak himself in some Black, or go back and read Akerlof Romer.Or he could kick back with a stream from Episode 23 of The Sopranos, where Tony and the boys muscle in on the sporting goods store formerly run by his old school pal, Davey Scatino, burning Davey's credit line with a whole smorgasbord of goodies, which they sell on the street while stiffing the creditors--no wonder they can offer such good prices. Davey, the proper owner, loses (per Wiki) "his life savings, his business, his son's college fund, the respect of his family, and his wife (who divorced him)," What happens to the creditors is anybody's guess.
Monday, February 20, 2012
Another Lessons We Haven't Yet Learned From the Mafia
William K. Black at the indispensable New Economic Perspectives is back on a favorite theme of his--"accounting control fraud" in which managers loot businesses under the conjoint cloaks of respectability and limited liability. Black rings in the classic exposition from Aklerlof and Romer in their 1993 paper, "“Looting: the Economic Underworld of Bankruptcy for Profit." Black serves up a squib from the U.S. Attorney for Sacramento who (despite years as a prosecutor of white collar crimes) appears bewildered by the whole business: