Criminals in the Corner Office

Criminology Overview Criminologists suggest that ultimate source of white collar crime lies in culture of competition that pervades American society, one that also embraces an economic system which extols, indeed is based upon the same traits and principles (i. e. capitalism). After all, it was Adam Smith who extolled the virtues of the free market, which is all about competition, not to mention the basis for unregulated capitalism, again reinforcement, theoretically, of competition, in The Wealth of Nations (Smith 1776).

As Smith describes the process, he uses the analogy of the hypothetical greed of the individual, in this case a common grocer, which would lead him to seek out new products to serve his customers, offer his goods at lower prices to differentiate his wares, creating competition, and that corresponding competition would naturally occur from other grocers in response, thus providing consumer choice. Voila. Competition. The cliched “invisible hand of the market” argued Smith, precluded the need for government regulation, as markets regulated themselves naturally through this process.

This is how Smith has traditionally been interpreted, although a closer reading of his work betrays that this is not quite what he implies. (Smith, 1776) However, America from the time of Smith’s writing and this conventional interpretation has created a fundamental paradox in the core of American society and life – in that this country was founded by deeply religious people who believed that greed (the founding driver of Smith’s system) was one of the deadliest of all deadly sins.

It is this paradox between ethics, religion, money, competition, the “conquering” of the country (also known as the slaughter of the indigenous peoples who were here before the European invaders) that has led to periods of unregulated greed littered with white collar criminals who practice capitalism at it’s fullest and purest form (usually marked with equally high levels of criminals of the common variety).

After all, Joe Kennedy was a mobster and a bootlegger who bought his way into respectability with the profits he made as an illegal drug lord and bootlegger during Prohibition who bought his way into respectability, and his son’s way into the Presidency with the wealth he now had under the Roosevelt Administration. These cycles of corruption and white collar crime waves (usually created by a coalition and cooperation of white collar criminal activity between corporate and government officials) is interspersed, historically throughout American history with retrenchment and rebuke, and great movements for social reform.

Or interesting mixes of the two, such as members of the Temperance Movement also being leading members of the Abolitionist Movement. Or after a major disaster occurs, bringing in a wave of greater government control, reform and involvement in the economy, such as new regulations on certain industries or across the board of the American business landscape (such as those reforms and regulations implemented during The Great Depression in the 1930’s after the Stock Market Crash of 1929, including Glass-Steagall and the grilling of the titans of Wall Street at the time under the Pecorra Commission).

But the financial world is not the only one to feel the hand of government descend to impose new rules, regulation and oversight after a major disaster in an unregulated industry. The shirt Waist Fire in New York in 1910 brought in major national reforms in worker safety.

But the reason that it usually takes a disaster or a spark of a moment, like Rosa Parks refusing to move from her front row seat aboard a Montgomery Public City Bus, and thus starting what would become the beginning of the organized Civil Rights Movement, which, don’t let anyone lead you astray, is also about white corporate criminals, (they were known as Plantation Owners and the members of Congress who supported them) is because too often, despite the paradox between the concept of greed as a deadly sin and Greed is Good, as in Wall Street Gordon Gekko style, in a society where social status and success is judged on consumption and wealth acquisition, and conspicuous display, it is the latter instinct is the one that too often wins. There is no honor in being poor but ethical. Not to mention it doesn’t pay the rent.

To a certain extent, when society gets to a point where corruption is so endemic, the average everyday citizen is almost forced to participate in white collar crime to survive, becoming in effect a white collar criminal by default. Nowhere is this better illustrated for example than the S. E. C. ’s prosecution of whistleblowers, which is not only stupid, but runs counter to the whole purpose of Whistle blowing law and protection. Not to mention the appalling record of the S. E. C. itself in catching white collar corporate crime in the world of finance. But the urge to consume, even if it was beyond one’s ability to do so, was irresistible to most, particularly in the world immediately before the crash, where images of conspicuous consumption were everywhere. Surround sound advertising to consume.

And during the housing bubble, the American public did just that at unprecedented levels and at unprecedented amounts beyond their means. That too is a measure of a white collar society. Advertisers create the urge to consume. And while consumers are not innocent victims here, they were being led to believe that America was riding an economic high that would go on forever, just like the economy would always expand, and were conned into all sorts of consumption, from risky mortgages to goods they had no business buying and could not afford.

Every salesperson who engaged in such activity is a white collar criminal. Societal Causes White Collar Criminals, Selling Financial Snake Oil Another trait in a culture of white collar criminals and the environment which they create and thrive, where the demarcation between who’s honest or not, much less whether one can be at all, much less what a good investment is, (and the Goldman Sachs fraud case is a perfect example of the latter, explained here (Stewart, 2010) very well, albeit humorously) has gotten ever harder to distinguish, just as who is really serving the public as a public servant instead of lining up their next lucrative gig in the private sector in a market they helped to create (and both Robert Rubin and Larry Summers are perfect examples of this).

And nowhere was this clearer than in the actions of those on Wall Street, who didn’t care about the effects their actions might have on homeowners if their deals went bust. They justified their actions, if they thought about them at all, by thinking about their killer bonuses at the end of the year.

And thought of people’s biggest investment and home as an “instrument” to be traded, sliced, diced, rated, insured and sold. And thus completely divorced themselves if not dehumanized what they were doing. Next deal up please? Kaching, kaching, kaching. That is the mentality of a corporate white collar serial killer. Particularly when people began to really know rather than just suspect what they were doing was wrong and even losing money for their firms, as Citi did in 2006, but rather than ringing alarm bells, individuals at such firms still engaged in criminal or fraudulent behavior purely out of self interest and/or the “market would right itself,” justification.

Which is a bit of a canard to say the least (outright lie might be more appropriate), because by 2006, even the internal economists at most Wall Street banks were ringing the alarm bells with regularity about the imminent collapse of the housing bubble. Racism is just another part of unethical behavior that feeds and is part of a culture of criminality that overrode ethics, common sense, oversight, even their own economic analysis and economists’ predictions that drove Wall Street to continue to do what it had been doing until the system literally collapsed.

That is what happens in corrupt organizations. And is yet another nail in the coffin that proves that Wall Street Firms have become places where criminals thrive. It is literally part of the culture of the business. And that is not only why reform is going to be so hard, but why perhaps another paradigm might be sought.

The environment thus created by the legislative environment in Washington, merely since 1998 in terms of just the financial industry, created increasingly bigger mergers, larger corporations (in every vertical), multinationals, and even started causing massive corporate scandals and failures OUTSIDE the financial industry (but of course financed by them) as early as the financial elite and Congress were destroying Ms. Burn’s career, only to be repeated AGAIN less than three years later in 2001 (with Enron, which was basically about the same kinds of issues that created the Wall Street crash seven years later) that came-back-to-haunt Americans post crash 2008, in the phrase “too big to fail” corporation. (Astore, 2010)

Despite the increased adoption of said philosophies over the past thirty years however both as a way to spread the American way and an economic system adopted by default with the fall of Communism, the idea of unregulated capitalism has always been attractive in America, where big government is distrusted, combined with a sense of competitiveness in general, given that this is a country that could easily be called an Imperialist Democracy, founded and literally conquered by brute force and if you will “competitiveness,” that is as much a part of a traditional Western heterosexual male gender identity as economic theory (and the finance industry is both notoriously sexist and in fact the numbers of women in it have been dropping rather than increasing for the last fifteen years.

The reality is that the Crash of 2008 is just a continuation, if on a macro scale of issues that lie at many unresolved issues, indeed the paradox at the heart of America, since its inception that we have never really solved as a nation.

From the myth of the American Pioneer, bedrock of our culture that most Americans celebrate at Thanksgiving, without realizing that this is also the symbol of the slaughter of millions of indigenous Native Americans to establish “The United States. ” And was done with deceit, violence, and outright robbery and murder.

All tools of the typical mobster, if not White collar criminal,. Creating policies to stop vast numbers of people from their homes through predatory lending, sub-prime mortgages, or outrageous ARMS that people do not understand (i. e. they would face ballooning mortgage payments) and that the above policies would literally displace tens of millions of Americans, is the kind of thing that corporate criminals in America have done since the founding of this country.

In its own way, the housing crisis we face today is no different from a modern version of The Trail of Tears, literally a Presidential negation of a land treaty with the Cherokees because gold had been found on their reservation in Georgia, (a commodity which the Indians owned but which white speculators wanted for their own without paying for it – also called stealing) forcing the Cherokee to move to a barren reservation thousands of miles away in Oklahoma. The devastation of the tribe was enormous. Figure 1: Artist’s rendition of The Trail of Tears President Andrew Jackson’s backsliding perhaps still remains the most brutal legal historical documentation of “America’s” decision to reallocate (also read steal) valuable resources from its poorest and weakest residents to the richer population, a situation we are seeing today.

The Cherokee, as a nation, never recovered, but their ordeal remains a reminder that while this paper will address the white collar crime of a particular industry today, the behavior exhibited and described by Wall Street herein is not an aberrant behavior absent from American society historically, but rather an inherent part of it from the beginning of the modern nation’s inception, albeit concentrated in a particularly virulent, toxic and destructive way in a certain industry vertical at a certain moment in time (the crash of 2008), because of the amount of money at stake, certain societal factors, including socioeconomic issues, outright discrimination, and because of a coalescence of other less tangible factors to be discussed herein.

But if one asks a displaced homeowner who’s just lost a home to repossession if they feel any different than a Cherokee force marched across the country, after being promised security and a home for life, only to find out that thanks to the actions of powerful people who were playing a sophisticated game in secret, that promise that meant so much was merely a bald faced lie, I doubt the answer you will get will differ greatly.

Furthermore, because we, as a country are a capitalist and consumer based economy, or at least were until the crash of 2008, America is a country that at least since the 1980’s, but really since the 1950’s in the modern era, celebrates consumption without a corresponding emphasis on legitimate or counter normative means to achieve wealth, no matter how religious we claim to be. Or at least the old economy was that way. This will be changing in the paradigm shift to a cleantech economy which is environmentally friendly, and carbon free.

While most people do not realize this yet, the way we used to live is not only gone forever, but unsustainable. However the blatant exploitation in America of those with power and money of those without, as a fundamental core of our society; socioeconomically to the board room, is a theme that runs consistently through American business writing, both academic theory and even in fiction, throughout American commercial history. Not to mention in real life. There is an element to which America as a whole is a criminal society (the first settlers after all were religious fanatics seeking the right of religious freedom, and criminal elements as the Europeans cleared their cell blocks).

This was one of the more controversial themes for example that is a consistent theme throughout the work of Melville, in particular Moby Dick, (Melville, 1851) but also his lesser work, and something that some believe contributed to his commercial failure while alive. Simply, Melville’s father-in-law, Lemuel Shaw, was one of the most reactionary, yet powerful state judges in the history of the United States, and who’s precedent setting decisions, including many that set the legal framework if not precedent for business law, among other topics, including worker’s rights and racial equality, were still in use NATIONALLY until the last of his racist decisions was overturned in Brown v. Board of Education in 1959, almost a hundred years after Shaw’s death.

His decisions on worker’s comp slowed down even introduction of that employee protection for seventy five years, and associated healthcare reform, such as it is, until the year 2010, almost two hundred years after his death. Yet outside the symbolism used on the pages of literature, no better example exists than the use of slaves up until the Civil War and exploitation of immigrant labor even today, the continued discriminatory workforces of corporate America, again a product of a culture of white collar crime. Labor, particularly in an era of the information economy, consists of workers whose intellect is the most valuable asset they can contribute to a corporation.

If the corporation is a company of criminals, where workers ideas are not compensated, or the ideas they come up with are fundamentally criminal (which is a perfect snapshot of Wall Street and the buildup to the crisis, with its ever increasingly complex financial instruments, particularly in the situation of the Goldman Sachs fraud case, discussed here, (Stewart, 2010) where members of the Firm KNEW the products were selling were fraudulent and/or worthless and/or impossible to price, and therefore not liquid, not to mention widespread mistreatment of the workers themselves at such institutions (a story rarely reported on but true for the vast majority of employees except of course for the superstars) is also a sign of a white collar criminal culture which runs rampant but has not even begun to be addressed.

So in essence, “white collar crime” is actually bedrock of American society. Simply because its components are actually elements of our cultural values as a society, it’s often so hard to catch and often so “clever. ” It is also why judges and politicians are loath to enforce stiff penalties, thus discouraging future similar activity. Like, for example, in this particular round of Wall Street reform, impose real caps on compensation. Furthermore, with this mindset of competitiveness and wealth being tied to self identity and some kind of moral superiority as a societal value, white collar crime always will be hard to counteract, stop and even punish.

In fact as argued it is precisely the cultural values of American society that encourage it, even with the new frugality forced upon the vast majority of the population after the crash. Even among professional women of a higher socioeconomic demographic and minorities who do not realize the hidden cultural barriers to obtaining the key to the golden kingdom of “The American Dream,” and thus continue, however much anger there is today towards Wall Street, to aspire to such riches.

And therefore have no fundamental deep seated desire to dismantle the system because one never knows. One’s luck might just change if you work hard enough. In other words, one can buy one’s way to class and respectability if you have the means, and there is still a way to do just that.

This is how pervasive the illusion is. This is what lies behind even those who had no deliberate intention of letting Wall Street and a host of other corporations continue to outrageously break the law but were lulled asleep at the switch because they could not believe that such rot could and did exist within the very heart of the system they were supposed to be watching and overseeing. No better example is the ongoing fraudulent schemes of Bernie Madoff, whose scams were repeatedly reported to the S. E. C. , who in turn, repeatedly refused to investigate these tips for over 16 years – even though they came from a variety of sources. (Ross Sorkin, 2010)

Yet even so, despite the carnage, the concept of the nouveau riche, once so despised as somewhat tacky, and certainly while classist and elitist in and of itself, has disappeared. The ideal is to be “riche” no matter what. Americans are not stupid. They understand that in today’s society, money rules everything else. And in that milieu, despite the pain, unless it gets far more severe, the extreme overhaul and regulation of both Wall Street and the business culture of this country, indeed our core cultural values, will not change – leaving the door open for another scenario of exactly the same proportions, if not worse – from happening all over again. Only this time, it may happen much sooner than anyone expects, with far more devastating results.

Modern American Societal Culture and Business Trends Hybrid Corporate Criminals Now, there are those that could say that there is a level of very subtle white collar crime that is a kind of hybrid corporate/government mix that occurred during this period, in that the housing market boom was deliberately encouraged by the policies of the Bush administration and Congress along with certain elements in American society that allowed it to occur and fed off of it. While the societal trends that caused the elections of political officials whose policies might make them white collar criminals are not crimes, the individuals who actually created the policies are.

This paper will look at both societal trends that created a culture of corruption that bred so many opportunities and hotbeds for white collar criminals to thrive, and identify who they were and are, not to mention their victims, and possible reforms and solutions. Because failure to diversify the economy is such basic economic reality and governing strategy that failure to do so, at a time of increased outsourcing, can only logically lead one to think that this was a deliberate strategy known as structural unemployment. In other words the government literally conned people into consuming through various different ways to distract them from the reality that there was no more real economy in America any more, while creating a distraction called the housing boom.

Except Wall Street of course.

A strategy both created to maximize corporate profit, while keeping the economy humming with consumer spending on cheap goods bought at Wal-Mart (made in China) and financed by the equity they had in their vastly overinflated house value, driven ever upward by the boom which was supposed to last forever, or that was what the American consumer was told over and over. To deliberately undermine an entire economic system, not to mention destroy an entire generation while conning them into believing they are on track to a life time of prosperity, is the ultimate white collar crime. It’s called fraud and deception. A Breeding Ground for Corporate Criminal Activity

Certainly the atmosphere of increasingly oligarchy in this country over the last thirty years, and most certainly the last fifteen in this milieu, have created even more opportunities for criminal behavior, and it flourished quite spectacularly. In fact one might even say it was the order of the day, particularly on Wall Street.

To quote Oscar Wilde, most people can “resist everything but temptation. ” And the boys (and most of the people who work in finance still are, which only further adds to a culture of competition and macho one-upmanship which creates further pressure to sell and make profits no matter what) could certainly not resist. The Culture of White Collar Crime Meets Greed Is Good, Gordon Gekko Wall Street But in a culture of white corporate criminals, the sociopathology of those who make up that culture are focused on different goals and results.

The goals of those who worked on Wall Street were not to perpetuate responsible or even efficient functioning of the market. Or selling a customer a well or fair priced or even benchmarked good. In fact one of the issues at the heart of the Goldman Sachs fraud case is that literally the traders knew and actively discussed that the products they were selling were questionably valued if not essentially worthless. But they, just like Citibank, who sold sub-prime mortgages even after they knew THAT market was in trouble, did so because they were functioning as criminals in a criminal environment, not to mention a highly competitive workplace where their own bonuses depended on sales per annum.

The functioning of Wall Street during most of the naughts was a mix of hocus pocus shell game marketing psycho babble and equations drawn up by equally off the wall if unethical quants who were also relying on market assumptions that were completely incorrect and unsustainable that even they knew were wrong. And sold as “we know you can’t understand this stuff but it’s profitable and it works. ” That is the classic carney con game in an Armani business suit. The truly amazing thing is how many people got duped by it.

The truly tragic thing is how many people it either has already destroyed or will. A “Blowback” of Corporate White Collar Crime From The Cold War? The last time that happened was in the early nineteen sixties. When the issue of race and gender equality was finally addressed.

And a redistribution of wealth in society occurred that led to a limited social safety net, so that nobody ever fell completely through the cracks. This is the definition of a civil society. The antithesis of one run by white collar corporate thugs. That said, even then, this was largely both domestic and a ruse, since under the policies of the Cold War, American foreign policy supported business interests who certainly perpetuated that culture around the globe. It’s just that most Americans never knew about it. For example, American support of the horrifically brutal regime of the Shah of Iran, because American oil companies operating in the country, got special concessions.

It’s almost as if we have imported those concepts and cultures into American companies back home after the fall of Communism. A “blowback” to use a CIA term, (although more conventionally used in terms of national security and secret ops) of white collar criminal culture and activity back into domestic turf. Nevertheless, twenty years after the “Great Society” ideals of John Kennedy, which promised to further move America forward in terms of both racial and gender socioeconomic equality, the deregulatory, free wheeling, market mantra, which is fundamentally counter to this ideal, using the conventional interpretation of Smith’s work, went back into overdrive. Voodoo Economics – The White Collar Criminal Shell Game as the Trigger of the Tragedy

It entered with the election of Ronald Reagan, accelerated with the fall of America’s Cold War economic nemesis, The Soviet Union and the so-called fall of Communism, was helped along its merry way by Clinton (who was the President after all who destroyed one of the most important anti-trust laws overseeing the banking industry (Glass-Steagall) while allowing for the introduction of what Warren Buffet calls “financial weapons of mass destruction,” (unregulated derivatives) and this trend, along with the accompanying ones of increased and bigger mergers, the increase in mega multinationals, and the relaxation of anti-trust law and regulation, only further went into warp speed under Bush II.

This, in conjunction with economic policies set by the government (such as lending rates) created the housing bubble and the introduction of what was called sub-prime mortgages.

This was the point where the criminals swung into action. Because this is where the real X on the carpet and the scene of the crime occurred. Over and over, all over Wall Street. Because it was the subsequent “creative repackaging” of these very risky loans into a different kind of security that looked and was sold as a higher grade asset, creating essentially hocus pocus financial smoke and mirrors, that is what brought down the house of cards and is what is also so illegal. This is what is what makes what happened fraud. Because the people who created these “vehicles” knew all along that what they were creating was complete fabrication and hot air.

The fact that they were so profitable however, made them irresistible to “Big Swinging Dicks” as Michael Lewis once described the denizens of the cut throat, competitive world of Wall Street in his book, “Liar’s Poker,” (Lewis, 1986) created the perfect breeding ground if not storm for a sort of mass production line of white collar crime on a scale never before seen, and with consequences of global implications never before felt by human kind. Into the Eye of The White Collar Crime Perfect Storm So between the end of the Clinton administration and the beginning of the first term of Bush in the late nineties and early naughts, Wall Street White Crime began to breed like larvae on steroids as a result of little to no regulation of the financial industry, much less corporate America by the political elite, many of whom acted as political white collar criminals themselves, at the same time that corporations had grown ever larger and more powerful in size.

At the same time, these same multinationals had access to the new megabanks created in the fall of Glass-Steagall, to finance even more deals, mergers, and what came to be a new and huge unregulated “dark market” of unregulated derivatives trades that were highly profitable, but as it turned out, frequently were fraudulent and often literally financial hocus pocus and worth nothing. As one author wrote recently “There is Fraud In the Heart of Wall Street. ” And it was done deliberately, knowingly, at a widespread and even high level, and for much of the last decade. Institutional Factors Leading to Industry Predisposition to White Collar Crime The Chattering Classes

The traditional media, whether TV or print, or even now, with new media overtaking it, is traditionally financially illiterate. Even supposedly “financially focused” outlets like Reuters and Bloomberg. The destruction of Glass-Steagall, one of the most important banking anti-trust laws in the United States, barely made a blip on the news. There was no extensive analysis or reporting of what it meant. During the housing boom, the media focused on the go-go housing market, rather than an unsustainable boom. Whole Reality series were based on house upgrades. Real Estate was hot, whether flipping it for a profit, investing in funds for one’s 401K, or just finding a way to get into the game in the first place, was the story of the day.

With the exception of the scandal at Fannie Mae, which again barely got media time, but again was an alarm bell that nobody paid attention to, the media “watchdogs” were either asleep, watching their own stock portfolios, marveling at the rise of the market without doing any analysis on what was fueling the boom, not to mention what was behind it, or if it was sustainable, which is inexcusable, considering the amount of information available to financial reporters starting as early as 2004 about the obvious housing bubble, and continued to waive their pom poms in the face of a looming disaster.

The Rise of a Class Based Society and Increased Income Disparity One of the reasons that the political elite, specifically Barack Obama, who made a point during his campaign of stressing both his and his wife’s humble origins (which in his case were mostly fiction and in hers are vastly over exaggerated) are so removed from the opportunities both had, not to mention the pain faced by the vast majority of Americans today, is the increase in an oligarchical, class based society, based on income disparity, which has widened dramatically over the last thirty years. And Obama has no intention of stopping the trend.

While not ostensibly “criminal” in nature, the growing gaps between rich and poor create many opportunities for exploitation simply based on things like lack of education, or no access to capital, which is actually yet another sign of a white collar criminal society. Why? Because such wealth disparities are created deliberately by political decisions. And the ruling elite is as already discussed, just as much a white collar crime driven racket as the companies they are supposed to oversee and regulate. It is sort of a fox guarding the hen house proposition. In the days of Prohibiti