The looting in Ferguson, Missouri is inexcusable.<\/p>\n
The hoodlums \u2014 apparently\u00a0out-of-towners<\/a>\u00a0\u2014 are not only stealing and destroying private property for no good reason, but they are giving the peaceful protesters against the shooting of Michael Brown\u00a0a bad name<\/a>, and provoking an armed (and\u00a0over-militarized<\/a>) response by the police.<\/p>\n But let\u2019s put things in perspective \u2026<\/p>\n Nobel prize winning economist Joe Stiglitz and well-known economist Nouriel Roubini say that\u00a0we\u2019ve got to jail \u2014 or perhaps even\u00a0hang<\/em>\u00a0\u2014 some bankers<\/a>\u00a0before they\u2019ll stop looting the economy.<\/p>\n Nobel prize winning economist George Akerlof has\u00a0demonstrated<\/a>\u00a0that failure to punish white collar criminals \u2014 and instead bailing them out- creates incentives for more economic crimes and further destruction of the economy in the future.<\/p>\n We\u00a0explained<\/a>\u00a0in 2009:<\/p>\n As Examiner.com\u00a0pointed out<\/a>\u00a0in May (it is worth quoting the essay at some length, as this is an important concept), looting has replaced free market capitalism:<\/p>\n Nobel prize-winning economist George Akerlof co-wrote a paper in 1993 describing the causes of the S&L crisis and other financial meltdowns. Assummarized<\/a>\u00a0by the New York Times:<\/p>\n In the paper, they argued that several financial crises in the 1980s, like the Texas real estate bust, had been the result of private investors taking advantage of the government. The investors had borrowed huge amounts of money, made big profits when times were good and then left the government holding the bag for their eventual (and predictable) losses.<\/p>\n In a word, the investors looted. Someone trying to make an honest profit, Professors Akerlof and Romer [co-author of the paper, and himself a leading expert on economic growth] said, would have operated in a completely different manner. The investors displayed a \u201ctotal disregard for even the most basic principles of lending,\u201d failing to verify standard information about their borrowers or, in some cases, even to ask for that information.<\/p>\n The investors \u201cacted as if future losses were somebody else\u2019s problem,\u201d the economists\u00a0wrote<\/a>. \u201cThey were right.\u201d<\/p><\/blockquote>\n The Times does a good job of explaining the looting dynamic:<\/p>\n The paper\u2019s message is that the promise of government bailouts isn\u2019t merely one aspect of the problem. It is the core problem.<\/p>\n Promised bailouts mean that anyone lending money to Wall Street \u2013 ranging from small-time savers like you and me to the Chinese government \u2013 doesn\u2019t have to worry about losing that money. The United States Treasury (which, in the end, is also you and me) will cover the losses. In fact, it has to cover the losses, to prevent a cascade of worldwide losses and panic that would make today\u2019s crisis look tame.<\/p>\n But the knowledge among lenders that their money will ultimately be returned, no matter what, clearly brings a terrible downside. It keeps the lenders from asking tough questions about how their money is being used. Looters \u2013 savings and loans and Texas developers in the 1980s; the American International Group, Citigroup, Fannie Mae and the rest in this decade \u2013 can then act as if their future losses are indeed somebody else\u2019s problem.<\/p>\n Do you remember the mea culpa that Alan Greesnspan, Mr. Bernanke\u2019s predecessor, delivered on Capitol Hill last fall? He said that he was \u201cin a state of shocked disbelief\u201d that \u201cthe self-interest\u201d of Wall Street bankers hadn\u2019t prevented this mess.<\/p>\n He shouldn\u2019t have been. The looting theory explains why his laissez-faire theory didn\u2019t hold up. The bankers were acting in their self-interest, after all\u2026Think about the so-called liars\u2019 loans from recent years: like those Texas real estate loans from the 1980s, they never had a chance of paying off. Sure, they would deliver big profits for a while, so long as the bubble kept inflating. But when they inevitably imploded, the losses would overwhelm the gains\u2026<\/p>\n What happened? Banks borrowed money from lenders around the world. The bankers then kept a big chunk of that money for themselves, calling it \u201cmanagement fees\u201d or \u201cperformance bonuses.\u201d Once the investments were exposed as hopeless, the lenders \u2013 ordinary savers, foreign countries, other banks, you name it \u2013 were repaid with government bailouts.<\/p>\n In effect, the bankers had siphoned off this bailout money in advance, years before the government had spent it\u2026Either way, the bottom line is the same: given an incentive to loot, Wall Street did so. \u201cIf you think of the financial system as a whole,\u201d Mr. Romer said, \u201cit actually has an incentive to trigger the rare occasions in which tens or hundreds of billions of dollars come flowing out of the Treasury.\u201d<\/p>\n In fact, the big banks and sellers of exotic instruments pretended that the boom would last forever, siphoning off huge profits during the boom with the knowledge that \u2014 when the bust ultimately happened \u2014 the governments of the world would bail them out.<\/p><\/blockquote>\n<\/blockquote>\n As Akerlof\u00a0wrote<\/a>\u00a0in his paper:<\/p>\n [Looting is the] common thread [when] countries took on excessive Indeed, Akerlof predicted in 1993 that the next form the looting dynamic would take was through credit default swaps \u2014 then a very-obscure financial instrument (indeed, one interpretation of why CDS have been\u00a0so deadly\u00a0<\/a>is that they were the simply the favored instrument for the current round of looting).<\/p><\/blockquote>\n Is Looting A Thing of the Past?<\/p>\n Now that Wall Street has been humbled by this financial crash, and the dangers of CDS are widely known, are we past the bad old days of looting?<\/p>\n Unfortunately, as the Times points out, the answer is no:<\/p>\n At a time like this, when trust in financial markets is so scant, it may be hard to imagine that looting will ever be a problem again. But it will be. If we don\u2019t get rid of the incentive to loot, the only question is what form the next round of looting will take.<\/p><\/blockquote>\n<\/blockquote>\n Indeed, one of America\u2019s top experts on white collar fraud \u2014 the senior S&L prosecutor who put more than 1,000 top executives in jail for fraud (Bill Black)- says that we\u2019ve known for \u201chundreds of years\u201d that failure to punish white collar criminals\u00a0creates incentives for more economic crimes and further destruction of the economy<\/a>\u00a0in the future. And see\u00a0this<\/a>,\u00a0this<\/a>,\u00a0this<\/a>\u00a0and\u00a0this<\/a>.<\/p>\n Review of the data on accounting fraud confirms that\u00a0fraud goes up as criminal prosecutions go down<\/a>. Indeed, extensive evidence shows that\u00a0failing to prosecute looting by Wall Street is killing our economy<\/a>.<\/p>\n And yet the U.S. government\u00a0admits<\/em>\u00a0that it refuses<\/a>\u00a0to prosecute fraud \u2026 pretty much as an\u00a0official policy<\/a>. Indeed, the government helped cover up the crimes of the big banks, used claims of national security to keep everything in the dark, and changed basic rules and definitions to allow the game to continue. See\u00a0this<\/a>,\u00a0this<\/a>,\u00a0this<\/a>\u00a0and\u00a0this<\/a>.<\/p>\n Indeed, Wall Street \u2014 with the help of Washington \u2014 has\u00a0robbed<\/a>\u00a0(and\u00a0raped<\/a>) America.<\/p>\n Moreover,\u00a0corruption at the top leads to lawlessness by the people<\/a>. As we\u00a0noted<\/a>\u00a0in 2011, in the middle of the London riots:<\/p>\n Corruption and lawlessness by our \u201cleaders\u201d encourages lawlessness by everyone else. See\u00a0this<\/a>, for example.<\/p>\n Peter Oborne \u2014 the Daily Telegraph\u2019s chief political commentator \u2014\u00a0wrote<\/a>\u00a0yesterday:<\/p>\n The criminality in our streets cannot be dissociated from the moral disintegration in the highest ranks of modern British society<\/strong>. The last two decades have seen a terrifying decline in standards among the British governing elite. It has become acceptable for our politicians to lie and to cheat. An almost universal culture of selfishness and greed has grown up.<\/p>\n It is not just the feral youth of Tottenham who have forgotten they have duties as well as rights. So have the feral rich \u2026.<\/p>\n ***<\/p>\n The so-called feral youth seem oblivious to decency and morality. But so are the venal rich and powerful \u2014 too many of our bankers, footballers, wealthy businessmen and politicians.<\/p>\n ***<\/p>\n The sad young men and women, without hope or aspiration \u2026 have caused such mayhem and chaos over the past few days. But the rioters have this defence: they are just following the example set by senior and respected figures in society. Let\u2019s bear in mind that many of the youths in our inner cities have never been trained in decent values. All they have ever known is barbarism. Our politicians and bankers, in sharp contrast, tend to have been to good schools and universities and to have been given every opportunity in life.<\/p>\n Something has gone horribly wrong in Britain. If we are ever to confront the problems which have been exposed in the past week, it is essential to bear in mind that they do not only exist in inner-city housing estates.<\/p>\n The culture of greed and impunity we are witnessing on our TV screens stretches right up into corporate boardrooms and the Cabinet. It embraces the police and large parts of our media. It is not just its damaged youth, but Britain itself that needs a moral reformation.<\/p><\/blockquote>\n Osborne also gives specific examples of corruption, such as the prime minister\u2019s involvement in the Murdoch scandal, and members of parliament abusing expense accounts.<\/p>\n Indeed, the rioters themselves agreed. As Reuters\u00a0notes<\/a>:<\/p>\n Speaking to Reuters late on Tuesday, looters and other local people in east London pointed to the wealth gap as the underlying cause, also blaming what they saw as police prejudice and a host of recent scandals.<\/p>\n Spending cuts were now hitting the poorest hardest, they said, and after tales of politicians claiming excessive expenses, alleged police corruption and bankers getting rich it was their turn to take what they wanted.<\/p>\n \u201cThey set the example<\/strong>,\u201d said one youth after riots in the London district of Hackney. \u201cIt\u2019s time to loot.\u201d<\/p><\/blockquote>\n<\/blockquote>\n As Max Keiser\u00a0noted<\/a>\u00a0at the time, harshly cracking down on British youth looting a $1 bottle of water or a candy bar while letting the financial looters go free is hypocritical.<\/p>\n As we noted in 2011, failing to prosecute financial fraud \u2014\u00a0on\u00a0either side<\/em>\u00a0of the Atlantic\u00a0<\/a>\u2014 is extending the economic crisis.\u00a0 In 2012, we pointed out that European (and American) governments were\u00a0encouraging<\/em>bank manipulation and fraud<\/a>\u00a0to cover up insolvency \u2026 trying to put lipstick on a pig.<\/p>\n As a result, Europe is\u00a0still in a depression<\/a>\u00a0\u2026 and America has the\u00a0highest levels of inequality in history<\/a>. And that\u2019s\u00a0killing\u00a0our<\/em>\u00a0economy<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":" Who Are the Worst Looters? The looting in Ferguson, Missouri is inexcusable. The hoodlums \u2014 apparently\u00a0out-of-towners\u00a0\u2014 are not only stealing and destroying private property for no good reason, but they are giving the peaceful protesters against the shooting of Michael Brown\u00a0a bad name, and provoking an armed (and\u00a0over-militarized) response by the police. But let\u2019s put […]<\/p>\n","protected":false},"author":1,"featured_media":137468,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[487,18,1616],"tags":[],"class_list":{"0":"post-137467","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-breaking-news","8":"category-latest-news","9":"category-usa-news"},"_links":{"self":[{"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/posts\/137467","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/comments?post=137467"}],"version-history":[{"count":0,"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/posts\/137467\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/media\/137468"}],"wp:attachment":[{"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/media?parent=137467"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/categories?post=137467"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/tags?post=137467"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
\nforeign debt, governments had to bail out insolvent financial institutions, real estate prices increased dramatically and then fell, or new financial markets experienced a boom and bust\u2026Our theoretical analysis shows that an economic underground can come to life if firms have an incentive to go broke for profit at society\u2019s expense (to loot) instead of to go for broke (to gamble on success). Bankruptcy for profit will occur if poor accounting, lax regulation, or low penalties for abuse give owners an incentive to pay themselves more than their firms are worth and then default on their debt obligations.<\/p>\nThe Fish Is Rotting from the Head Down<\/h3>\n