A cursory look at mechanisms and effects of capital markets
What manner of action can be seen to constitute not merely a crime or infraction but an act or pattern of violence? Are white-collar malfeasances, often skirting the letter of the law while violating its spirit, merely businesses falling short of best practices or are these practices surreptitious but widespread campaigns of violence? It is worth considering whether such an appropriately bracing word (among several others) may not just fit the methods of the white collar world or possibly not be strong or specific enough to describe its ravaging effects. This is especially so because high finance is a vast network of rivers, tributaries, creeks and quagmires which operates in part by disguising their machinations in increasingly opaque jargon. It is as if George Carlin’s monologue on the sanitizing power of euphemisms became a user’s manual for conglomerations more powerful than nations, industries which can inflict more damage with a click on a keyboard than with a detonator. Derivatives, default swaps, mortgage backed securities, these are arcane terms that remain impenetrable to most people years after they were instrumental in the financial system falling apart. Crash, melt down, theft, lies, debt, ruin, homeless, helpless. These are words more pertinent to those affected not just by financial crimes, but by the various tricks white collar actors pull which have been reclassified from crime to standard practice. So to return to the topic of violence: white collar crime is violent because it does catastrophic damage to people’s lives. In a capitalist system financial markets are the primary engine of the movement of money, its flow being civilization’s mechanism by which all social and political behavior is made liquid, up to and including murder.
The Bernie Madoff case comes to mind when one thinks of straightforward white collar crime. With losses estimated at $65 billion, it was the largest fraud ever recorded, masterminded by one shady financier. The details about the case, including the theft of savings from holocaust survivors, were especially distasteful. The judge who sentenced him described Bernie Madoff as an “extraordinarily evil man”. As noted by forensic psychologist Michael Stone, a scholar who has spent his life studying the worst crimes and perpetrators, Madoff was the first person Stone was aware of to be described as evil who hadn’t been convicted of murder. Violence done in different ways, evil all the same.
Madoff stole a great deal of money, bringing ruin to the lives of many people. Being the victim of a con, particularly when it involved deep trust, is a very personal violation, and the loss of the money one depends on, particularly in old age, makes one not unlike a wounded animal in the wild (It is no coincidence many business tycoons have large collections of art depicting predatory animals). Yet there is a seductive trap built in to the Madoff case. As unimaginably large as it turned out to be, it was a flagrant fraud perpetrated by a particularly odious individual. Unlike much of the byzantine world of high finance, it was easy for the public to understand, and so clearly outside the boundaries of law that Madoff could become the scapegoat for an industry rotten to its core.
There is an infamous video of former Lehmann Brothers CEO Richard Fuld, in which he gives a speech to his employees about how we’re going to “squeeze those shorts”, referring to the practice of short selling. Short selling refers to a transaction in which the buyer is sold an asset the seller had borrowed but did not own. Outside the world of finance, that just sounds like a theft, but inside this world, it is step one of standard practice, just the first of millions of balls which will be juggled in the air on the expressed promise they will all be caught and in the process adorned with gold. The next step in short selling is to profit from the plummeting in price of an asset by buying it back at its lowest point, a price decrease which has already been expected or engineered into the process. The “squeezing of the short” Fuld referred to is step three, in which either the original short seller or an enterprising third party buys up massive amounts of the bad stock, artificially inflating its price before dumping the whole pile of garbage on an unsuspecting sucker. Fuld delivers this speech less like a high school coach and more like an alien creature trying to imitate a Roman emperor. He ends by saying what he really wants to do is rip their heart out and eat it. Underneath the opaque language and the fine suits, its predator and prey.
Lehmann Brothers played an especially large role in the great financial collapse of 2008. While few bankers have been as vilified as Fuld, the practices he favored were the template for how the entire financial system collapsed, for how millions of had their hopes, their homes and their security ripped away from them, only to see the very industry responsible recapitalized in full. Madoff was one of the few who went to jail, a number which did not include Richard Fuld. Beyond lost jobs and homes, entire generations had their future curtailed. Perhaps the greatest loss of all was the social contract itself, the belief, however questionable, that law applies to all equally, and that acts which are criminal in nature are crimes under the law. Perhaps the greatest proof of the inherent violence of white collar crime is in how it can shatter the ability of people and nations to govern themselves, and could lead the very system which aided and abetted them into tyranny or social breakdown
