Law Commons^™

Neo-Classical Economic Theories, Methodology, And Praxis Optimize Criminogenic Environments And Produce Recurrent, Intensifying Crises, William K. Black

Faculty Works

Control frauds” are seemingly legitimate entities controlled by persons that use them as a fraud “weapon.” A single control fraud can cause greater losses than all other forms of property crime combined. This article focuses on the role of neo-classical economic theory, methodology, and praxis is optimizing criminogenic environments that hyper-inflate financial bubbles and produce recurrent, intensifying financial crises. Financial control frauds’ “weapon of choice” is accounting. Neoclassical theory, which dominates law & economics, is criminogenic because it assumes that control fraud cannot exist while recommending legal policies that optimize an industry for control fraud. Its hostility to regulation, endorsement …

Testimony Before The Financial Crisis Inquiry Commission, Miami, Florida September 21, 2010, William K. Black

Faculty Works

"Control frauds" are seemingly legitimate entities controlled by persons that use them as a fraud "weapon." (The person that controls the firm is typically the CEO, so that term is used in this testimony.) A single control fraud can cause greater losses than all other forms of property crime combined. Neo-classical economic theory, methodology, and praxis combine to optimize criminogenic environments that hyper-inflate financial bubbles and produce recurrent, intensifying financial crises. A criminogenic environment is one that creates such perverse incentives that it leads to widespread crime. Financial control frauds’ "weapon of choice" is accounting. Neoclassical theory, which dominates law …

How Trust Is Abused In Free Markets: Enron’S 'Crooked 'E’', William K. Black

Faculty Works

A market can have a lemon's problem when one party to the transaction has far superior information to the other and defects are not obvious. The classic bad car, the "lemon" led to the name for this theory. A lemon's market is inefficient. Both consumers and reputable sellers of high quality goods are harmed by the consumer's inability to distinguish superior goods. Frauds, who sell poor quality goods by misrepresenting quality are the only winners. Markets beset by lemon's problems may be improved by government intervention, which can aid both consumers and honest sellers.

In his article "How Trust is …