L. Randall Wray: Why is the Obama Administration Incentivizing Fraud?

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L. Randall Wray: Why is the Obama Administration Incentivizing Fraud?

L. Randall Wray: Why is the Obama Administration Incentivizing Fraud?

“As I’ve argued, fraud was and still is absolutely rampant throughout every link in the home finance food chain. It is hard to point your finger at the worst of the lot but I think it is probably MERS.”


EconoMonitor-

Economists are often preoccupied with incentives. The Global Financial Crisis and the ensuing policy response can be analyzed from the perspective of the incentives that produced behavior to bring on the crisis, as well as the incentives created by the bail-out that rescued the miscreants.

Where are we today?

Stoking the fires that created the GFC, of course. We’ve set up the perfect storm of what my colleague Bill Black calls a criminogenic environment—that is, one that promotes, rewards, and sustains fraud. While President Obama’s administration certainly cannot be blamed for all the fraud that led up to the GFC, the policy response on his watch has rewarded the fraudsters.

Many years ago on my first visit to Italy two Italian friends told me of their experience in London. They had stopped on a street and were engaged in a deep and long-winded discussion. After a spell they paused the argument long enough to notice they were standing in the rain near a bus stop. Queued behind them, also in the rain, was a line of polite British folk waiting for the bus. None would dare to move around the Italians to get under the shelter. The Italians, not known for waiting on line in an orderly fashion, recounted this as a hilarious example of British irrationality. Sure enough, when I was leaving the Rome airport some months later, the gate attendants had to halt the boarding process three times as they pleaded with passengers to back off the gate sufficiently to allow boarding to proceed. Passengers had pressed so tightly against the ropes that no one could pass through, and a great roar of laughter emerged from the crowd each time the attendants harangued them to please line up.

[ECONOMONITOR]

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