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A recent study confirmed that control fraud was endemic among our most elite financial institutions: Asset Quality Misrepresentation by Financial Intermediaries: Evidence from RMBS Market. Tomasz Piskorski, Amit Seru & James Witkin (February 2013) (“PSW 2013”).
The key conclusion of the study is that control fraud was “pervasive.”
[A]lthough there is substantial heterogeneity across underwriters, a significant degree of misrepresentation exists across all underwriters, which includes the most reputable financial institutions.
Finance scholars are not known for their sense of humor, but the irony of calling the world’s largest and most harmful financial control frauds our “most reputable” banks is quite wondrous. The point the financial scholars make is one Edwin Sutherland emphasized from the beginning when he announced the concept of “white-collar” crime. It is the officers who control seemingly legitimate, elite business organizations that pose unique fraud risks because we are so loath to see them as frauds.
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“mortgage originators were told to do whatever it took to get loans approved, even if that meant deliberately altering data about borrower income and net worth.” Everyone knows what happened, yet the same people who codified this behavior are still in power, and are still making harmful decisions. At a very basic level and after seeing so many people needlessly harmed, a deeper sense of illegitimacy and frustration with our so-called representation results.