The Best Way To Rob A Bank Is To Run It

The Best Way to Rob a Bank is to Run It.

In this paper, I will give a brief analysis of the book: “The Best Way to Rob a Bank is to Own One”. The book was written in 2005 and has been called “a classic”. Its author, William K. Black, is an American lawyer, professor of economics and law, and the executive director of the Institute for Fraud Prevention from 2005-2007. He is a criminologist, specialized in white collar fraud. Although he is a professor he has fought against corporate fraud and corruption since his several positions in regulatory organisms and his involvement in numerous judicial prosecutions.

The author chose the title: “The Best Way to Rob a Bank is to Own One” because it is a literal phrase said by an American bank regulator. I chose mine because I think it captures more the meaning of Black’s approaches. It shows that the strategy of a bank runner can consist in transferring its assets to himself and that the one that is in the best position to do this (rob it) it’s him.

The main concept of Black’s theory is what he defines as Control Fraud. The tern Control Fraud refers not only to the crime that is committed but also to the person that commits it. It is a type of fraud that eliminates the efficiency of the control mechanisms of a company both internally and externally and it is committed by someone in a managerial position within the company. Usually, in the United States, it is the CEO (Chief Executive Order) who carries out these types of felonies.

The main objective of Control Fraud is the looting of the company. It is about transferring its assets to the pockets of the one committing the fraud. The fraud then, takes the company to bankruptcy because its mechanism generates and deepens the company’s insolvency. The idea that the company’s bankruptcy is an objective pursued or at least an inevitable consequence of a strategy developed, is for me extraordinarily interesting. I thought that the 2008 crisis was the result of managers assuming high risks to obtain more short-term benefits. The author argues that besides this, the CEOs could be scamming their own businesses. In fact, according to Black, Control Fraud has been present in all the financial crisis of the United States since the 80s. It is the critical factor that explains the commercial bank crisis during Reagan’s term, the subprime mortgages phenomenon, and the housing bubble or the spread of toxic bonds.

To be able to carry out Control Fraud, one needs to have several elements combined: First, creative accounting; second, the connivance of various agencies of external control; third, a Ponzi-like scheme; and fourth, an unregulated environment. I will analyze each one of these separately.

The main weapon used by Control Fraud is the creative accounting. Its objective is to portray a company as very profitable when in fact it is insolvent. Creative accounting can do wonders like present uncollectible loans as very valuable assets. It can also make it seem like an insolvent-company acquisition is an increase on the buying company’s assets when it really is a liability. Black uses a metaphor that shows the magic power of accounting in a plastic way: the operations that are used to generate these effects have the form of “I will buy your dead cow if you buy mine”. Accounting makes the dead cows come back to life. What was dead on the hands of the seller becomes very alive in the hands of the buyer with accounting magic. The mechanisms used to make these types of miracles are very complex but Black explains them as clearly as it can be done.

Control Fraud needs the connivance of several agencies of external control. Audit firms are the most important ones but real estate appraisers or rating agencies can be fundamental in other cases. The author shows the general connivance of audit firms in cases of Control Fraud. This does not necessarily mean that they are consciously accomplices of the crime. They act this way because of the connivance and it is especially common with good costumers. A demanding attitude can cause them a client. The audit firms can also rely on other control organisms like the case of the inflated value of properties by appraisers. They can rely on these assessments to avoid responsibility. It is very common than one organization relies on another one to avoid responsibility.

Control Fraud generally leads to some sort of Ponzi scheme. Ponzi attracted investors by promising them big benefits and paying old investors the interests of the new investments. This was also done by Bernard Madoff. The famous pyramids that helped commit fraud to so many people were an example of a Ponzi scheme.

The lack of regulation generates an environment that promotes this type of fraud by fostering a criminogenic environment. This has been very clear in the case of the financial deregulation. The lack of resources available to regulatory oranizations promotes this lack of regulation. Of course technology, paid salaries to workers, etc. have decreased this radically since Reagan. The norms that survived deregulation cannot even be applied properly and the means to check if they are or not are not enough. The inapplicability of these scarce norms deepens during a crisis.

Black analyses one of these fraud cases that has to do with the loans granted to property promoters. A commercial bank authorizes the issue of a loan to a promoter of office buildings. The general director approves the operation. The future office buildings are assets that are hard to value, therefore, they have a value that is easy to inflate, especially during the housing bubble. The bank can find an appraiser to accept this value and the appraiser know that if they do not agree with the bank, they can lose a client.

The Ponzi scheme appears favored by deregulation. Banks designed loans that are only due at the

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