pants will not deal with an entity with a reputation for ting fraudulently even if the entity has not (yet) defrauded those market participants The people who lead frauds suffer disabling damage to their reputation that makes it impossible for them to mit future frauds even if they are not sanctioned Elite financial firms and independent experts will not mit Glenn Hall Jersey , aid, or permit frauds because of their interest in their reputations Elite financial firms and independent experts would lose their valuable reputations if they mitted, aided, or permitted frauds The least likely persons to mit frauds in elite institutions are their senior leaders When CEOs set a "tone at the top" that tone emphasizes integrity and reputationWhite-collar criminologists have found that eh of these assumptions is unreliable. Economists rarely study fraud or read the criminology literature, yet they often have powerful ideological "priors" about fraud.Easterbrook & Fischel (1991), the deans of applying law and economics to the study of corporate law, exemplify eh of these charteristics. They assert that "a rule against fraud is not an essential or ... an important ingredient of securities markets." That assertion is remarkable for its certainty, lk of exceptions, and certitude. It would be wonderful if the assertion were true. Fraud, one of history's great scourges, would (like polio) be eradicated. Financial markets would be efficient. Bubbles would be much rarer and far less severe. Unfortunately ED Belfour Jersey , the assertion is also unsupported and unsupportable. Fischel was an expert for three notorious control frauds during the S&L deble, where he employed the theories he and Easterbrook would soon write about in their 1991 treatise containing their remarkable assertion.Individuals, entities, society, and market participants are all far more plex than theoclassical economists assu. It is normal that the sa person is perceived differently by every person with a perception, and those differences can be polar. "Fraud" is one of the most variegated of tivities. One mon charteristic, however, is that fraudsters do not rely on fooling everyone. Many suessful frauds, such as the Nigerian "419 frauds", are obvious to nearly everyone, but "nearly" universal detection of the 419 frauds is not sufficient to prevent them from being profitable. Fraud detection is rarely universal because people vary in their susceptibility and because detection by one person typically fails to spread to most people.When most people Duncan Keith Jersey , including economists, think of "fraud" they generalize from what they know from personal life. Nigerian 419 scams, most things advertised on cable television after 10:00 p.m., and con jobs own on television dramas are what the general public thinks of when they consider "fraud." The nature of these frauds typically leads the victim to discover (albeit too late) that he has been defrauded. Victims of 419 frauds send "fees" or make "deposits" and do not get the $40 million in funds that the late oil minister allegedly stole from the Nigerian ernnt. The "debt counseling" service charges its victims fees, falsely claims that one need no longer pay one's creditors and leaves its victims even more insolvent.These frauds, if they sueed, almost certainly will be discovered by the victim. (There are important exceptions - many fraudsters prey on victims suffering from the earlier stages of Alzheir's, those who are functionally illiterate in Engli, or are incapable of understanding financial matters. Fraudsters profit from their selective reputation with their peers as criminals by selling their mailing lists of vulnerable victims to other fraudsters.) The fraudsters who run the 419 and debt counseling scams know that most of their victims will bee aware that they were defrauded. The fraudsters also know that they can continue to defraud others even though the victims learn that they were defrauded and even if the ernnt closes their business. Entry is exceptionally easy for eh of these mon frauds. If the ernnt uts down a debt counseling scam it can create a new na and be in operation again within a week. If the fraudulent CEO were banned from the industry he would recruit soone to serve as his "straw" and be bk in operation within a week.Victims of so mon, unsophisticated frauds typically do not discover that they have been defrauded. The classic example is the scam drug that promises to enlarge the penis. The victim buys the drug. He is desperate for the drug to work. It is easy for the victim to believe that the drug is working. The alternative is to feel inadequate, hopeless Denis Savard Jersey , and made a fool of by a con. This fraud illustrates a key point; an "unsophisticated" fraud can be highly suessful because it rests on an insightful understanding of human nature and vulnerabilities.Aounting control frauds closely approximate the perfect cri. To be a nearly perfect cri a control fraud must reduce the risks of regulatory and prosecutorial sanctions. They are normally not identified as frauds.Even when they are identified as frauds they are normally not sanctioned. Instead of destroying the CEO's reputation, aounting control fraud normally creates the CEO's undeserved reputation as a "genius." This is a subject deserving of extended treatnt in future columns, so I will only summarize the key points here in the context of mortgage lending. Everyone is reluctant to view a seemingly legitimate lender as a criminal enterprise The fraudulent CEO increases this reluctance by mimicking many corporate chanisms No overt conspiry is required - the CEO creates the perverse incentives and uses his ability to hire, promote, pensate, discipline, and fire to ensure that the recipe will be implented at the firm and by its loan brokers and that the independent experts will bless the fraudulent valuations and loss reserves The CEO can quickly convert large amounts of firm assets to his personal benefit -sufficient to make him wealthy - through seemingly normal corpora