False Profits: Examining the Role of Fraud in Financial Crises

• In Event: White-Collar Crime at 75: Research, Theory and Policy II

Abstract

Within the context of academic research, the significant causes of financial crises have been most commonly discussed as reflections of either principal-agent problems or moral hazard. Policy conversations have therefore typically promoted economic theories which state that market forces alone are sufficient to provide adequate regulation of industry, implying that the formation and ongoing operation of regulatory agencies are unnecessary. However, empirical data from scholars such as William K. Black point to a very different conclusion – that fraud contributes significantly to financial crises and that the stockholders who are the ultimate victims are not accurately represented in economic work that supports deregulation. Through the employment of case studies from the 2007 global financial crisis and the Savings and Loan crisis of the 1980s, this study seeks to unpack the relationship between fraud, financial crises and regulation.

Author

• Christine Jacqueline Champion, University of California, Irvine