Return of the ‘Bezzle’Bernard Madoff has been getting all the coverage, but Marc Dreier pulled a pretty blatant scam recently too.
First come the losses and the stupidities committed by bankers working for their own self-interest. Then come the rogue traders, unable to ’fess up on market bets gone wrong. The last to arrive is the bezzle.
That was John Kenneth Galbraith’s word for the outright frauds — the “inventory of undiscovered embezzlement” — that are built up when markets are good. These can be kept hidden for as long as the lies hold up.
The perpetrators are in no hurry to be uncovered, as they face public wrath, not to mention the possibility of many years behind bars. But truth will out.
For students of Galbraith’s seminal account of the 1929 stock market, “The Great Crash,” Mr. Madoff’s suspected fraudulent accomplishments shouldn’t come as a great surprise. In the Galbraith model of a speculative cycle, good times spawn the excess and corruption that eventually bring them to an end. The last good times were especially profitable, fertilizing the ground for especially large frauds.
If history is any guide — and if the late economist’s theory is to be believed — the first frauds to be discovered are not the largest. Mr. Madoff’s losses could be just a foretaste of what will eventually be exposed.