Bill Mitchell — It is fuelled by stupidity … That’s not stupidity that’s fraud

Yesterday, we saw the movie – The Big Short – which is entertaining to say the least but depressing in its message that widespread corruption in the corporate and public sectors not only goes unpunished, but is handsomely rewarded. I have also been watching the documentary series Making a Murderer – which follows the stunning and mystery-laded treatment of an American man caught up in a corrupt criminal justice system in the US state of Michigan. In that series, it appears that the criminals are those on the wrong side of the bars. 

I thought The Big Short was the macro version of Making a Murderer, which is a microscopic account of a small town and its nefarious police and legal fraternity. But apart from the corrupt and plainly unethical conduct exhibited by Wall Street, the rating agencies and the bank that fed on all the ridiculous products that were created to make complex what, in fact, was a simple strategy – make money of real estate, there was also plain dumbness at the centre of the collapse and the crisis. Dumbness created by a dangerous Groupthink where patterned behaviour was inculcated into the financial system and, ultimately, came back to bite most of us.

While the representations of cocky, sharp, bright financial market traders with PhDs in physics or mathematics in a sequence of movies about the GFC and its aftermath lead to the conclusion that these conspirators knew what they were doing and were happy to profit for themselves at the expense of those they considered to be dumber, a recent academic research study has revealed that the traders themselves were oblivious to what they were doing and became entranced themselves by their own image. 

That is what Groupthink does – it builds an impervious layer for those trapped inside the group – they are insulated from reality, consistent logic, criticism and behave in self-reinforcing ways that may involve enlarged deviations from anything reasonable, smart or evidence based. Groupthink makes people dumb and compliant. The GFC was in no small measure the product of that sort of dumb compliance, which is not to reduce the enormity of the corruption involved. It, however, does reinforce my view that we should ban all these speculative products that provide no beneficial input to the real economy, if only because the sociopaths that are attracted to creating and selling them are too dumb to know what they are doing.… [paragraphing introduced for readability] 

Kind of sums it up.

However, I think that perhaps Bill overemphasizes the role of groupthink in the financial crisis overall. The FBI warned in December 2004 of massive fraud taking place in the mortgage market, and Bill Black and others have documented the prevalence of control fraud.

Sorting out stupid and complicit is not a simple matter, and the probably go hand in hand.

Bill Mitchell – billy blog
It is fuelled by stupidity … That’s not stupidity that’s fraud
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia