I learned a new term today: Control Fraud. (Thomas Frank writes about it at Salon.)
It’s where the top executives in a company ignore warnings because heeding them would limit their huge pay packages. It’s why Bank CEOs ignored the flood of liar’s loans that would collapse the bank because they were making huge bonuses based on the volume of loans, and they would keep those bonuses even if the bank failed.
Control fraud has appeared in other key areas of our economy. I’ve been asking for some time why the insurance industry has been so silent about the huge risks of climate change. Their companies would quickly collapse if and when the claims came in on submerged port facilities, flooded coastal cities, croplands flooded or desertified, and the many other catastrophes that climate scientists have warned about. Another kind of control fraud might explain this.
The thing is, during the Reagan era (which we’re still in) insurance companies stopped thinking of themselves as insurers. Such a gloomy, pessimistic role. Not fun at all. Sexier to be in high finance. So they transformed into financial giants. Now they weren’t in the business of insuring things, they were in the business of investing insurance premiums, and one of the best investments of all in recent decades has been fossil fuel companies. They earned bigger returns from fossil fuels and from investments that benefited from plentiful oil and gas than they did from insurance. Because the high finance guys were making the big returns they outshouted the doleful insurance worriers.
I’m guessing cheap gas was the bribe the giant food companies were taking. Food supplies are the most at risk from climate change. If the climate moves away from your thousands of grain farms or from your elaborate grid of grain depots and rail lines, you are out of business. (Business always matters more than famine.)
But it was only in the past year that Lloyds of London and a few other insurance giants began pushing warnings and insurance rates based on climate science warnings that have been growing louder for the past two decades. General Mills finally made a clear statement warning about climate change.
Why this long delay? Why do huge companies run by intelligent men and women choose to ignore the best information? Why do they ignore science? Because the money they get now is more persuasive than the ruin they might experience later. And it will kill a lot of other people before it hurts them.
In the area of financial collapse the warnings were muted because our financial intelligence is corrupted by this same Control Fraud. Economists are paid by the financial giants. They are flattered by the friendship of the top people taking these Control Fraud bonuses (or should we call them bribes?). University economists and professors are sitting in chairs endowed by the same finance CEOS who sit the top of the corruption. Financial writers are their priesthood, they worship these big shots.
Why doesn’t President Obama’s Justice Department go after these people? He is. But the cases are brought slowly and in parts. Complex cases are more often settled and the settlements are growing larger. The larger the target the harder the prosecution. I hope I am seeing the unfolding of a longer game.
Still, there ought to be long term criminal jeopardy for Control Frauds of this kind. No statute of limitations. If there's no end to college debt collection, there should be no limit to this kind of prosecution and recovery. These cases should also be very class actionable––lots of victims, and those victims have descendants. This legal reach would also need to be global, because these billionaires keep their fortunes overseas. The irony is that trillions of their ill-gotten gains are held in banks on islands that will be underwater when the oceans rise.
Labels: climate change, climate science, Control Fraud, financial crime, insurance companies, the 1%