LYING FOR MONEY

An investigation of the world of scam artists old and new.

Fraud is largely confined to the white-collar sector, writes Davies, a former regulatory economist at the Bank of England. For the most part, it operates “by manipulating institutional psychology”—i.e., it all looks legitimate until it comes crashing down, surprising those caught up in the scheme. Fraudsters, he adds, take advantage of systemic weaknesses as much as the foibles of individuals, the kind of thing that could be remedied by due diligence, if only it were undertaken. Davies writes intriguingly of a minor mobster in New England who perfected the “bust-out,” by which he would set up shop selling toys or other consumer goods, paying his bills on time until December—then up his orders for the holidays, sell what they could, fence the rest, declare bankruptcy, and burn down the warehouse from which they’d been operating. That scam isn’t new, and to this day, it and related ploys are extremely profitable, embroiling people in burns such as the Silk Road scam—which, by selling illegal drugs via cryptocurrency, effectively shielded itself from consumer complaints when the goods never arrived. You need not be a drug lord, of course. One of the author’s case studies is Charles Keating, who took his savings-and-loan business through an elaborate scheme that involved a “clever means of cash extraction” that played on a systemic weakness built into capitalism: the demand to grow, grow, and grow. “The problem was, if you use fast growth to create the illusion of success, eventually the new loans get old and the problems catch up with you,” writes Davies in an entertaining narrative—and of course they did with Keating, Silk Road, and just about every other scam artist in the end.

Readers who like their true-crime stories laced with economics will enjoy these forays into the dark side.