A Rose By Any Other Name...

Corporate malfeasance, collusion, corruption are on everyone's lips these days

. Some of us want blood, those who are more circumspect say: we can do little about water that has flowed under the bridge; we must take steps to prevent this from happening again. What comes next? Better regulations and new laws.

Laws, unfortunately, are always reactive. They are designed to protect against what has happened before repeating itself in the future in the same precise specific way. It is very good at preventing precise repetitions; however the clever swindler is likely to try the window once he finds the door locked. In the meantime these laws are just another restriction, another form to fill, something to be to debate about endlessly in the houses of government.

Regulations and laws worked well enough against individuals, but they are of little help when there is widespread collusion in the system. The key to collusion is that it needs to be pervasive work. The circle must be closed, otherwise it is not sustainable. The decision not to prosecute past offenders works to ensure the circle remains intact.

There are controls which can be used to detect pervasive collusion; they are based on searching for anomalies, patterns which is simply too consistant to be authentic. Life is random; any naturally occurring series of events has a distinctly disordered quality to it. Once we start to see an orderly pattern of any kind begin to emerge, it is an excellent indicator a presence of manipulation of one kind or another.

Take the case of Bernie Mad off. His investments showed an amazing consistency. Despite tumultuous times his results remained perfectly steady at a very conservative rate of return. This was precisely what drew investors to him. Sophisticated investors know that unrealistically high returns are the telltale signs of chicanery. By extension, consistent conservative returns over an extended period of time are an indication of prudence and honesty. This blinded all to the 'elephant in the room', that this perfect consistency itself was anomalous.

Players are magicians and misdirection is their stock and trade. While our attention is held directed in one direction they are busily coming up with a new scan to hit us with somewhere else. This emphasis on regulations is itself a kind of misdirection as it engenders a completely false sense of security. Conversely, we have every reason to be wary, given that the culprits are still at large, and have only profited from their schemes. At the soonest opportunity, they are bound to do it again. No doubt it is already in the works!

by: John Berling Hardy.

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