Responding to Deception: The Case of Fraud in Financial Markets
Author: Brooke Harrington (Max Planck Institute)
Publication: (Book) Deception: From Ancient Empires to Internet Dating
Focus Areas: Re-engaging with fraud, Victim behavior
Relevance: Fraud is a crime in which victims can be made to feel responsible for their victimization. This text challenges the belief that this is just a response of “dupes,” by exploring the example of consumers’ reactions to learning of wide-spread fraud in financial markets.
Summary: Understanding what leads victims of fraud to deny their own victimization is essential, as it is not uncommon, even among those who are informed, intelligent, and perceptive. Previous scholarly work maintained that reactions to evidence of betrayal must be either withdrawal (removing oneself from exposure) or inaction (therapy, “cooling”, or other identity-maintenance).
This chapter (and the research it describes), uses the example of investors’ reactions to the massive frauds unveiled in the early years of the 21st century to explain how we can – and do – re-engage in the very process that has conned us, and often refuse to believe that we have been conned – either by expressing a belief in the “larger structure” or by assuming responsibility for our own victimization (“I should have known.”).
This behavior contrasts with the once popular notion, as expressed by Alan Greenspan, that, “Trust is at the root of any economic system based on mutually beneficial exchange. In virtually all transactions, we rely on the word of those with whom we do business… If a significant number of business people violated the trust upon which our interactions are based, our court system and our economy would be swamped into immobility.”
The justification for this ongoing participation can take any number of forms, including necessity, self-delusion, or simply a weary acceptance that the pervasiveness of deception is such that, “if you can’t beat ’em, join ’em.”
Even while everyday investors profess distrust, they continue to invest, to participate, to spend. This research forms a foundation for a different theoretical and practical conception of consumer fraud and victimization.
First Paragraph: The economic history of the 21st century reads like a litany of Biblical plagues: instead of locusts, frogs, and boils, we have Enron, WorldCom, and Tyco, followed by the options-backdating scandal and now the subprime mortgage meltdown. It is perhaps even more disheartening to realize that American investors are still in much the same position as Emerson was over 150 years ago: dismayed to find themselves on the receiving end of deceptive corporate practices. BusinessWeek summed up this crisis in financial markets with the headline: “Can You Trust Anybody Anymore?”
Source Text: Hard copy only