Introduction
In this chapter, the author talks about the fraud in financial services in the United States of America that is entrenched in many industries including the banking sector, government, and public administration, and health institutions among others. According to the writer, this criminal activity makes the industry lose about 7% (Goldman, 2010). It paints a picture of unethical behavior which has become an integral culture of American financial services. This synopsis will therefore highlight Americans’ obsession to be rich, the spread of ethical erosion, corruption, and the genesis of fraud culture and the effect on entrenching fraud culture. Additionally, it will summarize how the evolution of frauds, the inside threats, the fraud triangle, variations in fraud, and declining standards at wall street have contributed to the fraud culture.
Getting Rich at all Costs
The author in this chapter emphasizes that historically for over 200 years, the odds have always favored the citizens of the United States to make wealth. The constitution, political stability, economic and civil freedom, spirit of optimism, ingenuity, and excellence together with the successes of first-generation of Americans have always inspired millions to pursue financial happiness. Thereby, making most citizens obsessed with the idea of working hard and committing to take risks in order to succeed (Goldman, 2010). However, some people according to the author have had the misconception that it is easier to become wealthier; and they subscribe to the philosophy that a person could get rich quickly. On the contrary, many with this entitlement have ended up learning the hard way, while some normally give up when reality hits them.
Further, there is a small but significant category of wealth seekers who do not give up, do not want to work, and are not ready to weather the inevitable stresses to get success. These individuals as stated in this chapter resort to unethical and illegal processes to achieve their financial goals. Collectively, their immoral misconduct has on average costed America about $1 trillion in financial losses incurred by institutions in the United States each year.
The Spread of Ethical Erosion
The writer in this chapter argues that ethical erosion among American societies since the 1930s gave rise to what is called “white-collar crime” and it has been manifesting in different forms. According to the author, some offenders steal from their employers, while others loot companies and drive them into total financial ruin. This culture of “corner cutting” almost drove America’s financial markets to a total shutdown in 2008 (Goldman, 2010). Essentially, the chapter highlights fraud culture had eroded America’s value system, charity, and benevolence and ushered in an “every-man-for-himself” mindset which over time has fuelled immoral misconduct among several citizens.
Corruption
From the chapter, the author further paints a picture that fraud and corruption have always been part of the United States of America’s culture. To lay bare the case, the writer in this chapter lists as an example some of the past scandals such as the mob, Tammany Hall, union corruption, the Savings, and Loan fraud of the 1980s among others. In the opinion of the author, this vice is prevalent among adults aged above 45 years and it has been rising in the 90s and 2000s compared to the 70s and 80s (Goldman, 2010). The result of fraud and corruption has led to the shift of some individuals from “moral absolutism” to “moral relativism” creating a situation where people can do everything to attain success thereby negating business ethics and standards.
Further, corruption according to the author introduced materialistic behavior among several Americans as so many people try to own almost everything in excess. Additionally, money-grabbing tendencies cropped up among individuals and it was infused with rationalization by big financial institutions after realizing that they could not resist the temptations to bend the financial regulations (Goldman, 2010). This situation allowed these corporates to exploit regulatory loopholes and committed big frauds that necessitated the explosive growth of “white-collar crime” in the 90s and 2000s.
The Genesis of Fraud Culture
The author narrates in this chapter that the confounding complex nature of stock markets, bond markets, derivatives markets, and virtual markets were the breeding pitches for tech-savvy driven money looting. It became much more advanced in the last decade of the 20th all through the 21st century (Goldman, 2010). Financial organizations during the time started cooking figures in their accounts books and inflating their earnings through various manipulations, thus entrenching this unethical behavior into their systems. This drastic immoral practice as explained in the chapter was driven by the need to preserve millions of jobs, as well as personal motives to fudge the numbers. Primarily, because in some cases executives’ pay was tied to the company’s stock prices. Meaning, professionals in the writer’s view turned into unequivocal financial criminals.
The Evolving Shapes of Fraud
Fraud is normally committed by both external forces and those working within the financial institutions themselves. Further, there are variations on the exact proportions of crimes that are either affected by either internal or external perpetrators, however, as postulated by the author, many of the frauds are internal arrangements. On the other hand, as illustrated in this chapter, external fraudsters are normally committed by money launders who include the far-flung global population of drug traffickers, members of organized crime, and illegal gambling operators among others. Despite the fact that financial institutions are responsible for monitoring their systems, it is quoted in the chapter that they are unable to stop this activity because they are not a party to them.
Additionally, the author points to organized external fraudsters such as dishonest customers and vendors, check forgers, counterfeiters, ex-employees, internet, and credit card fraudsters, crooked mortgages, and identity thieves. Together, the author points outs that they cause massive losses to firms and contribute to the cheating culture (Goldman, 2010). The worrying trend according to information from this chapter is that external fraudsters vary in the businesses, social, and geographical environments in which they work. This, therefore, makes it difficult to identify, study, and understand their common personal behaviors, and demographic character traits. However, they keep increasing in numbers and the damage they cause to financial systems is growing too.
The Inside Threats
According to the author, inside fraudsters are very few but can be a costly threat to business, society, and the American culture. There is the human component of internal fraud. In the opinion of the writer, about 20% of employees of an organization will always want to commit fraud whenever an opportunity presents itself. They will try to steal or deceive others to gain some financial benefits out of such actions (Goldman, 2010). The chapter splits internal fraudsters into two employee fraud and management-level fraud. The former is committed by the junior staff while the latter is perpetrated by leaders both all levels of management. To bring up the distinction, the author points out that management-level crimes result in greater financial losses to institutions than employee-level frauds because managers have more authority and thus, more opportunities to deceive in a company.
The Fraud Triangle
This factor is common to internal fraudsters at all levels and it is mostly driven by hard economic times people face that result in them getting motivated to commit fraud. When doing this, the author explains that individuals believe that they will not be caught while at the same time thinking that they are not doing any wrong thing (Goldman, 2010). It is explained in this chapter that the pressure of trying to survive, the existence of opportunity, and rationalization are key enablers of the fraud triangle. For example, financial difficulties such as large amounts of credit card debt, an overwhelming burden of unpaid healthcare, bills, large gambling debts, extended unemployment, or similar financial difficulties.
On the other hand, employees usually take advantage of the weaknesses in the control systems of institutions to commit crimes. At the same time the writer believes that some staff performs fraudulent activities because they either think that they or not wrong or that even if what they do is bad, they convince themselves that such actions could be corrected when they eventually return the money. Further, the author argues that rationalization could incorporate acts of self-justification if things are illegal due to the fact that its payoff is too lucrative.
Pressure
The element of pressure can take many forms for both the executive and workers levels within any financial organization. For instance, the writer believes that some executives raised their pay packs to unreasonably higher levels and this caused them to cut both legal and ethical corners to get their way (Goldman, 2010). Further, the ever-growing culture of short-term earnings swept the entire financial services as well as the businesses in the 90s and 2000s leading to executives cooking their accounts books to enable them to earn bonuses.
Opportunity
Lack of internal controls and regulatory frameworks to prevent chances of employees committing financial fraud. The author observed that at the middle-level poor controls enabled dishonest employees to falsely acquire loan application forms and other documents and some even colluded with rogue mortgage brokers to secure loans. Further, staff of some institutions fraudulently made financial statements and records to benefit from them (Goldman, 2010). Additionally, weak internal controls led to employees committing dubious and complex transactions that are not easy to understand or stop.
Rationalization
The misguided performance reward system in the United States is a psychological justification for doing what is wrong at all costs. The author views this to imply that unethical culture has been introduced in American businesses because of pressure natures and gives rise to fraud risks (Goldman, 2010). It is believed to be driven by the attitude called “whatever it takes” which appears to be consistent and steadily rising among many players in the financial service industry.
Variations in Fraud Triangle
There are variations in the fraud triangle among anti-fraud professionals called “Fraud Diamond” that includes the psychological motives for staff to commit a crime. It is explained in this chapter that it normally happens when a worker develops an attitude that they deserve to steal the money. Simply because their company was unfair in denying them promotion, pay rise, or as a result of mistreatment in the hands of an employer (Goldman, 2010). The author’s viewpoint is that the “fraud diamond” is deeply entrenched properly in America and that it will continue to tear the ethical foundations of the United States culture.
Declining Standards at Wall Street
Over the years’ operation standards at wall street have declined from what used to be the role model of international financial integrity to now what looks like the hotbed of number-chasing chaos. According to the writer, the lust for money became the root cause of the crisis witnessed between 2007 and 2008 (Goldman, 2010). It was fueled by Wall Street’s securitization of billions of dollars of fraudulently processed and default-prone loans. Further, the author says that this move generated outlandish paydays for everyone from top Wall Street executives to Main Street subprime mortgage brokers and if eventually crushed entire America’s financial institutions and systems. Additionally, the chapter narrates that personal greed created new traits and manifestations of a deeply established fraud in the financial service industry.
Conclusion
Fraud in financial services in the United States of America is entrenched in many industries including the banking sector, government, public administration, and health institutions among others. This criminal activity paints a picture of unethical behavior which has become an integral culture of American financial services. Firstly, it is catalyzed by the attitude of trying to get quick rich at all costs by individuals who resort to unethical and illegal processes to achieve their financial goals. Further, the fraud culture had eroded America’s value system, charity, and benevolence and ushered in an “every-man-for-himself” mindset which over time has fuelled immoral misconduct among several citizens.
Secondly, the fraud culture has been confounded by the complex nature of stock markets, bond markets, derivatives markets, and virtual markets which are the breeding grounds for tech-savvy-driven money looting. This practice entrenched the immoral behavior where financial institutions cook figures in their accounts books and inflate their earnings through various manipulations. Thirdly, fraud is normally committed by both staffs of different institutions or external forces such as the far-flung global population of drug traffickers, members of organized crime, and illegal gambling operators. Other networks include dishonest customers and vendors, check forgers, counterfeiters, ex-employees, internet, and credit card fraudsters, crooked mortgage, and identity thieves.
Further, the declining standards of Wall Street have crushed entire America’s financial institutions and systems. Its tendencies of securitization of billions of dollars acquired through criminal deceptions and defect-prone loans. The impact of this move by Wall Street enabled unconventional paydays for many players right from top Wall Street executives to Main Street subprime mortgage brokers. Thus, it finally crushed the entire financial institutions and systems of the United States of America. Lastly, there was evidence to the effect that personal greed created new traits and manifestations of a deeply established fraud in the financial service industry. The factor that seemed to fuel selfishness was capitalism which encouraged materialistic values, making many people practice unethical business behaviors and manipulate systems.
Reference List
Goldman, P. D. (2010) Fraud in the markets: Why it happens and how to fight it. John Wiley & Sons, Inc.