Comments on The Era of Fraud

broken link

One of the genetics researchers I was talking to at the 50th anniversary of Medical Genetics at the UW pointed out the major problem he and his Chinese research lab (he's Scottish, by the way) have is the quality and sourcing of any pharmaceuticals or any materials.

The only way they can be sure what they get is really what it's supposed to be is to follow it every step of the way from the source to the lab, because cheating and other fraudulent practices are endemic in current Chinese supply chains.

Chinese corruption is the prorblem, nothing else.

This kind of fraud is hardly unique to this era; adulteration, for example, had a long history in Victorian England and the US. If anything, an era when it does not exist is an anomaly.

Nicely done analogy.

Good post.

Nice post

The Heparin scandal disturbs me a great deal. But let's not forget that American companies sell broken shit to China too. I've seen it happen firsthand with consumer electronics that didn't pass QA for the American market. Capitalism requires the rule of law; when there's minimal downside to cheating, people cheat.

You're beginning to sound like Charles, towards the end there.

@8. You put your finger on it. Laws and regulation are the only way to force solutions rather than frauds.

@1. Thank-you. I've corrected the link.

The modern mania for deregulation, promoted under the sweet-sounding aegis of 'free-trade' ("see, it's got 'free' right there in the name! Who could be against freedom?") seems to inevitably lead to a Yankee-Trader style, caveat-emptor marketplace. It does not require an overarching, malevolent conspiracy to bring about effects like this, just an atmosphere like the one you describe, where the upside of unethical behavior outweighs the downside. Laissez-faire regulatory approaches seem to inevitably breed many little conspiracies, of factory managers substituting melamine, builders substituting substandard concrete, bonds traders substituting junk bonds. It doesn't require malice, just greed and a profound lack of foresight. The malicious effects take care of themselves.

The idea that government oversight of business is nothing but an unnecessary hindrance is such transparent bullshit that it's amazing how thoroughly it has taken root in the public consciousness. With story after story of the disastrous effects of this approach breaking on a daily basis, it boggles the mind that media reporting on these undlessly unfolding crises so rarely bothers to put two and two together.

the problem with government oversight as it is and presumably would be in the future is that is so fundamentally conflicted about what it's job is as regulators. When the government finally gets a mandate from those that elect people to positions rather than who funds campaigns, maybe regulation will be sufficiently and practically applied.

It isn't enough to say more regulation is required if the net effect doesnt change.

Exactly, @11. But you also need competence, something that GOP appointees never have and never will.

i think regulation actually needs some teeth. more regulation of handslaps isn't actually encouraging anyone to stop fraudulent behavior, it merely makes it a cost of doing business. if regulation had the balls to penalize people in ways that mattered to the person and the business, we might see less of it.

Two distinct issues exist here, the failure of the Hobbesian capitalistic state (embodied by contemporary China) to efficiently produce legitimate products--as the most corrupt have such an advantage--and the inability to regulate the impossible into existence.

The world, with declining natural resources, needs to become six times as productive in a decade or two; it's not clear this is possible. It certainly won't happen in a regulation-free war of all against all. The only chance is with some rules to weed out the most heinously corrupt.

Nor would it happen if you simply demand the impossible--like asking all new cars to be powered by perpetual motion engines.

is it impossible to ask for people to enforce rules in existence before creating new ones they would subsequently half- assedly enforce?

I'd guess that the rules are necessary, but not sufficient to get where you want to go re corruption. Culture is the ultimate arbeiter of behavior, not law. Law exists merely to protect the culture from being damaged. Our long lasting state of lawlessness and lack of real justice (in the financial and commercial realm) has damaged our culture such that dishonesty seems normal - the culture has been bent for so long that it's now stuck that way.

Changing the laws is necessary, but it may take some time for the culture to respond. And as Bellevue points out you need a willing enforcement arm, and the Bush admin has been running around with a scythe whacking away at that part, too...

The issue of culure is an intteresting one I think there might be merit with that, but i'd also point out that the government hasn't provided any answers into shaping the incentives to not be skewed towards causing calamity.

Like Realtors for instance. Should an agent that sells a product that is subsidized by the government be held accountable if they use deception to encourage sales (I hate NAR for all the lying and phoniness they spout)? Or Mortgage Brokers? or appraisers? one of the problematic obstacles to squashing the bubble before it started was that local governments benefitted from these inflated prices and appraisals through property taxes...

Its like eexpecting a warden to stop prisoners from fighting when he makes money by orchestraring fights.

you know what should really piss all of you off? the bear stearns shit. http://market-ticker.denninger.net/2008/03/insanity-of-bear-stearns-jpm-continues.html

Charles is beating off to this post right now.

#4

Do you mean that coke was not 100 per cent pure? God, the guy lied to me.