When the Tide Goes Out, Frauds Come Out

Why you hope the tide stays in

“It’s only when the tide goes out that you learn who’s been swimming naked“- Warren Buffett

Financial Crises like the current one bring a cold kind of justice to financial markets. Over-leveraged investments and sophisticated financial chicanery blow up magnificiently. Ponzi schemes unravel, as investors ask for their money back.

But even more mundane crimes come to light. As corporates watch their cash more closely, petty frauds see the light of day: the person with their hand in the till is caught in flagrante delicto. This season is no different. However, in keeping with the enormity of the financial collapse, new records for money crime are being set.

Bernie Madoff’s world-record Ponzi scheme is already old news. What is new news is the world’s largest identity theft operation. 130 million credit card numbers harvested in a monumental hack of retailers’ computer systems that makes fiddling with your expense claims seem positively saintly by comparison.

The more seedy side of crime is evident too. In a world of electronic and plastic payment, why does anyone use cash? Largely because it’s anonymous. Which suggests that a large volume of cash transactions are concentrated in illicit businesses like drug-dealing.

This theory is confrmed by the finding that up to 90% of paper money in the US is tainted by illegal drugs. Cash is king, indeed.