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20170527 – Why They Do It



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The main idea here is to investigate cases of high profile white color crime by using availability and even eagerness of people like Bernie Madoff to provide information and interact with author. The result of investigation is a nice presentation of causes of actions that are seemingly irrational such as selling business information for insignificant amount and loosing as result multimillion careers. The book also reviews history of creation of white color crime and how the very notion of insider trading, business report falsification, and misleading statements changed over the last century, becoming significant factor in business behavior.


Prologue Managing in the Gray

The prologue is about author establishing contact with a few famous white collar criminals and surprising interest they expressed in maintaining such contact and opening up about their life and causes of their actions that would normally be incomprehensible for outsiders. Probably the most intriguing part here would be an attempt to answer question why individuals in possession of multimillion income and wealth risk everything and get caught committing illegal actions that would bring them very small amount of money comparatively with their wealth, if any money at all.



  1. “Not… bucket-shop operators, dead-beats, and fly-by-night swindlers” Pillars of the Community

It starts with the story of KPMG senior manager who was convicted for insider trading: providing tips to his friend in exchange for purely symbolic amounts of money in return. Then author retells story of the first crusader against white color crime Edwin Sutherland who started this crusade in 1939 when accounting tricks, insider trading, and such just were not considered a crime. Moreover company typically preferred to cover up even accounting fraud, considering publicity more damaging than fraud itself. Eventually this crusade led to success when in 1960s white color crime began to be treated as crime.

2 “Guys… don’t drop out of windows for no reason” Creating the White-Collar Criminal

This is about change in attitude to white color criminals in USA where by late 1980s it become cause of massive investigations and publicity, especially use of RICO against financial crimes pioneered by Giuliani in New York. This change in attitude also started expanding throughout the world, significantly changing business practice.


3 “Inherently inferior organisms” Bad People Making Bad Decisions

This chapter looks at criminality and historical development of its understanding starting with Lombroso and going all the way to contemporary research of brain actions and free will. The summary is: people are complex creatures and could not be divided into good and bad by their biological endowment.

4 “I thought it was all going to pass” A Press Release with Consequences

This chapter used to demonstrate that white color crimes are often defined by purely legalistic environment when individuals not doing anything that would even remotely could be called bad by normal morality get nevertheless into serious legal trouble. This demonstration is done by using example of pharmaceutical company executive who made very cautious announcement about results of drug testing, which lawyers successfully turned into crime.

5 “If you don’t take it then you will regret it forever” The Triumph of Reason

This refers to XIX century thinker Gabriel Tarde who promoted idea that criminality is not biological, but rather social phenomenon and that people learn it from each other. Here is a nice diagram for morality by profession and development:

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The interesting thing here is that moral philosophers are highly moral theoretically, but in real live circumstances their behavior not that different from others. Eventually human behavior seems to be defined by cost benefits analysis, but there is a catch. Either costs or benefits are not necessarily monetary or even quantifiable, reside in the head of human who is making the decision, and not observable externally, consequently making behavior unpredictable.

6 “I never once thought of the costs versus rewards” Intuitive Decisions

This is about relations between complex machinery of human brain and decision-making, which often happens at subconscious level with conscious reasoning used just to justify it.

7 “I never felt that I was doing anything wrong” Overlooking Harm

This is about famous psychological experiments with choice of who would get hurt: 5 people vs. one with train accident, fat person on the rail and such. The important point here is that harmful decision-making is a lot easier in abstract rather than in reality, with manual effort to implement it making it even more difficult.

8 “If there was something wrong with this transaction, wouldn’t people have told me?” The Difficulty of Being Good

This is about sometimes occurring conflict between norms and laws. In such cases business executive can easily get in conflict with law by acting in usual way according to accepted norms without even thinking about it. Author uses a few cases including McKinsey’s Kumar, Tico’s Kozlovski, and DVI’s Garfinkel to illustrate it.



This part starts with reference to LIBOR fixing as an example of business as usual leading to criminal activity. In this case culprit feel no guilt and do not even try to hide activities they consider just normal business activities.

9 “You can’t make the argument that the public was harmed by anything I did” Misleading Disclosure

This provides examples of misleading disclosure such as MBS’ Litvak misleading investor about price of shares, Obama’s about “keep your doctor and insurance”, and Roosevelt while driving country into WWII. The last two had kind of justification for their actions being for the bigger good, obviously in their own opinion. This staff works for politicians, however it did not work in case of Bilzerian, who conducted acquisition of company without fully disclosing his ownership level. For him similar justification and being absolutely convinced that it would not hurt anyone, did not work so he went to prison.

10 “Unfortunately, the world is not black and white” Financial Reporting Fraud

This is about the gray area of financial reporting in which good accountant can easily shift data about company performance one way or another. Author provides a charming diagram showing how small losses are shifted within statements so company image with investors would not suffer:

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11 “You go from just being on top of the world” Insider Trading

This is about insider trading which is only recently become a crime. Author provides example of how it practically become a minefield for business when businessmen could be blown up without really being guilty in anything.

12 “I thought we were freakin’ geniuses” Deceptive Financial Structures

This is more sophisticated case of intentional building of super complex financial structure in Enron. This structure allowed such distortion of financial statements that it became impossible to identify real financial position of the company, feeding illusion of it being profitable, when in reality it was drawing in debt.

13 “You couldn’t stop because you would wreck everything” The Ponzi scheme

This is about evergreen Ponzi schema with two examples illustrating it. One example of Marc Dreier who was clearly running a Ponzi all the way until he was caught trying to present himself as another person in order to obtain more money. Another one is of Sanford bank, where it was not clear if it really was Ponzi schema or it was legitimate business that was ruined by government interference.

14 “When I look back, it wasn’t as if I couldn’t have said no” Bernie Madoff

The final chapter is about the king of all Ponzi schemas – Bernard Madoff. This is a very interesting case when initially legitimate business had stumbled and its owner could not accept failure, even if it would have very limited if any impact on his wealth, so he moved business to Ponzi, initially hoping it will recover in a cycle or two, but then just continuing deeper into criminality because of inability to face reality.

Conclusion Toward Greater Humility

The conclusion is about seeking better ways to avoid pitfalls of white color crime. One of them is improvement of business ethics that in contemporary conditions should substitute old time control of community that would make any misconduct widely known, preventing future business. Another one is to seek disagreement and pay attention to dissonance. Finally author stresses importance of compliance and prevention of feeling of invincibility that often develops in people in high places.


It is an interesting account of while color crime development that actually occurred after WWII. There are two very different groups of criminals here: one is people involved in real crime when they intentionally lied to investors, created Ponzi schemas, and such and another one: people who become criminals due to complex rules violation. Author seems to be making no real differentiation between these two groups, but I think such differentiation is critical. The first group should be prevented from cheating, while the second one should not be subjected to complex rules in the first place.

Actually I do not believe that government should use its power of violence to establish rules. The rules should be established by business people who are participate in the market. This way the rules will be meaningful and minimalistic.

The government should use its power of violence to collect and distribute information to market participants. Otherwise the existence of some supreme rules maker that does not depend on business success or failure gives bureaucrats huge amount of power without any responsibility and encourages them to suppress business activities or at least chill them. The opportunities for bribes consequently become very high and I am sure they are exploited in direct proportion with the power of bureaucracy. Good example is the case of Madoff and any other Ponzi scheme. If instead of making this illegal, the government violence should be used to obtain complete record of transactions and present this record in the digestible form for everybody, which would make the problem immediately obvious. Actually the move away from transparency of statements to transactional transparency would make white color crimes all but impossible.



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