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Today on Bloomberg Radio I heard Professor James K. Galbraith discussing the need to hire 1000 investigators with the FBI to address financial fraud.   Immediately I went to his website to discover that just a week ago he testified before Congress.    This compelling testimony is spot on.  Here’s an excerpt:

Formal analysis tells us that control frauds follow certain patterns. They grow rapidly, reporting high profitability, certified by top accounting firms. They pay exceedingly well. At the same time, they radically lower standards, building new businesses in markets previously considered too risky for honest business. In the financial sector, this takes the form of relaxed – no, gutted – underwriting, combined with the capacity to pass the bad penny to the greater fool.

Dr. Galbraith’s focus is on inequality.  It is important that someone focusing on inequality also recognizes processes and systems that foster criminality also perpetuate inequality.  Liberal or Conservative, we must recognize that power corrupts and the axis of power between Wall Street and Washington is intact.  Freedom and opportunity are choked off in such an environment.   It is incumbent on all of us to demand that the strongest possible actions be taken to break the stranglehold of this corruption.

As a banker, I acknowledge that elements of systems that perpetuate fraud are alive and well in our internal systems.  Ofttimes internal fraud is not a crime.  Money earned according to incentive formulas, yet exploitative, which has the consent of management, is probably not a crime.  But a system that supports such activity, is also a system that will produce criminals.

Control frauds always fail in the end. But the failure of the firm does not mean the fraud fails: the perpetrators often walk away rich. At some point, this requires subverting, suborning or defeating the law. This is where crime and politics intersect. At its heart, therefore, the financial crisis was a breakdown in the rule of law in America.

Some appear to believe that “confidence in the banks” can be rebuilt by a new round of good economic news, by rising stock prices, by the reassurances of high officials – and by not looking too closely at the underlying evidence of fraud, abuse, deception and deceit. As you pursue your investigations, you will undermine, and I believe you may destroy, that illusion.

But you have to act. The true alternative is a failure extending over time from the economic to the political system. Just as too few predicted the financial crisis, it may be that too few are today speaking frankly about where a failure to deal with the aftermath may lead.

In this situation, let me suggest, the country faces an existential threat. Either the legal system must do its work. Or the market system cannot be restored. There must be a thorough, transparent, effective, radical cleaning of the financial sector and also of those public officials who failed the public trust. The financiers must be made to feel, in their bones, the power of the law. And the public, which lives by the law, must see very clearly and unambiguously that this is the case. Thank you.

I am one lone, marginalized voice.   Here is another.   This man, had his warnings been heeded, may have saved the catastrophe in the Gulf.  But his warnings were not heeded.   He was labeled a malcontent and forced out.  His managers probably believed there was not really any harm in cutting these corners on Blowout Preventer tests.  After all, the company really knows what’s best.  The risk is small. Who are we to question?  Who are we to not “drink the Kool Aid”?

We are the people.