October 17, 2009
Contemplations on Corporate Crime
For anyone who has been with me (and the wretched conglomeration of loneliness and despair known as the Realm) long, the knowledge that I am irrationally obsessed with criminality and lawlessness should not come as a surprise. Indeed, I have on two previous occasions forayed into the emerging field of lawlessness and economics (L&E for short), first in 2004 by considering the possibility of a career in selling smack, and then in 2008, by pondering the viability of an otherwise upstanding young gentleman1 as myself pursuing a life of computer crime. Today, I expand on these seminal works through a groundbreaking analysis of yet another excellent opportunity for those with lots of good ol' American ingenuity, few morals, and an uncompromising work ethic, namely financial crime.
Such crimes, of course, come in many varieties, and in this Article I will consider only three sorts that I believe to be the most lucrative (i.e., possessing the highest net-present value)—Ponzi schemes, insider trading, and conspiracies to restrain interstate commerce2 (specifically, price fixing). At the outset, however, I must note the benefits of the entire genre over the other sorts of criminality I have previously considered. Not much need be said about the first sort—the high transactions costs involved with being a low-level dealer in a substance such as smack, as well as the severe penalties if caught and the high possibility of experiencing grievous bodily injury or death, make this a decidedly low-value venture for all but the most desperate.
The question of whether to pursue computer or traditional financial crimes is not as easily answered. Both have the benefits of relatively low detection rates and only marginal increases in risk of dying or being seriously injured. Ultimately, however, financial crimes edges out computer crime, I think, when considered from behind the proverbial Rawlsian veil of ignorance.
Financial crimes, as a general matter, are not theoretically difficult to contemplate. While the execution might be both difficult and clever, the basic idea should be understood by just about anyone: the difference between a two-bit con man and a grand Ponzi-schemer is measured in degrees of brazenness and sophistication, not skill or difficulty. To the contrary, computer crimes are all about knowledge and skill. Breaking through multiple layers of hardware and software security is no joke, and inevitably requires an advanced understanding of computer science and mathematics. And herein lies the problem: no matter how much money one manages to make wearing his or her black hat, the social isolation and sexual frustration concomitant to such advanced knowledge in computer science will almost never be worth it. (Seriously. Take it from someone who knows.)
Having dispensed with the predicate discussion of which sort of criminality generally is the most value-added, I now turn to the specifics, namely, which sort of financial crime is the best to pursue. The first—Ponzi schemes—are easily dispatched as not worthwhile. Although certainly the easiest of the three to commence, execute, and administer, this form of criminality also carries with it several problems, the most important of which is that it is played out! Ripping off your own people while living large is so 2008! Bernie may well have ruined it for all of us. I mean, in this day and age, I am more likely to invest with a Nigerian prince than a fellow Indian touting 12 percent returns and an advanced trading strategy.3 Indeed, if 15 percent returns are mentioned, I might just shoot the guy and save everyone the trouble later (so beware browns!).
The calculus between the other two—insider trading and antitrust violations—is not so simple. Both seem to be en vogue these days if the Wall Street Journal is to be believed—just today there were articles on both (subscription required). Style, therefore, is not a consideration as it was with Ponzi schemes. Both, anecdotally at least, also seem to generate big returns for those who engage in them, and absent rigorous empirical study, it is hard to know which is more lucrative. We are thus left to consider only intangible qualities.
Two years ago, I might have been inclined to say that the former is way more awesome. I mean, what's not to like about Wall Street, right? Gordon Gekko was a pretty sweet dude, and as any good young capitalist seeking to accumulate power and wealth relative to and at the expense of those around her could attest to, greed is definitely good. Plus, most insider-trading rings also seem to have all kinds of cool spy shit going on, which, of course, is of tremendous value to me, the thirteen-year-old trapped in the body of a sixteen-year-old.
Today, however, I am more likely to go with antitrust violations as the best sort of financial crime to pursue. While the concept seems simple—agreeing to fix prices so you can rip off your customers is not that hard a concept to grasp—the execution requires a lot of skillful maneuvering. The steps, as I see them, for a successful price-fixing scheme are as follows: (1) obtain significant market power in an obscure product (lysine? really? that's not even my favorite amino acid); (2) arrange a meeting in a smoke-filled hotel room with other market players in said obscure product; (3) agree to fix prices; and (4) profit. With very low detection rates and a barrage of ways in which to obfuscate and dress up brazen criminality as mere economic reality, this pursuit simultaneously presents an opportunity to lead a life of crime and use your mind (which appeals to my intellectual side, as it were). Finally, antitrust invokes a nostalgic remembrance of a bygone era in a way insider trading simply cannot. Gordon Gekko may have been a sweet dude, but the robber barons of the Gilded Age were true rock stars—their decadence is unlikely to ever be matched, however hard modern-day wannabes may try.
So, what's the takeaway, then? Well, for the enterprising young entrepreneur, it seems antitrust is the way to go for a life of infamy and awesomeness. For those, like me, adrift in a turbulent sea of mediocrity and hopelessness, however, neither is probably the appropriate choice. I am far too awkward to successfully pull off an elaborate insider-trading scheme and far too inept to obtain market power in anything, no matter how obscure. So, in my hapless and lonely state, I am once again left to turn to the only place where I can find solace—computers. So, if when this law stuff does not work out, you know where I will be—smashing the stack for fun and profit. Remember, real men (again, I use the term loosely) exploit buffer overflows; cross-site scripting is for poseurs!
^ 1 I use the term loosely, of course. I am neither very young nor in any way a gentleman.
^ 2 Restraining intrastate commerce is for amateurs. Go big or go home!
^ 3 The whole discussion is moot regardless as I am essentially insolvent at the moment. Yay for graduate education!