A different kind of Laffer Curve:

“ ...fraud is an equilibrium phenomenon – or, as Davies likes to put it, "It is highly unlikely that the optimal level of fraud is zero."..”.

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May 26, 2023·edited May 26, 2023

I wonder if normal people understand the degree to which "'product demo' which is just a kludged-together sequence of smoke and mirrors" is completely normalized, perhaps even lionized, in tech. One of the war stories the old-timers at my work love to tell is how 10 years ago as a scrappy startup they landed our first big logo and contract with a pitch deck and product demo for Big Established Corporation that promised all sorts of things we hadn't built yet. Of course then we went and built it. Funny thing, the old-timers at my previous job at a different startup had almost the exact same story to tell. All exciting products in tech seem to start with an over-optimistic product demo.

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"A ‘corporate drone’ would be someone whose only purpose was to fertilize the corporate queen and I can’t think of a single company that’s managed that way."

I have several Ask A Manager links for you.

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> Having bitcoin trapped in escrow can be a problem when the price of bitcoin is volatile, and to make up for this volatility, sellers who used escrow frequently had to charge higher prices.

This was probably just an excuse, as Silk Road 1 offered hedging to eliminate volatility as a concern. (Which interestingly, turned out to be a spectacularly bad idea and led to huge losses from bad trading + MtGox account hacking/seizure, but inasmuch as DPR1 ate the losses and it was secret until after MtGox's collapse, couldn't've mattered.)

> They don't, technically speaking, have something that could be considered a "product" yet, but they do have a really cool idea for something that they claim might one day become a multi-billion dollar company, even though the thing that they're suggesting has never been done before.

This is not really what happened with Theranos. The original idea for Theranos as described in _Bad Blood_ was completely reasonable (along the lines of a WiFi-enabled bandage, and there's likely a bunch of stuff on the market now like it). The microfluidic blood testing came later as a pivot (this is part of why Theranos was so *old*). Where Theranos starts going off the rails into the 'snowball' is when the bloodtesting kept not panning out while social proof kept accumulating and sophisticated investors declined to invest and unsophisticated non-biotech whales ignored the red flags (like not even being allowed to do a blood test themselves - the reason why Google Ventures passed on Theranos). You only need one Rupert Murdoch whale to make a casual decision and rack up a very large total capitalization.

The FTX description also seems wrong. The problem with Alameda Research wasn't that the hedge fund turned out to be a ponzi and had paid out all its investments to prior investors in Alameda. (Did they even *have* external investors at the terms quoted at such length? I was under the impression Alameda itself didn't even have external investors at the time of collapse and it was exclusively owned, like the most-successful hedge funds tend to be, by its employees/partners, like SBF.) If it had been, that would've been those sophisticated investors' problem and no one else's. It's not Alameda's investors who are suffering all the grief from FTX, it's everyone else. In this post's typology, the Alameda/FTX thing is (at least) a threefer: a confused stew of long firm (insolvency of both firms but continuing to do business long afterwards), control fraud (commingling funds, corporate structure), and market crime (special non-liquidation and margin call/negative balance privileges). FTX depositors weren't the primary beneficiaries, but the Alameda/FTX principals like SBF and their counterparties like everyone they paid advertising to and better traders who were using FTX to enthusiastically screw over FTX & Alameda's incompetent traders.

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Clearly the correct heuristic is to fund Harvard undergrad dropouts (Bill Gates, Mark Zuckerberg, Edwin Land - co-founder of Polaroid) and Stanford PhD dropouts (Elon Musk, Larry Page, Sergey Brin, Andy Bechtolsheim).

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> A big part of the fun of Lying For Money is reading stories with details that would be too outlandish to be considered plausible, except for the fact that they actually happened.

I love books that are heavy on examples of clever (or not-clever-but-still-interesting/entertaining) events. Similarly, Bruce Schneier's recent *A Hacker's Mind* has similar buckets-o-examples for hacking, from ATM jackpotting to the congressional filibuster. Same with lots of books about large tech companies, since they describe the galaxy-brained strategies used on different projects (e.g. Amazon's mass in-person tests for Alexa; Google's IPO and fiber tactics).

Where are more good books, like LFM or AHM, that contain lots of wacky situations involving a decently-high level of intelligence?

(I've tried e.g. trivia books and true-crime-compilation books, but most trivia does not describe clever/intellectually-interesting events, and most true-crimes are depressing and also not-clever.)

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one of my favorite related quotes goes something like "If you are smart and hard-working enough to get away with long-term financial fraud, you are likely also smart and hard-working enough to make a good living running a legitimate business" , paraphrasing from Patrick McKenzie

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>The English language has an irregular verb to describe the problematic effects of performance contracts, depending on how much sympathy you feel for the person at the sharp end. I respond to incentives / You game the system / He is a crook.

I always like hearing new Russell Conjugations.

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The fact that fraud is more common in high trust societies is not at all shocking to me. I live in a very progressive community, and was on a number of charity volunteering listservs at the time COVID first hit. All of a sudden, these listservs started getting more and more people emailing them with barely believable sob stories about how first their husband lost his job, then their kids had to undergo expensive emergency surgery, meanwhile they accidentally dropped all their groceries that they bought with their last dollars into a pit, etc, and could you please send me money at this sketchy location. Many people on the listservs ate it up and I saw individuals claiming that they gave hundreds of dollars to these people each time, just like that. When others on the listservs started pointing out that the story is untraceable, there's no record of the person existing, and all the other red flags, the donors were shocked, and most eventually came to the conclusion that "well, the scammers must have really needed the money anyway in order to go to such lengths to get it, even if their story didn't check out fully".

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That was a great review. I'm going to buy the book.

I spent a of time trying to get my students to understand that every new regulation offers the opportunity for at least one new fraud. More regulations ALWAYS means more new frauds.

That Eigenrobot encapsulates the idea perfectly.

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Two quibbles, not sure if the review can still be edited?

The SEC did not exist in 1922, so it could not have changed the rules governing Mr. Saunders' short squeeze. Maybe the New York Stock Exchange? I don't know if the error is in the book or the review.

The current indictment against SBF has 13 counts.

Anyway, thank you for a very enjoyable review.

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After the first book review of this season dropped and I missed the opportunity to comment on it (It was long, I was busy, some stuff came up) and the comments were so great that Scott promised a "best of" post about them, I thought "there should be a way of regulating how long people have to read a post before the comments section gets flooded -- maybe it could be locked for the first 8 or 12 hours, that way people would need to come back later, which would incentivize the more insightful comments".

I made time to read this one all the way through so as not to get left out again, and at time of writing there are only single-digit comments. Having read it, however, I realize that I could have just committed the fraud of writing this comment having pretended to have read it, thus capturing the incentives just fine. I probably could have figured that out from the title if I'd been thinking ahead.

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As I also pointed out on Ozy's post, the claim that "long firm" is unrelated to both "long" and "firm" is inaccurate. It does seem to be true that the "long" in "long firm" is unrelated to the usual word "long", but that doesn't seem to be the case for "firm"; that seems to be just the usual word "firm". Sure, it comes from "firma", signature... but so does the usual word "firm"! I really doubt that the word "firm" there is some separate derivation.

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May 26, 2023·edited May 26, 2023

I don't see what the negative externality is for insider trading. Or for what Clarence Saunders did.

SBF's business model wasn't to get money from (eventually just stealing from) EAs (he was instead giving money to them). It was to get it from crypto enthusiasts.

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"(Once you find a way to illegally dump your waste, you can scale the operation up, as toxic waste disposal is a thing that many companies will pay for.) It might not look like the archetypal "market crime," but Davies argues that it deserves to be categorized as such:" This doesn't do a great job of justifying why dumping toxic waste ought to be considered a market crime. It seems closest to a Long Firm, if anything. In other words, if you're a company specializing in waste disposal, you accept the liability of disposing waste at the same time that you accept the payment from the waste creator, and then you decline to deal with liability.

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"whenever I sent an item, there was always a possibility that the seller would falsely dispute the charge by claiming the item never arrived."

I think you mean "buyer," not "seller."

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Funny footnotes:

One of my all-time favorite footnotes came in a book which made a passing reference to the war of 1914 to 1918 as World War Two. The footnote read, "World War One took place in 1756-63."

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I liked the review! Still wondering the measurements before and after one of these events on trust levels in society

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"For example, nowadays we tend to frown upon price fixing and collusion: we expect different vendors within a market to compete against each other."

This is something I've never understood about libertarian economics. Firms are supposed to compete with each other to lower prices; this is central to the functioning of a market economy. But if Firm A lowers its price, Firm B will lower its prices as well, meaning they'll both end up with the same market share and lower profit margins than when they started. And firms know that this is going to happen, because they've read economics textbooks.

So why would anyone do it? Wouldn't we expect price-fixing and collusion to be the norm in a truly free-market society? And once you've introduced ethics - "companies have an ethical obligation to keep bidding lower and lower on price until their margins have been sliced razor-thin" - why not just say that firms should keep prices low simply because it's good for consumers?

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"All exciting products in tech seem to start with an over-optimistic product demo."

Self driving cars! Neuralink!

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It's a great book. This review is very long. Does that strengthen it?

More concise review here, tilted towards an audience or accountants:


Interested to see anyone compare the two.

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I read about Alves do Reis on Wikipedia, and discovered an interesting twist: His counterfeit currency scheme actually required both high trust and low trust. Everyone believed that he was a legitimate agent of the national bank, and also everyone believed that the bank had sent him to *secretly* print extra money for shady but technically legal reasons.

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The PPI scandal is exactly the same as what happened at Wells Fargo...

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> It seems to follow that the more centrally-planned an economy is, the more vulnerable it becomes to fraud, corruption, and exploitation by bad actors. (The extent to which various 20th century experiments in centrally planned economies support this conclusion is left as an exercise to the reader.)

I'm not sure I buy this. Vulnerability to fraud, specifically, seems like it would scale with chaos.

I could see an argument that certain styles of centrally-planned economies have fewer checks against fraud. But when I think "centrally-planned economy" I think "Soviet Union", and I don't really think of the fraud, corruption, and exploitation there as being directly related to the central planning, per se. There were a lot of other things going on there, too.

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Along these lines, it's not at all unknown for Mormons to fall victim to spectacular frauds engineered by fellow Mormons.

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Here's a psychological question: My brain seldom is able to follow any criminal scheme more complicated than "Murder your spouse for the insurance money." My IQ drops a like a brick when somebody tries to explain to me how to pull off a scam. I would make the world's worst criminal mastermind. Is this not uncommon?

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Factual note: The exit scam at the start of the book was not the Silk Road, but a later dark net market called Evolution. Silk Road is notable for being a market run by a true believer which did not have an exit scam, and with no signs there would have been one had the founder not gone to jail. https://gwern.net/dnm-survival

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So far this year's reviews seem a step above last year's.

Bit of a tangent: In Planecrash, Keltham makes no sense - we're told dath ilan is a high trust society, but Keltham is so paranoid about the exact wording of contracts and deals it surprises even the people of golarion, who's whole society is worshipping the god of tricky deals. This implies, as you point out here, that dath ilan should actually be an incredibly low trust society.

(Which we also see in other ways, like the norm against crying in front of other people).

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If you are interested in this category of books, you would probably like “Extreme Economies,” written by Richard Davies (same last name, funnily enough!). It’s about how people make markets work in very extreme situations where they cannot rely on normal market conveniences, like prisons, refugee camps, and the least civilized rainforest in the world.

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May 27, 2023·edited May 27, 2023

The review mentions criminals building up trust as part of their scams, but it is worth pointing out that this is the defining characteristic of a long firm fraud: In the author's example, the perp doesn't simply borrow a load of bread and immediately hoof it off to Outer Mongolia! They borrow a batch, and then promptly pay for it, and repeat this process several times, with progressively larger amounts. Only once the suppliers have been lulled into a false sense of security, do the criminals vanish.

I had never heard of the claimed etymology of the phrase "long firm", but assumed it was simply short for something like "long (established) firm", to reflect the time needed to build up familiarity and trust in its dealings.

Another class of fraud which may have been mentioned is what might be called "skimming", where insignificant amounts are taken from each of numerous sources. The well-known classic example is the IT developer in the 1960s (?) who added to a banking application some code which would transfer half cent residues from customer accounts to his account.

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The book says that market frauds "are not technical or victimless, the entire market is the victim", but I'm not sure about that.

There is a strange assumption here that "The Market" is a single monolithic thing. It's not. Allow me an extreme counter-example : Let's say there is a market for criminal pedophiles* to have "fun" with 12 year old kids, If I pull a fast one on those pedophiles and (say) claim I have a 12 years old lolita ready for fun then run away like hell with the money, I have greatly damaged trust in that market, and yet, who the fuck cares about pedophiles and their human-traficky markets ?

That was an extreme example to illustrate what I mean (not all markets are born equal), but there is plenty of stories of real world fraud that when I hear my immediate reaction is grabbing a popcorn and being amused by it. Who did Elizabeth Holmes harm with her fraud except a bunch of filthy rich VCs ? If she wasn't a piece of shit who threatened employees and played on the progressive thirst for "Oh ma gaad a woman CEO YAAAAS QUEEEN", I would have been quite frankly on Team Elizabeth. Similarly for the recent story about the 30-under-30 girl who pulled a fast one on Goldman Sachs.

What's remotely sympathetic about Big Corpos ? Who gives a shit about lying to them or disrupting their markets or looting their property or doing any amount of things that would have been, in my book, henious crimes against flesh-and-blood humans, but are actually - again in my book - completely okay and virtuous if done against corporations.

I also advocate what we can call micro-control-fraud, which is (in the book's terminology) control fraud done on the scale of the individual worker, which is in simpler terms means "Lying to your boss and mis-representing the amount of work you do and benefit you bring to the company", which is - to borrow 4chan's word - Based, insanely based. There is a caveat here, I don't advocate doing this if it will harm your coworkers, such as when they have to do or fix the work you claim you are doing well. Please don't harm humans, humans are ok (not really, but as ok as anybody can be). Just harm corporations.

I hate the tendency of people to moralize and ethicalize practices against corporations. Corporations, like Nation States, are not objects of morality, unlike living things with brains or living things in general. They can (indeed, for the vast majority of them, they **should**) be harmed, stolen, frauded, lied to, scammed, etc... Insofar as any corporation is worthy of moral respect, it's only the amount of moral respect you should grant to its founder/manager.

* : Criminal to distinguish them from those who were born in the very sucky situation of finding themselves turned on by kids, but never harm kids.

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> [Adam Smith] wrote this in 1776, but had the US Constitution and Bill of Rights existed at the time, he might have argued that a meeting between two competitors to decide how to price their wares would be protected by the First Amendment.

Probably not, since he was Scottish, but I can definitely see an American Adam Smith making that argument. Actually, how do US anti-collusion laws get around the First Amendment?

Interestingly, I can see no protection on free assembly in the 1688 English Bill of Rights, and the only protection on freedom of speech applies to Parliament: https://www.legislation.gov.uk/aep/WillandMarSess2/1/2/introduction

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"A ‘corporate drone’ would be someone whose only purpose was to fertilize the corporate queen and I can’t think of a single company that’s managed that way."

No, that's a bribery scheme. Putting someone politically connected on the board whose job is to collect money and provide 'protection' is used fairly often. There are countries where that's about the only way to do business if the company is above a certain size.

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Readers might also be interested in this List of past fraudsters similar to SBF: https://nunosempere.com/blog/2022/11/28/list-of-past-fraudsters-similar-to-sbf/

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I'm reminded of the Hunt brothers' corner on the silver market. It caused great distress until the commodities exchange changed the rules to destroy them:


> On January 7, 1980, in response to the Hunts' accumulation, the exchange rules regarding leverage were changed; COMEX adopted "Silver Rule 7", which placed heavy restrictions on the purchase of commodities on margin. The Hunt brothers had borrowed heavily to finance their purchases, and, as the price began to fall again, dropping over 50% in just four days, they were unable to meet their obligations, causing panic in the markets.

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Re chains of trust:

There are analogs where the trade-off is between cost/effort and accuracy rather than between cost/effort and probability of being defrauded. E.g. once can get directly NIST-certified weight sets for >$1000, or less directly (and less accurately) calibrated weight sets for $20.

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Some time ago I worked as a software engineer for a tech company that operated a website where customers could find and review businesses. The tech company built a search engine using the review data, and made their money by allowing businesses to advertise on the search and review pages.

This tech company had a pretty poor reputation among business owners. Many business owners accused them of essentially running an extortion scheme. The business owners claimed that the sales reps from the company would call them frequently and use aggressive sales tactics. Business owners claimed that the sales reps would threaten them with removing good reviews, or of promoting bad reviews on their page. The tech company was particularly unpopular in social media, where they would get flooded with stories about family, friends and favorite businesses being extorted by the sales reps.

Inside the company much of this was dismissed. The “extortion” thing was discouraged by the company on the strongest terms, and periodically we’d hear stories of some sales rep or another that was caught saying something inappropriate to a customer, and was promptly fired. Still, as time progressed I had a very uncomfortable feeling in my gut. After a particularly uncomfortable dentist appointment and haircut, I stopped telling business owners where I worked.

From what I gathered, working as a sales rep for this company really sucked. Compared to other sales gigs in SF, they had really poor pay. At the time, the sales reps had to commute to downtown San Francisco, requiring them to live in very expensive housing, usually with many roommates. The company also didn’t have commuter benefits in their compensation for sales staff as they did for engineering.

The sales team also operated based on leads & quotas. As a sales rep, you’d get a stack of businesses, and you had to cold-call them and sell ads to them. Your compensation, and your continued employment, depended on how many sales you made. From what I heard it was a very high-churn environment, and people who didn’t perform would routinely get cut.

Naturally, working in pretty crappy high-pressure conditions for not very much pay lead to a lot of the issues that business owners complained about.

When you buy an ad, it places your business above the organic search results (labeled as an ad). So the sales rep can say “if you buy an ad you will appear in the top of search results” and be technically saying the truth. Of course, many business owners will take that statement to mean “ranked in the top of the organic search results”, and that’s a misconception that the sales rep is incentivized not to correct.

Very similar situations can arise with “if you buy ads you will get more positive reviews”, since buying an ad may cause more people who use the site to visit your business, and they might then write reviews, some of which may be positive. Or “if you buy ads it will get rid of your bad reviews”, since more positive reviews may push negative reviews down from the front page of your business.

Some sales reps went even further, colluding with friends to actually write positive reviews in exchange for ad sales, etc… And, of course, when the company found out about such tactics, they quickly fired the involved sales reps.

So it certainly sounds very similar to the Distributed Control Fraud. The tech company creates very adverse working conditions for their sales staff. Those adverse conditions incentivize the sales reps to commit distributed fraud to drive more ad sales. The tech company reaps the rewards, and when something egregious happens, they fire the involved sales reps.

For what it’s worth, I don’t think this arrangement for the tech company was premeditated. I think it was just where they ended up by trying to optimize costs, one small step at a time.

Bonus: Another interesting aspect of this is that often business owners would get upset because positive reviews of their business would be removed by the site. What would often happen is that when a new business would open, owners would invite friends, family and such to the opening, and encourage them to write positive reviews.

From the point of view of the tech company, there would all of a sudden be a bunch of people who would create new accounts, write one positive review for one business, and then never review anything else. Eventually, such reviews would be marked as fraudulent and removed.

I always thought that this was interesting, because from the point of view of the business owner it really seems like they didn’t do anything wrong. They think of fake reviews as something that’s done by spam bots, or in some sort of organized way for money, and they don’t categorize “my brother wrote a positive review for my pizza shop” as the same sort of manipulation. So to them a relative’s positive review being removed feels like proof that the tech company is trying to mess with their business. It also doesn’t help that typically, a few weeks after the business opens and starts getting reviewed, they are contacted by a sales rep.

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For those who enjoy reading about large fraud cases, this review reminded me of a recent case where an online charter defrauded the state of CA for ~50million:


> Here’s how witnesses say it worked: Rigney reached out to dozens of high school football programs and other youth athletic organizations. In presentations to coaches, he would offer to donate a certain sum of money to the athletic program for each student who filled out the paperwork to sign up for the summer program. The donations started at $25 per student, according to the indictment.

> Nothing would be required of the students, other than participation in the previously scheduled athletic program. For each student Rigney signed up, he also got $25, according to the indictment.

Essentially, they exploited the fact that the state didn't have very rigorous ways of verifying student enrollment in summer programs. Getting a student's info + parent signature was sufficient to get paid, even if the student then received no actual instruction.

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"If Lying For Money's most important idea can be described in a single line, it's that fraud is an equilibrium phenomenon – or, as Davies likes to put it, 'It is highly unlikely that the optimal level of fraud is zero.' "

Interesting thought in relation to blockchain.

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I think some of the quote characters may be wrong? When listening to the audio for this, I get many "end quote"s

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"It seems to follow that the more centrally-planned an economy is, the more vulnerable it becomes to fraud, corruption, and exploitation by bad actors. (The extent to which various 20th century experiments in centrally planned economies support this conclusion is left as an exercise to the reader.)"

The thing about the "20th century experiments in centrally planned economies" is that way there was a common blueprint to their dismantling - the control fraudsters at the top becoming envious of their western counterparts and attempting liberalization to join them.

There were generally three ways it could go:

1. Central Europe decided to join their western peers outright - which required immediately adapting the western norms. This meant the fraud was a one-off - once they divided the spoils, they were forced to operate within - more market-oriented, but otherwise strict - EU regulations. Their countries suffered economic recessions, but got over them in a decade or two, are are mostly fine nowadays.

2. China never let go of central control. They reaped the benefits of liberalization without damaging the overall economy. The corruption and fraud went widespread and started damaging the social matter of the country, but the central authority was there to go after them eventually, up to executing a few (thousands?) of them (I disagree with the method's severity on ethical grounds, but I certainly agree, as Davies assumedly would, with the notion that whatever highest level of severity you choose, fraud and corruption are up there with violent crimes as the most deserving of it). It seems to have worked and they, too, seem mostly fine.

3. The core USSR just liberalized without guardrails. Fraudsters hoarded everything they could and continued to exploit it, with nothing to stop them. It was a total social and economic collapse, continuing to the present day.

So, on one hand, a single centralized institution is naturally vulnerable to a hostile takeover by bad actors (or rather, all institutions are vulnerable, but a centralized one provides a single point of failure for the whole of society, so the consequences of a takeover are catastrophic) - the existence of alternative competing institutions is one simple way to prevent that.

But on the other hand - a single centralized institution appears to prevent fraud and corruption, and I think it's pretty easy to understand why: centralization prevents bad actors from extracting resources away from the system. In a centralized economy, there's nothing outside of the system (or at least nothing legitimate and non-low-status) - there's only so much corruption and fraud you can commit to the system if reaping benefits requires you to continue to operate within it.

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Low trust societies also tend to settle fraud claims outside the court system (if there is one) and permanently.

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Complete aside: I'm a casual reader here, but I just followed links back to your post "The Toxoplasma of Rage" and wanted to send you a fan post for that.

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The pretense that wind or solar can reliably power heavy industry or even residential areas is probably a Big Store con, but there are elements of counterfeit science. And 'a control fraud makes you question your trust in the institutions of society' fits. So does 'a market crime makes you question society itself'.

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> Adam Smith was breaking with centuries of tradition when, in The Wealth of Nations, he frowned practice of price fixing by describing it as a "conspiracy against the public."

I wonder if Smith was writing at the time that the conceptualization of markets was changing from a place where the sellers would have stable employment to a place where the buyers would get the best deal. As people moved away from minimal subsistence, the culture would shift from maximizing stability to allowing changes that delivered more to consumers.

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Really great review! Enjoyed the discussions of different kinds of fraud (read: different things in our society that can be exploited by bad actors).

I just wish the reviewer discussed a bit more about how to limit how bad the fallout can be. My one gripe is that it's handwaved as "all healthy societies have a bit of fraud, if there's no fraud that means you live in a low trust society where everyone is suspicious of one another all the time".

And then what???

I understand that a high trust society increases the likelihood of fraud. So does it follow that a high trust society also needs to plan to deal with the consequences of fraud? I'm not talking the punitive measures - for subprime mortgages and PPI alike it's clear that it's both hard and pointless. But we're saying that a high trust society cultivates a ready crop of victims for fraudsters in exchange for making things easier for everyone doing legitimate business - it would only be fair if society had some safety nets for those victims.

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"In discussing different equilibrium points for trust, Davies brings up what he calls the "Canadian Paradox," which is an observation that a low-trust society will have less commercial fraud than a high-trust society (an example of one such high-trust society being Canada, which in 1985 was home of the Vancouver Stock Exchange, dubbed by Forbes Magazine's Joe Queenan as the "Scam Capital of the World.")"

How does that work dynamically? Does fraud grow unrestrained in high trust societies? Wouldn't that turn them into low trust societies?

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Thanks for this book review! I am particularly intrigued by the idea that *complexity enables fraud*, as explained with reference to trust chains and centralized economies.

It's interesting to note that despite the world becoming more complex, the prevalence of fraud doesn't seem to have increased significantly compared to the "good old times." For instance, while the Internet has indeed been the scene of several instances of fraud, the majority of its users continue to have positive experiences. As issues like email spam emerged, technical solutions such as spam filters were developed to maintain a balance. In my experience, most people still rely on the Internet, trust sources like Wikipedia, and conduct online transactions without hesitation.

*Isn't it intriguing how the level of fraud appears to remain relatively stable, maintaining an equilibrium of sorts, even as complexity continues to grow?*

Bonus thought: I wonder about the implications for a world where AI is increasingly pervasive, enabling people to do increasingly complex things without fully understanding the details.

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May 29, 2023·edited May 29, 2023

Theranos is an interesting example, because you wouldn't have to do the regular financial due diligence - you would merely have to check with skeptically-minded medical experts. Even at the time, people said "this is impossible", and the thing about impossible stuff is that it doesn't happen.

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"But when the SEC responded by changing the rules and extending the settlement period by one week, the plan started to unravel: giving the short sellers an extra week to procure shares made a huge difference, because remember, this happened in 1922"

The SEC did not exist in 1922. What actually happened? Is this error in the book, or was it introduced by the reviewer?

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> The illegal dumping of toxic waste [...] is a kind of fraud (and one which often involves other frauds in counterfeiting safety certification), and as a kind of fraud, it is essentially a market crime.

I disagree. The problem with illegal dumping of toxic waste is the toxic waste. Additionally, there may be a market distortion if the motive is profit, but that is a very minor concern in comparison. As an intuition pump, consider a company which engages in illegal dumping without any financial gain, perhaps because their CEO hates the EPA or whatever. Would that company be any less criminal for it? On the other hand, consider a company which violates regulations without material harm: perhaps they sell pure sugar pills as homeopathy without going through the prescribed steps of first diluting some substance beyond detectability. Their market advantage is exactly the same as the one of the illegal dumping company. Are they equally bad?

If that is a market crime, then every crime committed for financial gain is a market crime. Stealing to finance a drug habit? Obviously a market crime against the other users of that drug, as you raise its prices with an unfair advantage. Murdering your relative so you can inherit? A market crime against the job market in which you would have to work otherwise. I will stop here before I run into Godwin's Law.

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Capitalism itself seems to be based on this kind of phenomenon.

Imagine that wage is banned. All corporations become coops. Then, it will be quite easy for the elected managers to do all kinds of (what this author calls) frauds to the coop members. So, the system will eventually devolve into usual capitalism: in many cases, the oversight costs for the coop members will become too much, and they will just let managers slowly become capitalists.

In this sense, a hypothetical transition from capitalism to socialism as predicted by Marx seems to be dependent on decreasing oversight capacity costs to the point where coops become more efficient than waged-employees-based corporations.

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> A long firm clearly falls under ‘Thou shalt not steal’, and a counterfeit under ‘Thou shalt not bear false witness’

How did this make it into the review? Forging a document cannot be said by even the most dimwitted philosopher to fall under the category of falsely accusing people of crimes. Bearing false witness is when you show up and testify "I saw it happen, and X is what happened" when in fact X didn't happen.

Forgery is essentially the opposite of that, when you present your own testimony as having been given by someone more trustworthy than yourself.

It's also strange, to me, that this taxonomy uses the word "counterfeiting", almost always applied to creating illegitimate money, for the crime already known as "forgery". It is true that forgery involves counterfeiting a document in much the same way that counterfeiting involves counterfeiting a piece of currency. But why go out of your way to be confusing? This kind of thing mostly just suggests that you want to write about a phenomenon without ever having been exposed to any prior discussion of the subject.

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"eBay is famous for siding with buyers in the event of a dispute, so whenever I sent an item, there was always a possibility that the seller would falsely dispute the charge by claiming the item never arrived. "

There's a typo, should say "buyer would falsely dispute"

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I know a bit of Ponzi’s biography, and describing him as he is here is pretty deceptive. He was a career “con man” of sorts, not some hapless publisher who stumbled into fraud.

A few other weird errors and I am not sure I find the categorization into 4 buckets very helpful. Seems like most large frauds hit several of them at one point or another.

I would also repeat some of the previous comments especially regarding the optimal level of fraud is zero. It’s just that this goal is not worth achieving. Maybe a better way to say it is the best structure for society we currently can envisions involve some level of fraud.

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"The Optimal Amount of [Bad Thing] Is Not Zero"

More generally, "the optimal amount of anything is neither extreme."

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