I have often noted the existence of a primitive tribal taboo shared by virtually all economists against using the “f” word – “fraud.” I have found a new example that sums up many of the pathologies of economics and economists. It is an article entitled “Going for Broke: New Century Financial Corporation, 2004-2006.” Given that New Century was a classic accounting control fraud, the use of the long-discredited gambling metaphor (our “autopsies” of S&L failures refuted it in 1984) demonstrates the crippling power of the taboo. The three economists who authored the September 2010 article are Augustin Landier (Toulouse School of Economics) David Sraer (Princeton University) David Thesmar (HEC & CEPR) (collectively, “LST”).
The Office of the Comptroller of the Currency (OCC) has published a list of the “worst of the worst” – the ten worst lenders in the ten worst markets for nonprime mortgage foreclosures. The absolute worst lender on that list is New Century. That makes it the worst of the worst of the worst. It also makes LST the worst of the worst of the worst economists writing about the fraud epidemics that drove the financial crisis.