One of the characteristics of recessions is that they reveal frauds. This is very typical and over the past 25 years, every industry downturn has been accompanied with some spectacular frauds.
There was the Penn Square Bank in the 1980's that brought down Continental Illinois National Bank. There were all of the scandals of the Savings and Loan debacle in the late '80's and early '90's. There were real estate frauds in 1990's and of course, the new century was kicked off by Enron, Worldcom and others.
As long as companies underperform, there will be managers who feel backed into a corner and then resort to fraudulent activities. The continued underperformance gets them almost every time.
This Stanford fraud is following on the heels of Madoff, Drier, other hedge fund types and Peanut Corp. of America. We should all expect that there will be more frauds exposed over the next two years.
Once again, how do they think will end when they start?
Cheers, Mike
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