An older strand of institutional economics understood that a security is a contract in law. It can only be as good as tthe legal system that stands behind it. Some fraud is inevitable, but in a functionaing system it must be rare. It must be considered-and rightly - a minor problem. If fraud - or even the perception of fraud - comes to dominate the system, then there is no foundation for a market in the securities. They become trash. And more deeply so do the institutions responsible for creating, rating and selling them. Including, so long as it fails to respond with appropriate force, the legal system itself.
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.
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