This comes from Chapter VIII of Galbraith’s classic volume, “The Great Crash 1929.” Given the revelation today of fraud at Satyam in India and the monstrous Madoff scandal, it is a quote and concept to remember.
“In many ways the effect of the crash on embezzlement was more significant than on suicide. To the economist embezzlement is the most interesting of crimes. Alone among the various forms of larceny it has a time parameter. Weeks, months or years may elapse between the commission of the crime and its discovery. (This is a period, incidentally, when the embezzler has his gain and the man who has been embezzled, oddly enough, feels no loss. There is a net increase in psychic wealth.) At any given time there exists an inventory of undiscovered embezzlement in – or more precisely not in – the country’s business and banks. This inventory – it should perhaps be called the bezzle – amounts at any moment to many millions of dollars. It also varies in size with the business cycle. In good times people are relaxed, trusting, and money is plentiful. But even though money is plentiful, there are always many people who need more. Under these circumstances the rate of embezzlement grows, the rate of discovery falls off, and the bezzle increases rapidly. In depression all this is reversed. Money is watched with a narrow, suspicious eye. The man who handles it is assumed to be dishonest until he proves himself otherwise. Audits are penetrating and meticulous. Commercial morality is enormously improved. The bezzle shrinks.”
Satyam’s former chairman has a pretty good quote himself about coming clean on fraud:
“It was like riding a tiger, not knowing how to get off without being eaten.”
Sources
The Great Crash 1929 – John Kenneth Galbraith
Talk of ‘India’s Enron’ as Satyam Shares Plunge – Deal Book