Broken Window Theory of Financial Crimes

Bill Black has a very interesting look at the "Broken Window" theory of law enforcement and how, and whether, it might be applied to financial wrongdoing.

For those of who are unfamiliar with the "Broken Window" theory of law enforcement:

James Q. Wilson was a political scientist who often studied the government response to blue collar crime. The public knows him best for his theory called “broken windows.” The metaphor was what happens to a vacant building when broken windows are not promptly repaired. Soon, most of the windows in the abandoned building are broken. The criminals feel little compunction against petty destruction because the building’s owners evince no concern for the integrity of their building. Wilson took social norms, community, and ethics seriously. He argued that as community broke down fewer honest citizens were active in monitoring and policing behavior. The breakdown in community was criminogenic – it led to widespread serious blue collar crime. He urged us to take even minor blue collar crimes and breaches of civility seriously and to demand that they be contained through social pressure and policing.

Wilson got a lot of credit for cleaning up New York City, where crime levels did drop, but they did elsewhere, so perhaps the theory is a bit overrated.

And it should be noted that Mr. Wilson specifically excluded white collar crimes.

I think that the operative word here is "white".

As in pigmentation, and Wilson found "white crime" just fine:

In a book entitled, Thinking About Crime, Wilson argued that criminology should focus overwhelmingly on low-status blue collar criminals.

This book [does not deal] with “white collar crimes”…. Partly this reflects the limits of my own knowledge, but it also reflects my conviction, which I believe is the conviction of most citizens, that predatory street crime is a far more serious matter than consumer fraud [or] antitrust violations … because predatory crime … makes difficult or impossible maintenance of meaningful human communities (1975: xx).

I am rather tolerant of some forms of civic corruption (if a good mayor can stay in office and govern effectively only by making a few deals with highway contractors and insurance agents, I do not get overly alarmed)…. (1975: xix).

Wilson won't say it, and cannot now, because he's dead, and may not admit it to himself, but he's tolerant of white collar, because "Broken Window" enforcement should only be used when it involves cops harassing poor people and/or minorities.\

That's why Wilson created a "get out of jail free" for the crimes of the upper class.

I'm inclined to believe that small crimes beget bigger crimes, and that this problem is worse among the privileged than it is among the poor and minorities.

As Prof. Black illustrates in his article, when the little things are let slide, you end up with things like liars loans, and blacklists of honest home appraisers, with executives engaging in wholesale looting of their own firms.

H/t Yves Smith.