The best books about big financial scams

I found this book to be not only an astonishing story of outright fraud and theft, but one which raises unexpected questions about the nature and function of money.

A confidence trickster managed to persuade the eminent banknote printing company Waterlow to reprint and give him a large stock of Bank of Portugal escudo banknotes, which he proceeded to spend.

Learning how the scam was uncovered is fascinating in itself, but even more intriguing is the question of who lost from this scam, and by how much. 

From my reading of Frank Partnoy’s book, I get the impression that Swedish celebrity financier Ivar Kreuger did really start out as a skillful and legitimate businessman, negotiating exclusive rights to sell matches in a range of central and Eastern European countries in the 1920s and early 1930s.

But, as so often happens, when business became more difficult in the 1930s, his elaborate financial activities gradually morphed into recklessness and fraud.

I have always wondered whether John Law, the creator of the ill-fated Mississippi System that brought the financial system of France to its knees in 1720, a genius who understood money better than anyone before him, or a deluded fantasist who had learnt just enough to create a monetary weapon of mass destruction?

In his careful and well-researched account, Antoin Murphy leans towards the first interpretation, but he offers enough information to allow the reader to form their own conclusions.

I was an eye-witness as every single one of the banks serving the Irish economy effectively failed during the crisis of 2008-10.

Some were bailed out by their foreign shareholders, some by the Irish Government, which in turn had to be bailed out by the IMF and European Union. Worst of all, by a long distance, was Anglo Irish Bank, whose buccaneering executives lent billions to over-optimistic property developers, distorting economic activity and luring the other banks into unwise lending also.

Eventually, their desperate last-ditch attempts to save the bank and its shareholders led top management into illegal share support activities. Simon Carswell captures well the social dynamics involved.

What’s especially attractive about this book is its attempt to put some analytical structure on the otherwise rather anecdotal historiography of financial scams.

Dan Davies dips into a large number of these stories, some more familiar than others, to illustrate common themes. He identifies four distinct categories of financial fraud and shows how the case studies can be interpreted as falling into one or other of these types.

I like his characterization of how trust and betrayal arrive at an equilibrium when, because trust is socially valuable, and because it is too costly to check thoroughly against all abuses, there will paradoxically always be some amount of fraud in financial affairs.