Profit Without Honor: White-Collar Crime and the Looting of America / Edition 3

In the short time that has passed since the second edition of this book was published, there have been significant new developments in the study of white-collar crime. One would surely expect such a development, since the battle between profit and honor is as old as human commerce. What even the authors of this book did not expect was the sheer magnitude and pervasiveness of the recent corporate scandals. When Enron tipped over the first domino, it loosed a shocking fission of corporate failures and revealed a deep vein of sociopathic greed that most Americans could scarcely believe. Trust in the economy eroded to levels not witnessed since the Great Depression. Hard-working employees saw their lives shattered by fraud and mismanagement. Investors watched helplessly as life savings were destroyed. Captains of industry, who had long seemingly been above the law, modeled handcuffs while doing so-called "perp walks" on the evening news.

When the second edition of Profit Without Honor went to press, companies like Enron, WorldCom, Global Crossing, Qwest Communications, Adelphia, Rite-Aid, ImClone, and Arthur Andersen looked like pictures of robust financial health. Now, many of these companies are dead, and others are clinging to life support. Congress has passed the toughest corporate governance law ever enacted, and the once-sycophantic financial press has turned ferocious.

Computer crime has continued to emerge as the nation's fastest-growing category of crime. Two recent cyber-attacks have brought the Internet to its knees. One attack damaged an estimated 45 million PCs; the other crippled most of the major e-commerce sites. And each attack was launchedby a 15-year-old boy. "Pump and dump" schemes have exploded on the Internet. And "identity theft" has become part of the popular lexicon. Perhaps the most ominous trend is that organized crime has smelled the "new economy" and has forced its way to the feeding trough. Earlier editions of this book described Wall Street brokers as acting like organized criminals. This edition depicts organized criminals acting like Wall Street brokers.

One of the biggest and most important antitrust cases in American history—U.S. v. Microsoft—has been settled amid much controversy. And the most publicized insider trading case since the 1980s has ensnared one of the most famous and successful women in corporate America—Martha Stewart.

All of these cases and many others are considered in this updated edition.

So, once again, Profit Without Honor seeks to elucidate a very broad subject that seems only to get broader: white-collar crime. How broad? Its domain stretches from the small, price-gouging merchant to the huge, price-fixing cartel. White-collar crime can breed in an antiseptic hospital or a toxic dump. It is at home on Main Street, Wall Street, Madison Avenue—sometimes even 1600 Pennsylvania Avenue.

Yet, as Americans demonize the Crips and the Bloods, recoil at Osama bin Laden, and continue to obsess over O. J. Simpson, white-collar crime still remains the "other" crime problem. The reason for this relative indifference is that the true costs of upper-world misconduct are largely unrecognized. Compared with murderers, terrorists, and urban gangsters, white-collar criminals do not seem to scare the public very much.

Even the economic expense—by far the most identifiable cost—is typically underestimated by the average citizen. Annual losses from white-collar crime are probably 50 times as great as the losses from ordinary property crime. For example, the price of bailing out a single corrupt savings-and-loan institution surpassed the total losses of all the bank robberies in American history. The bill for the entire S&L bailout ultimately may exceed a trillion dollars. (To put that figure in perspective, consider that a million seconds is about 11 days; a trillion seconds is about 30,000 years.) Indeed, the price-tags attached to some white-collar crimes are so staggering that they are difficult to comprehend. They evoke memories of the late Senator Everett McKinley Dirksori s wry quip, "A billion here, a billion there; and pretty soon you're talking about real money!"

But monetary expenditures are only the tip of the topic. The "looting" in the subtitle refers to more than larceny; it implies destruction, too. This book argues for an expanded definition of white-collar crime, because this kind of crime is not just property crime on a grand scale. Rather, it entails higher and more enduring levels of costs—particularly physical and social costs. These less conspicuous effects carry a heavy payment that cannot be measured with a calculator.

White-collar crimes do not leave a chalk outline on the sidewalk or blood spatter on the wall, so the American public, in its understandable preoccupation with street crime, often has overlooked the violent aspects of elite deviance. In his polemic book Thinking About Crime, James Q. Wilson marginalizes white-collar crime, lumping it together with "victimless" crimes such as gambling and prostitution. He states that most citizens (including himself) do not consider white-collar offenses to be very serious as compared with street crime. Wilson's intuition about the predominance of such a belief is quite correct. The belief itself, however, is utterly wrong. White-collar criminals cause more pain and death than all "common criminals" combined.

A likely explanation for the inadequate attention can be derived from a cognitive rule-of-thumb known as the availability heuristic, which stipulates that there is a common human tendency to judge the likelihood of occurrences in terms of how readily instances come to mind. Because vivid events stick in our memories, their greater ease of recall misleads us to overrate their frequency relative to less dramatic, but actually more pervasive, events. The physical harm wrought by some forms of white-collar crime can be slow and cumulative—like the mythic "death of a thousand cuts." In other words, the human suffering caused by corporate cupidity frequently can take years to materialize, in contrast to the graphic suddenness that usually characterizes street violence. Consequently, it is easy for people to misperceive the extent of the injuries caused. As this book will delineate, environmental crime, hazardous workplaces, medical malfeasance, and unsafe products are lethal manifestations of what Ralph Nader calls "postponed violence."

As for social costs, they are the most insidious and difficult to measure. The victims here are not limited to endangered employees, mistreated patients, or injured consumers, but also include all of society—from its component institutions to its transcendent culture. Indeed, a case could be made easily that every category of white-collar crime depicted in this book manifests a deleterious effect on some social institution and thereby inflicts damage on society as a whole. To cite just two illustrations: The insider trading scandals detailed in Chapter 6 and the corporate crimes highlighted in Chapter 7 have eroded public faith in the American economy; likewise, the crimes by the government described in Chapter 9 and the political corruption related in Chapter 10 have devalued the democratic process.

It should also be noted that much of the existing white-collar-crime literature focuses on offenders—those who commit these crimes, their motives, and their methods. This is certainly an illuminating perspective, but not the only perspective. This book seeks to shed light on the victims of white-collar crime as well. Victimology is a critical element because it helps give the problem the personal relevance that it has sometimes lacked. The more predatory white-collar crime is perceived to be, the less likely it will continue to be dismissed as a mere appendix to the crime problem.

One additional preliminary comment seems appropriate—and it concerns the style of the chapters that follow. We have chosen to present our material in an occasionally flippant and a hopefully engaging manner. But despite its intermittent irreverence, this is a serious book on an important subject. It is not difficult to write mordantly about con artists charging people $30 for a "solar clothes dryer" and then mailing them a piece of rope and some clothespins (Chapter 2); or greedy doctors billing Medicare for pregnancy tests performed on elderly males (Chapter 11); or religious charlatans peddling trashy "holy shower caps" to thousands of devout proselytes (Chapter 5). It is likewise easy for readers to ridicule those who are duped by such flagrant deceit. So it is worthwhile to bear in mind an old maxim: When you slip on a banana peel, the slip is tragedy; only when someone else slips does it become comedy. A reiterative lesson of this book is that white-collar crime spares no one. Everybody reading this sentence, (or writing it, for that matter) has been somebody's victim. Each of us would do well to remember just how much alike a window and a mirror can be.