Don't Call Out My Scam And I Won't Call Out Yours

The Rot Runs Deep Part 2

Complicity reigns supreme as everyone benefiting from a scam keeps quiet about everyone else's skim lest their own share of the spoils fall under the harsh light of inquiry.

by Charles Hugh-Smith

The uncomfortable truth is that America has become a nation of skimmers and scammers. The rot runs deep not just in the upper reaches of the financial and political Elites, but in the bottom 99.5% as well.

America can now be summarized by this phrase: "don't call out my scam and I won't call out yours." In other words, all the skimmers and scammers have become complicit, not just in protecting their own scam from the light of day, but in protecting everyone else's scams, too, lest those who lose their swag unmask someone else's scam in revenge.

Examples of skimming and scamming abound in finance and government. It's almost tiresome to even list examples; fortunately for us, tireless truthseeker "George Washington" has amassed a list of bank fraud and malfeasance (reprinted by the equally indefatigable Barry Ritholtz).

It's easy to skewer the financial and political Elites' abuses of power, but few look at all the rot below. The fraud and embezzlement-riddled mortgage market of the previous decade included not just investment bankers but non-Elite Americans who lied about their income, debt, and other material facts in order to obtain a fraudulent mortgage.

Another "middle class" scam is practiced by public workers nearing retirement. (Please don't claim this doesn't happen, I have first-hand accounts from cousins with 30-year careers in fire and police departments.) Since the pensions are based on the top three years of pay, soon-to-retire workers pile up the overtime to amass much higher pay in their last years. Everyone involved helps make this happen because they expect to pull the same scam when their time comes.

To sweeten the already enlarged pension pot, they then declare (with the seal of approval by a complicit doctor) that their work left them with a disability of some sort (a heart murmur is apparently a favorite excuse) that makes their pensions tax-free. (Millions of "the rest of us" also have heart murmurs. Where's our tax-free pensions?)

In the lower rungs of the social-financial order, claiming disability is high on the list of skims and scams, as evidenced by the astonishing rise in the number of suddenly disabled people once the 99 weeks of unemployment ran out. Food stamps can be applied for online, and despite bolded warnings of severe penalties for misstating facts, it's safe to assume that "fudging the numbers" is unlikely to lead to any investigation or prosecution.

The rot runs deep in every nook and cranny of the nation. Longtime correspondent Kevin K. recently submitted this telling account of blatant scamming. (PG&E is Pacific Gas & Electric, northern California's utility.)

Two weeks ago we stopped by to see the new home a childhood friend bought in an upscale neighborhood. As we were talking he proudly let me know that he was still on the PG&E CARE program (that cuts his PG&E bill in half). It turns out that a few years ago after taking some losses on investments he had a taxable income for the year of ~$25,000. Soon after filing he got a letter (at his ~$2 million home) about the CARE program. He filled it out with his actual 1040 income to see what would happen.

To his surprise he was accepted into the program and his PG&E bills dropped in half (saving him over $1,000 a year). He said he was certain his savings would end when he called to transfer service to the ~$3 million home he just bought, but no one ever asked about his income and he is still in the CARE program. He said he has told a lot of people (that make a lot of money and live in $1mm + homes) about the program who have either lied about their income (there is no system to check) or put the PG&E account in the name of a nanny or cleaning lady to get in the program to save money.

The justification for all this skimming and scamming is always the same: "everybody else is doing it." As noted yesterday, self-service and self-justification are the ultimate American gods that we now worship, but nonetheless the moral disintegration reflected by this rationalization is still remarkable.

There is another dynamic: desperation. Beneath the placid surface of the "recovery," millions of people are desperate and feel that skimming, scamming and lying are their "only hope" to 1) keep what they have 2) gain much-desired upper-middle class perquisites or 3) keep body and soul together and not end up living in a cardboard box.

These dynamics of moral rot and desperation have created a society in which the spirit of the law is blatantly violated but "all is well" as long as the letter of the law has only been scratched. We see this in every level of society, from legalist parser in chief Bill Clinton's obtuse defense, to the classic phrase that the "dancing" (i.e. the fraud and embezzlement) goes on until the music stops, to the disability recipient who "does whatever it takes" to get free money for life.

Expectations are impossibly high. It's no longer enough for the Federal Reserve to issue a $1 trillion injection of financial cocaine to the stock market every year; now the market needs a $1 trillion injection every six months lest it crash.

Parents want their children to join the top 10% and enjoy a security and wealth that is as illusory as the pathway they have been sold: if only you get into an Ivy League university, if only you get a 4.+ grade point average, if only you earn a law degree--yet none of these guarantee anything beyond an enormous expense and a shot at a roulette wheel with too many players and not enough winners.

Rather than accept that the postwar boom based on cheap abundant oil, industrialization and globalization is over, and the financialization bubble of the past 30 years cannot be re-inflated, we continue to maintain unrealistic expectations of an economy with structural imbalances, rising friction and declining surpluses.

It is no surprise that economic hardship leads to increases in crime and social unrest. The wave of instability resulting from economic decline has repeated throughout history, a process described by the seminal book The Great Wave: Price Revolutions and the Rhythm of History. In this sense, moral rot is to be expected as economic surpluses vanish and entire economies must live within means that have shriveled for structural reasons.

Can an economy that has become dependent on lies, misrepresentation, "fudging" of numbers, fraud, embezzlement and a multitude of skimming and scamming operations escape the moral and financial black hole it has created? The self-evident answer is "no."