Fraud and Financial Scandals: A Historical Analysis of Opportunity and Impediment

The paper presents a conceptual framework of financial fraud based on the historical interaction of opportunity and impediment. In the long run the character of opportunity is determined by the technical characteristics of assets and their unique, unknowable or unverifiable features. Impediment is promoted by consensus about the real value of assets, such that through active governance processes, fraudulent deviations from real value can be easily monitored. Active governance requires individuals in positions of responsibility to exercise a duty of care beyond merely being honest themselves. Taking a long run historical perspective and reviewing a selection of British financial frauds and scandals, from the South Sea Bubble to the Global Financial Crisis, the paper notes the periodic occurrence of waves of opportunity and the evolutionary response of passive governance mechanisms.