James K. Galbraith Testifies Financial Crisis may be Rooted in Fraud

James K. Galbraith (and for those of you who don’t know, he’s a famous economist) has submitted testimony to Congress about the possible link between the financial crisis and fraud. I was shocked at the extent of the fraud he alleged, although not really surprised at its existence. He also writes of the need for economics to take such fraud into account, and alleges that economics as a whole has not done so for past financial crises, including ones where the fraud was proven in court, such as the Savings & Loan debacle. I wonder why the discipline has ignored the fraud to date. Galbraith points out that the market system ultimately cannot survive if fraud continues to be swept under the rug, as trust, the bedrock of the system, will be undermined.

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