In many ways the effect of the crash on embezzlement was more significant than on suicide. To the economist embezzlement is the most interesting of crimes. Alone among the various forms of larceny it has a time parameter. Weeks, months, or years may elapse between the commission of the crime and its discovery. (This is a period, incidentally, when the embezzler has his gain and the man who has been embezzled, oddly enough, feels no loss. There is a net increase in psychic wealth.) At any given time there exists an inventory of undiscovered embezzlement in—or more precisely not in—the country's businesses and banks. This inventory—it should perhaps be called the bezzle—amounts at any moment to many millions of dollars. It also varies in size with the business cycle.
- John Kenneth Galbraith, The Great Crash 1929
Credit spreads are tight. Key equity markets are higher although it may not be the case for the average firm. Commercial real estate has fallen yet valuations are not fully reflective of market reality. If there is not a sale or refinancing, the old valuations do not have to be adjusted. A growing concern is the ratings of CMBS. A triple-A rating may not hold. The result of where we are in the business cycle and the pricing in some markets suggests that the environment can have hidden bezzle risks.
Going back to basics, there are potential principal / agent problems where managers and owners may hide or lack forthcoming of current conditions. There is a cyclicality with embezzlement, and this should be a growing concern. If there is a change in the tide of the business cycle, these actions will be revealed.
I don't have clear evidence of any wrong-doing other than to say that business cycle changes will reveal management incompetence or worse.
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