Much of this might be eliminated were we just a bit more careful. But as Davies contends, it’s all too much hassle. Even the drug dealers on the dark internet can’t be bothered to use the escrow software they’ve developed to deal with the problem of non-delivery or payment — surely a genuine risk given the absence of legal remedies. “Although the technology was there to do without it, the dark market ended up reinventing most of the apparatus of conventional trade credit,” Davies observes.
His deeper point is that societies accept some fraud because the very trust that makes them vulnerable to cheats is what also makes them prosperous. The Victorian railway mania may have attracted many swindlers, but it also benefited society mightily through the rapid introduction of new technology.
Frauds may be a pain, but they aren’t a systemic threat to the economy. Each contains the Ponzi-like seeds of its own destruction: the need to find exponentially growing numbers of suckers to keep the fiddle aloft. Swindling is never a black and white business, and Davies is good on the shades of grey in fraud-land. Some fiddles are hard to spot until they suddenly aren’t. Who, for instance, would have thought that banks selling Payment Protection Insurance would be one of the biggest scams ever?
Then there are the market crimes which used to be legitimate practice. Cartels were endemic in America’s robber baron heyday, for instance. Or take insider trading, once a stockbroker’s perk, which was only criminalised in Britain in 1980. A broker himself, Davies argues that mores didn’t change because bankers became more moral; mass-market wealth made the retail public more attractive as a source of capital. Better to get them to invest, then "rob them blind through trading commissions and management fees".
If there is a lesson from Lying for Money, it is that scams and cons will always be with us, however intricate the regulatory machinery that we build. For each malpractice slain, a novel and doubtless subtler version will spring to take its place. "The cost of eliminating dishonesty is much more to do with the amount of legitimate business that never gets done," Davies argues. There is an acceptable level of fraud.
Which, of course, leaves the question of how to avoid the fraudster’s clutches in the first place. Davies suggests learning to spot the tells, of which the biggest is sudden, super-charged expansion. "Anything that is growing unusually quickly needs to be checked out, and it needs to be checked out in a way that it hasn’t been checked before," he offers. Things that seem too good to be true very rarely are.
Lying for Money: How Legendary Frauds Reveal The Workings of Our World, by Dan Davies.
• Jonathan Ford is the FT’s City Editor.