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The Con Men by Leo Gough

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8

Moral hazard in the system

The process by which banks create money is so simple the mind is repelled.

J.K. Galbraith, economist

One of the chief ways in which investors fall victim to fraud is that they misperceive the risks of a given investment – often with a little help from the people selling that investment! Prestidigitation is rife in the markets, as financial services firms do their best to make their offerings seem as attractive as possible. As we have seen, investors suffer from what economists call the ‘principal–agent problem’, where the investor is the principal and the financial service provider is the agent. The agent has better information about the market than the principal and the principal cannot closely supervise what the ...

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