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Lecture 1

PSYC39H3 Lecture 1: lec 6

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David Nassum

PSYC39 Lecture 6: Economic Crime PY Date: Oct 22, 2012 Which crimes are most severe? -rape/murder, treason = back in the old days when Canada had capital punishment, treason was a capital crime (therefore, = severe crime) -why was/is treason such a serious crime? -ex) naval officer supplying secret info to Russians – info about where Canadian ships were in the Arctic etc; -charged under 2 things: Criminal Code and Queen’s Rules -will probably get life sentence -the reason why treason is serious – when ppl are engaged in acts of treason against one’s country, it’s not simply a crime with only one or two victims – jeopardize many ppl’s lives and the security of the country; if this info is compromised, that makes ALL of us vulnerable -this is why treason is seen as a particularly serious crime even though nobody is killed; there’s potential -incest (esp if large age diff; goes against societal norms; child can’t say anything; it impacts ability to trust ppl; PTSD; power differential; laws prohibiting incest if power differential; in the case of brother and sister = still against the law even if they both consent – but the penalty may be less than in the case of parent and child) - and financial/economic crimes are also severe Slide 2: Types of Economic Crime  White-collar crime o ppl who are in positions of trust/power/authority/responsibility in large org (like corporations, banks, financial institutions ) – have lot of opportunities to steal huge amounts of money  Theft (diff from robbery) o Robbery = direct confrontation of the victim (violent even if no assault occurred; the potential for violence is still there)  Fraud o More typical of white-collar crimes although not limited to ppl in corporations (ex: writing a cheque at a store when you know you have no money in your account and you don’t do anything to pay back the money owed)  Prostitution  Human trafficking o In the last 10-15 yrs it has become much more of serious crime worldwide – much related to prostitution o 100’s of thousands are kidnapped and enslaved in prostitution; these women often cope using drugs  Drug trade o Virtually no limits o There are 2 sides to the drug trade; many lives are destroyed by substance abuse & addictions – what can you do about it? 1 PSYC39 Lecture 6: Economic Crime PY Date: Oct 22, 2012  Two polar options:  1) wage the war on drugs – try as hard as possible to find the ppl who are distributing drugs more widely – incarcerate; hasn’t been successful o Can’t be successful even if you arrest a few ppl; the profits are so astronomically high that another 10 ppl will move into their position; so you’re just changing who is making the money; you aren’t getting rid of it  2) other approach is to legalize drugs and take the ‘profit’ motive out of the game o In 1920s, tried to outlaw alcohol; bootleggers became very wealthy, there were gangwars; came up with prohibition of alcohol o Once prohibition lifted; gvt takes huge tax on alcohol; no wars over alcohol o But when you legalize things like cocaine, kids who initially wouldn’t have done it if it were illegal, would try it and become addicted; so we can’t exactly legalize it, incidence will skyrocket Slide 3: White-collar crimes  Occupational crimes (ex: tax evasion) o Do as an employee o If no taxes, there’s no wealth to re-distribute o There really isn’t a lot of opportunity in Canada now because about 25 yrs ago, gvt started ‘taxing at the source’ = employer removes the taxes before you even get your paycheque – this tax sent to the gvt o Ppl who have the best opportunity to do tax evasion are ppl that work for themselves – if you work for yourself (run a bsn), ppl come in and pay you money, you can do a few things:  If ppl pay you cash, don’t have to write it down, so there’s no record of it – then it’s very hard for gvt to say that you’ve earned a certain amount of money; say to customers that if they pay cash, they don’t have to pay the tax; you’re not really saving the customers tax money, but you just want to get out of paying the tax yourself  If there are cheques, then they are traceable  Another way to evade taxes = claim all sorts of expenses that never really happened = reduces their earning; ex) take a vacation but write it off as a business meeting  Corporate crimes (ex: price fixing) o May have more serious consequences compared to tax evasion (but tax evasion is serious enough crime b/c it deprives the gvt of the funds that are needed to run services) 2 PSYC39 Lecture 6: Economic Crime PY Date: Oct 22, 2012 o Corporate crimes:  Pricing war: back in the day, gas = 5 cents/L; let’s say the gas station is selling for 27 cents and the one across the street is losing customers, so they lower it to 26 cents; then the other gas station lowers theirs to 25 cents – pricing wars are good for the consumer  Even with pricing wars, ppl wouldn’t sell at such a low price that they would lose money; it’s still reasonable for them to lower the price to that extent  Now: all gas prices are the same, so it appears that all gas stations come together to decide on the price for a certain day; collusion  If anybody had evidence that this was happening via collusion then this is the crime of price fixing and they would be charged hundreds of millions of dollars; because affects a lot of ppl  Although there’s no evidence, although it looks like they are price fixing; one of their defenses (of the gas companies) is that they all buy gas @ the same price from producer; and they all have roughly similar profit margins built in so they all charge the same; but consumers see that when price changes of one company, they all change the same way  More political than criminal psycholgoy Slide 4: White-collar Offenders - Profile  Profiles are often misleading b/c they are general and a few hundred ppl who fit the profile  Often male, white, highly educated, in upper management positions (but as more women and more non-whites enter this position, this would change)  Blickle, Schlegel, Fassbender, Klein (2006): more hedonistic (more focused on enjoying the finer things in life), narcissistic tendencies, less self-control, more conscientious (=makes them harder to detect; have to give the appearance that they’re very productive)  Collins and Schmidt (1993): lower integrity, irresponsibility, lack of dependability, disregard of rules and social norms  The two studies are so discrepant – probably the result of ppl studying diff samples (diff subgroups) o Ex) if you were to study a group of ppl who were working on Wall Street and found to have engaged in some white collar crime VS another group of ppl contracted by renovation companies to go around houses and sell roofs, furnaces to ppl who didn’t really need it  These are both white-collar crimes but the ppl who work themselves up in large law firms or security companies, they couldn’t have been slouches; they had to work very hard to work their way up the ladder of financial organization  Ppl who sell renovations door-to-door don’t work as hard, it’s much more likely, depending on the sample that you’re studying, can come up with the more conscientious workers (2006); with the renovator con artists who aren’t terribly accomplished, diff sample, so can get results of Collins and Schmidt (diff sample) 3 PSYC39 Lecture 6: Economic Crime PY Date: Oct 22, 2012  Not just one type of white-collar criminal  Ex) Bernie Madoff = investment counselor = convicted of fraud 4 yrs = frauded his victims of billions of dollars in Ponzi scheme  Ponzi scheme occurs when you take money to invest and say to ppl that you’ll give them back 5-6% per year whereas most investments are getting 1-2%  Madoff invested originally invested the funds in legitimate businesses that were willing to pay more because the businesses were in a bit of financial difficulty and they needed the money nd  Difference btn first and 2 mortgage: o 2 mortgage with higher interest rate b/c they realize that the nd person asking 2 mortgage is in financial difficulties and there is more risk for the 2 bank; they would have to get the 2 nd mortgage money from the first bank if the bank decides to take back the house if person can’t pay for it  Madoff wanted to attract investors so he paid a relatively high rate of interest on the money that they gave him to invest (a lot of the ppl were retired and gave him their life savings o The economy down-turned; while initially Madoff was able to pay these ppl what he was supposed to pay them but when the economy down-turned, the investments didn’t pay off was they used to – some businesses went bankrupt o So, Madoff started expanding and gathered more ppl, promising
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