Applying the Fraud Triangle Model to the Global Credit Crisis

Abstract

The premise of this paper is that the unwarranted corporate collapses and failures which occurred during the, currently ongoing, ‘credit crisis’ arise from failures in the decision making processes of the organisation. This paper is written primarily from a legal corporate governance perspective and looks at how the law could allow, what in hindsight appears to be, staggering follies. As such this paper is focussed on the microeconomics of the debacle rather than upon the macroeconomic triggers. The rationale for this approach is that the law cannot regulate behaviour on a mass scale, law acts against the individual rather than the group. There are various reasons for this assumption ranging from the necessity of justice and fairness to practical logistics. However it is the working assumption of this paper that for law to be effective it has to act against individuals and so can only pursue a microeconomic approach.

Keywords

• Corporate Governance
• Credit Crisis
• Fraud Triangle