There's never just one cockroach. That's what we learned from the market-rigging scandals in recent years. Be it the London Interbank Offered Rates (Libor), currencies, metals, oil or . . . (you get the picture), it turned out that every bank and broker that touched every market benchmark left grubby fingerprints of fraud, collusion and deceit. So the revelation that Volkswagen cheated for years on tests measuring how much damage its diesel engines do to the environment raises a mammoth question: Who else did the same?
The parallels between the shameful behavior in finance and the backdrop to executives at Volkswagen deciding it was OK to program 11 million cars with deceitful software are compelling. In both industries, the regulatory structure left large areas of territory open to manipulation. In finance, self-regulation produced flagrant and widespread abuse; in cars, enforcement of diesel emissions rules was lax and testing was easily gamed. And in both industries, that has created an attitude of "What can we get away with?" rather than "What's the right way to behave?"
While the market was shocked at VW's flagrant deception, just as it was the Libor scandal, in both cases manipulation was an open secret for industry cognoscenti. There is an echo here of the "broken windows" thesis that argues buildings where a single pane is left broken are more vulnerable to further vandalism than those where the breakage is repaired. If the overseers of an industry turn a blind eye to some kinds of misbehavior, they're opening the door to a culture that regards rules and regulations as obstacles to be dodged rather than standards to be observed.