FTX Is a Signal to Brush Up on Your Red Flags

If history is a guide, the uptrend in corporate failures to be expected from rising costs of capital is likely to be accompanied by an increasing incidence of fraud. The Enron Corp. and WorldCom Inc. scandals both blew up in the years after the bursting of the dotcom bubble, another period of near-free money, at least for companies that could tinge themselves with a new-economy aura. Bernie Madoff’s investment firm finally collapsed during the nadir of the global financial crisis in 2008, exposing the world’s largest-ever Ponzi scheme. In the UK, Polly Peck International Plc expanded rapidly during the go-go 1980s before foundering in the 1991 recession. Its chief executive officer was later jailed for theft. The 1997-98 Asian crisis uncovered abuses across some of China’s…