It’s a PDF, and it’s 22 pages, but John Quiggen of the University of Queensland makes the fascinating point that the great financial centers of the world, primarily New York, London, Paris, and Tokyo, exist because the concentration of the financial industry facilitates corruption and cronyism of the managing class:

Recent developments in the global system of cities present a curious paradox. With the cost of communications declining almost to zero and substantial, though less dramatic reductions in transport costs, there is now little technical requirement for most kinds of production to be undertaken in any particular location, or for elements of production chains to be located close to each other. This fact has had dramatic consequences for the organisation of manufacturing industry. Simple production chains involving the import of raw materials, usually from developing countries, for processing in a specialised centre, have been replaced by far more complex structures.

Yet, in important respects, the dominance of a small number of ‘global cities’has never been greater. In this paper, it is argued that the dominance of global cities reflects a desire for clustering on the part of finance sector professionals and corporate executives. It seems likely that such clustering provides private benefits by enhancing the value of personal contacts, but reduces the efficiency and profitability of the corporate sector

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These concerns are even more pronounced in relation to personal networks connecting financial enterprises with their clients. It is reasonable to assume that such personal networks facilitate the development of business relationships between the firms in question, leading to flows of payments on services based on relationships of personal trust and shared interests, rather than on formal and transparent contractual relationships.

Such a system is commonly referred to as ‘relationship capitalism’ or, more pejoratively as ‘crony capitalism’. In general, it is viewed favourably during booms, when the disregard of process tends to facilitate rapid generation of wealth, and less favourably during recessions when the exchange of personal favours and the evasion of formal controls tends to be reclassified (often retrospectively) as corrupt.

Basically, if you are in an environment where you can run into a potential co-conspirator at a restaurant, or at a party, where small talk can allow you to tease out a deal that will benefit you, and your friend, but not your clients without the sort of transaction trail that you would see with phone calls, and emails, etc.

Essentially, it turns out that centralized financial district are a particularly criminogenic environment in terms of control fraud.

A few casual conversations at a party with, for example, a stock analyst, and that IPO you are pumping up, or the stock price of the company in which your stock options have just vested, and Ka-Ching, there you are with a vacation home in the Hamptons, a yacht, and a Ferrari.