NEW YORK (MarketWatch) — If high-flying CEOs, Wall Street bankers and wealthy investors can do it, the Los Angeles police can do it, too.

Call it the trickle-down theory of financial fraud. Or more proof of the gritty old saw that the fish rots from the head.

Here’s how the theory goes: America’s economic destruction began with lies about accounting, mortgages and securities at the highest levels of commerce and government. The ensuing debt crisis has ensured nasty cutbacks for police departments for years to come. So now some cops are taking a lead from the top and committing financial crimes, too.

One giant leap: America in space

A report released this week by the County of Los Angeles Office of Independent Review makes a strong, albeit anecdotal, argument that complaints against sheriff’s deputies have increasingly turned from “minor theft-type allegations” to allegations of more-serious financial crimes, because ... well, times are tough and they have bills to pay, too.

Last year, the Los Angeles County Sheriff got hit with a $100 million budget cut. So now deputies can’t get the extra pay they came to depend upon, says the report, which was first reported by the Los Angeles Times.

“Four or five years ago, most deputies who wanted to work overtime to earn extra money ... could generally do so quite easily,” the report reads.

“While some deputies worked overtime ... to earn extra money to save for leaner times,” the report says, “other deputies may have adopted a lifestyle beyond that which their regular salary afforded.

“Regrettably, the current financial crisis ... may have contributed to the rise in poor decision-making.”

The report cites examples without mentioning names of the accused.

Mirroring the times, two deputies are under federal indictment for alleged mortgage fraud — taking out loans that exceeded the sales prices of homes they flipped. One faces 40 years in prison, the other 105, the report said.

Other cases involved insurance fraud:

One deputy allegedly set his car on fire. “In addition to the three vehicles he owned, the deputy had a home with a substantial mortgage and three credit cards with balances of over $1,000 each,” the report noted.

Another staged a burglary. Another ditched his car in Mexico and claimed it was stolen.

Until recently, fallen deputies were more likely to be accused in petty offenses such as shoplifting, said Michael Gennaco, chief attorney for the oversight office that produced the report, but financial pressures have led to larger frauds.

“I would be willing to bet you lunch that this phenomena is going on at other law-enforcement agencies, but other law-enforcement agencies aren’t talking about it like the Sheriff’s Department,” he said.

See how it goes? Bad leadership equals bad economy, equals lower pay for cops, equals more cops committing financial fraud.

“The Sheriff’s Department has not sat idly by as this spike in financial crimes has become evident,” the report noted. “The department began to offer a life skills class in January of 2010... One of the central themes to the class is recognition of the concept of living within one’s means.”

Dr. David Reiss, a San Diego psychiatrist who has worked with law enforcement and correctional officers, doesn’t buy it.

“It may have been the superficial trigger,” he said of the cop pay cuts. “But you’re basically talking about people who probably have a personality flaw that was going to get hit somewhere along the line by something — whether it be a citizen complaint or a run-in with a supervisor.”

It all boils down to “narcissistic pathology,” Dr. Reiss explained. Most cops have a need for power and a sense of entitlement, he said. Some of them — particularly the young and inexperienced — can’t keep these traits under control in times of stress.

“When that sense of power is challenged, they basically revert to a 4-year-old having a temper tantrum: “This is what I want. I deserve what I want. And if I can’t have it, then I’ll do whatever I need to get it, because I’m entitled to it,’” Dr. Reiss said. “At that moment, thinking about right or wrong, or thinking about consequences, isn’t really there.”

It’s a wonder how people with this psychological makeup ever became cops. The pay is so much better at a large corporation, or even in Congress.