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According to the Collins English Dictionary 10th Edition fraud can be defined as: "deceit, trickery, sharp practice, or breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage".[1] In the broadest sense, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation. Defrauding people or entities of money or valuables is a common purpose of fraud, but there have also been fraudulent "discoveries", e.g. in science, to gain prestige rather than immediate monetary gain
*As defined in Wikipedia

Friday, May 21, 2010

Goldman is not going to like this

This is making the rounds pretty quickly. I saw it on Ratigan. Something tells me Goldman is not going to like this.

The best financial reform? Let the bankers fail

The trouble with Wall Street isn't that too many bankers get rich in the booms. The trouble, rather, is that too few get poor -- really, suitably poor -- in the busts. To the titans of finance go the upside. To we, the people, nowadays, goes the downside. How much better it would be if the bankers took the losses just as they do the profits.


Happily, there's a ready-made and time-tested solution. Let the senior financiers keep their salaries and bonuses, and let them do with their banks what they will. If, however, their bank fails, let the bankers themselves fail. Let the value of their houses, cars, yachts, paintings, etc. be assigned to the firm's creditors.


Of course, there are only so many mansions, Bugattis and Matisses to go around. And many, many such treasures would be needed to make the taxpayers whole for the serial failures of 2007-09. Then again, under my proposed reform not more than a few high-end sheriff's auctions would probably ever take place. The plausible threat of personal bankruptcy would suffice to focus the minds of American financiers on safety and soundness as they have not been focused for years.

... In Brazil -- which learned a thing or two about frenzied finance during its many bouts with hyperinflation -- bank directors, senior bank officers and controlling bank stockholders know that they are personally responsible for the solvency of the institution with which they are associated. Let it fail, and their net worths are frozen for the duration of often-lengthy court proceedings. If worse comes to worse, the responsible and accountable parties can lose their all.


Until 1999, Goldman Sachs was a partnership, with the general partners bearing general and unlimited liability for the firm's debts. Today, Goldman -- like the vast majority of American financial institutions -- is a corporation. Its stockholders are liable only for what they invested, no more. And while there are plenty of sleepless nights, the constructive fear of financial oblivion is, for the senior executives, an all-too-distant nightmare.

The job before Congress is to bring the fear of God back to Wall Street. Not to stifle enterprise but quite the opposite: to restore real capitalism. By all means, let the bankers savor the sweets of their success. But let them, and their stockholders, pay dearly for their failures. Fair's fair.

Read the rest here


Anonymous said...

Curiously Rickards is very much against CDS - fair enough, however the problem with that is that eliminating the most natural way to hedge long credit positions (which make no mistake is what CDS really are all about, good luck finding cash bond borrow in some obscure HY name, even with market monopolist Goldman, or especially with Goldman if it has soaked up all the cash shorts) will have an adverse impact on the market one thousand times worse than banning all shorts, not just naked, in equities. On the other hand, just the expectation of a global CDS short, without recourse mechanism to hedge bond exposure, would push the S&P to our very long-term S&P target of approximately 0, as it would immediately force an unwind in that biggest of all uncharted territories, the IR OTC swap market.

Some critical insight from Rickards in terms of European geopolitics is the following: "People get so hung up on economics, and efficient markets, and all that which has been largely discredited at this point. But these are NATO allies. Greece controls the ceiling of the Eastern Mediterranean and the Aegean, they have a very robust military budget. Same thing with Spain. Spain's been a very important NATO ally throughout the cold war, Italy etc. Can you imagine if during the cold war the Soviet Union had undermined all the countries, it would have been the start of World War III. And yet we are letting investment banks do the same thing. We are letting investment banks undermine the finances, cast doubt on the credibility, create civil unrest, riots, death. It's the kind of thing that in a military frontal assault would be repelled, but somehow we let Wall Street attack the countries and do nothing about it. I am glad that someone is finally standing up, and I expect that Merkel will be joined by others. I am not against speculation. Let speculators put up some money, let them do on an exchange, let the pricing be transparent, let them do variation margin... This no money down shadow credit default swap market is completely destructive."

Anonymous said...

It must be an unbelievable feeling to walk away scot free from a massive crime...I guess the public should get used to these kind of results in a completely fraudulent system! Guess we're all too emotional!

AIG executives did not mislead investors: WSJ report
US won't file criminal charges against insurer executives for roll in 2008 crisis

Anonymous said...

Refresher if you have been living under a rock:

It’s impossible to grasp the totality of Friedman/Goldman’s grossness with regard to the AIG story without a little context. Remember the basic timeline. In the middle of the mortgage bubble, Goldman Sachs found a patsy-buffoon named Joe Cassano at a little corner of AIG called AIG Financial Products, or AIGFP. Cassano was recklessly writing hundreds of billions of dollars worth of credit default swaps for banks like Goldman and Deutsche, essentially insuring certain investments for these banks, including extremely risky mortgage-backed deals.

RobertM said...

@"Curiously Rickards is very much against CDS - fair enough, however the problem with that is that eliminating the most natural way to hedge long credit positions".

On one hand, they tell us that CDS are not an insurance hedge and therefore should not be regulated as insurance and then they say they have to use CDS to hedge exposure. Which is it? I would have cared less about CDS if they hadn't of created them out of non-existent money (credit). 600 trillion of derivatives, most of them worth nothing and backed by nothing. A counterfeiter's casino.

Anonymous said...

Friggin people have short perp walks..just bonuses, bonuses, bonuses!

Perp Walks Instead of Bonuses
But the $165 million in taxpayer funds used to reward them is but a sideshow in a far larger drama of moral decay swirling around the banking bailout. It should not distract from the many billions, not paltry millions, of our dollars being diverted to reward the very folks who brought us such misery. Consider the $12.8 billion of the $170 billion that taxpayers gave AIG in bailout funds that AIG then secretly diverted to Goldman Sachs, a company that evidently has a lock on both the Treasury Department and the Federal Reserve no matter which political party is in power. It was the biggest payoff among those that AIG made to a score of foreign and domestic financial giants.

The bailout is a response to a banking crisis that resulted from the radical deregulation pushed by former Goldman Sachs honcho Robert Rubin when he was President Clinton’s treasury secretary. Another Goldman Sachs chairman-turned-treasury-secretary, Henry Paulson, in the Bush administration designed the trillion-dollar bank bailout that will go down as the greatest swindle in U.S. history.

It was because of Paulson that AIG was saved from bankruptcy hours after Goldman rival Lehman Brothers was allowed to go down the drain. Why that reversal of strategy in a top-secret meeting called by then New York Fed Chair Timothy Geithner, a Rubin protégé and now Barack Obama’s treasury secretary? Why was Goldman’s Lloyd Blankfein the only financial industry CEO in attendance? When that news leaked out, his role was defended as that of a noninvolved concerned citizen with expert knowledge, and whose firm had no direct monetary stake in the outcome.

Anonymous said...

Crisis Probes Fail to Meet High Bar

If stupidity were a crime, half the population would be in jail. The appropriate punishment would have been catastrophic loss to AIG's shareholders, bondholders, and those foolish enough to contract with AIG for its credit default swap "insurance". Instead, thanks to Bush and Obama, it's the taxpayers who have taken the hit for AIG's, and its counterparties', folly.

Don't kid yourselves. Part of the implicit deal between the Obama Administration and "too big to fail" financial institutions is that no one who plays ball with the administration will be prosecuted.

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