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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

Wednesday, June 16, 2010

Goldman's Insane Gambling Problems

Here's an excellent article from

The Coming Financial Meltdown

We all remember how in late 2008, staggering losses on risky derivatives nearly brought down our entire financial system.
With 43 members of the House and the Senate hammering out a final version of the financial-reform bill, one of the biggest contentions remains what to do about the mind-boggling, vast, and opaque derivatives market owned by the nation's too-big-to-fail megabanks.
The problem is getting worse. Notional amounts of derivatives held by federally insured banks have risen to more than $200 trillion.


No matter how you measure it, this is a ton of risk, and it's concentrated in five hands: JPMorgan Chase, Bank of America, Goldman Sachs , Citigroup, and Wells Fargo.

There are at least three problems with this picture:

1. This is crazy.
At 14 times the size of the U.S.'s gross domestic product, if even a fraction of these opaque and convoluted instruments blow up, as they did in 1998 and again in 2008, it would be bad news bears for everyone who doesn't live on roots and berries.

2. They're too big to fail.
The chief selling point of the financial-overhaul bill is that it somehow reduces the problem of too big to fail. Whether or not you believe that it does (it does not), one thing is for certain: The liquidation authority that is supposed to restore discipline and end moral hazard in financial markets is unlikely to work so long as derivatives traders continue to use American families' deposits as human shields. Derivatives collateral gets paid out before deposits, so the next time a megabank melts down, the Federal Deposit Insurance Corp. could be left holding the bag in liquidation.

3. We're subsidizing them.
Market-making can sometimes be socially useful, while gambling billions of dollars on interest-rate movements is probably less so, and given the dangers, may be socially detrimental. But none of these risky activities needs to be subsidized by our FDIC-insured deposits, 0% Federal Reserve liquidity guarantees, and the prospect of future bailouts. Continuing to do so will only encourage the market to grow larger and more dangerous, and siphon capital away from more legitimate activities like, say, lending money to support an economic recovery.


What you can do about it
One section of the financial-reform bill being debated now would end subsidies for derivatives trading.

Section 716, "Prohibition Against Federal Bailouts of Swaps Entities," is a flat ban on federal assistance to derivatives casinos. Banks could still use derivatives to hedge their own risk, but they would have to fund derivatives trading operations with their own money instead of ours.

Wall Street is furious. It apparently feels entitled to gamble with our savings.


Read the rest here


JR said...

And now for something completely different:

Latest Assault on Goldman Sachs: Bed Bugs?
Banking Powerhouse Has Been Spraying in Jersey City, Sources Say; Critters More Common in Offices Then People Think

June 15, 2010

As if a nearly two-year siege of negative attention hasn't been enough of a distraction for Goldman Sachs, now the controversial investment bank appears to be battling a potential bed bug problem.

More here:

Anonymous said...

What a perfect title for this piece..

Pay Attention Folks, It's In Your Face

And who asked for that "massively too much leverage"?

Hank Paulson, who was subsequently promoted to Treasury Secretary and was thus able to cash out his entire position in Goldman Sachs without paying a nickel of tax, and did so "just in time" to avoid the impact of the meltdown.

“Regulators had the authority to control that and eliminate it. We can keep passing laws, but if the regulators don’t have the backbone to enforce the rules and to be realistic, then that’s a different problem.”

Regulators have acted in collusion with the "regulated" to lie - an act that on its face meets the definition of "bank fraud", specifically in the case of IndyMac which was allegedly (according to the OTS' OIG report) backdating deposits with knowledge of OTS examiners.

What's even worse is that those same examiners were employed during the S&L crisis by the government and did the same thing then.

We have a literal thirty year history of "regulators" not only not regulating but being in bed with (in some cases literally) the regulated and conspiring with them to break black-letter laws and regulations.

Anonymous said...

No wonder the SEC can't nail the wrong doers at AIG, GOLDMAN. et al...they have this conflicted champ driving...this is pathetic!

Manhattan’s Welfare Kings: How Billionaires Turned Farms Into Personal Tax Havens and Petty Cash Machines, Allowing Them to Give Less, While Taking More

Norman B. Champ Jr: Wall Street Welfare Prince

But brutal freemarket ideas don’t apply to members of Manhattan’s genteel farmer class, even billionaires like Norman B. Champ III, who received nearly a half-million dollars in welfare payments for poor farmers, despite the fact that he lives in a multimillion dollar co-op at 828 Park Avenue. From 1995 to 2006, he raked in a total of $405,807 in dairy, corn and soy subsidies via his stake in the Champ family’s dairy farm in Missouri, his home state. Handout-for-handout, even Reagan’s mythic Cadillac-driving Chicago welfare queen and her $150,000 welfare scam got nothing on Champ, who could buy a Lamborghini and still have money left over to reupholster his private jet.

Norman B. Champ III, 47, was born into a wealthy, upper-crust Missouri family and lived a privileged life (the Champs had a Missouri village named after them in their honor: the Village of Champ). He graduated summa cum laude from Princeton University, went to England for a masters in war studies from King’s College and earned a law degree—cum laude, of course—from Harvard, after which he finally settled down at Chilton Investment Company, a multi-billion dollar hedge fund. He had added three titles to his name—Executive Vice President, General Counsel, Chief Compliance Officer—by the time the markets crashed. He lost no time jumping ship to a cushy government job with the Securities and Exchange Commission, coming on board in January 2010 to start a new life as a financial regulator at the SEC’s New York Inspections and Examinations Division. He now leads a team of 100 hardworking investigators in a crusade to crack down on the shady dealings of his hedge-fund buddies.

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