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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

Monday, December 13, 2010

Goldman Sachs Thrives on Secrecy, Part 2

Goldman Sachs belongs to a small group of big banks who work in "bi-lateral trading" in derivatives. Oliver Frankel represents Goldman Sachs in the group, according to The New York Times. Customers using derivatives cannot see the pricing and other trading information and, therefore, do not know whether or not their deal is a good one. When these banks trade with each other exclusively, there is a greater risk that the failure of one bank can affect the other banks and the whole system. The risks that hedge funds present can also be hidden.

Even with the development of clearinghouses (which the banks are prominent in developing) where some transparency is brought to the derivative market and where some information is made available, this small cartel of banks still makes the rules. Key committees of clearinghouses are mainly comprised of bankers who then strive to control the market. Trading information is not freely available and other institutions are not welcome to participate.

This development in the derivative market does not sound very promising and bears a lot of the traits of the derivative market before the meltdown in 2008: profits are hidden; bankers do not want competition; banks set the rules for clearinghouses (more unpromising "self-regulation"); and, finally, banks control the risks.

A Secretive Banking Elite Rules Trading in Derivatives

by Louise Story - The New York Times

On the third Wednesday of every month, the nine members of an elite Wall Street society gather in Midtown Manhattan.

The men share a common goal: to protect the interests of big banks in the vast market for derivatives, one of the most profitable — and controversial — fields in finance. They also share a common secret: The details of their meetings, even their identities, have been strictly confidential.

Drawn from giants like JPMorgan Chase, Goldman Sachs and Morgan Stanley, the bankers form a powerful committee that helps oversee trading in derivatives, instruments which, like insurance, are used to hedge risk.

In theory, this group exists to safeguard the integrity of the multitrillion-dollar market. In practice, it also defends the dominance of the big banks.

The banks in this group, which is affiliated with a new derivatives clearinghouse, have fought to block other banks from entering the market, and they are also trying to thwart efforts to make full information on prices and fees freely available.

Banks’ influence over this market, and over clearinghouses like the one this select group advises, has costly implications for businesses large and small, like Dan Singer’s home heating-oil company in Westchester County, north of New York City.

This fall, many of Mr. Singer’s customers purchased fixed-rate plans to lock in winter heating oil at around $3 a gallon. While that price was above the prevailing $2.80 a gallon then, the contracts will protect homeowners if bitterly cold weather pushes the price higher.

But Mr. Singer wonders if his company, Robison Oil, should be getting a better deal. He uses derivatives like swaps and options to create his fixed plans. But he has no idea how much lower his prices — and his customers’ prices — could be, he says, because banks don’t disclose fees associated with the derivatives.

“At the end of the day, I don’t know if I got a fair price, or what they’re charging me,” Mr. Singer said.

Derivatives shift risk from one party to another, and they offer many benefits, like enabling Mr. Singer to sell his fixed plans without having to bear all the risk that oil prices could suddenly rise. Derivatives are also big business on Wall Street. Banks collect many billions of dollars annually in undisclosed fees associated with these instruments — an amount that almost certainly would be lower if there were more competition and transparent prices.

Just how much derivatives trading costs ordinary Americans is uncertain. The size and reach of this market has grown rapidly over the past two decades. Pension funds today use derivatives to hedge investments. States and cities use them to try to hold down borrowing costs. Airlines use them to secure steady fuel prices. Food companies use them to lock in prices of commodities like wheat or beef.

The marketplace as it functions now “adds up to higher costs to all Americans,” said Gary Gensler, the chairman of the Commodity Futures Trading Commission, which regulates most derivatives. More oversight of the banks in this market is needed, he said.

But big banks influence the rules governing derivatives through a variety of industry groups. The banks’ latest point of influence are clearinghouses like ICE Trust, which holds the monthly meetings with the nine bankers in New York.

Under the Dodd-Frank financial overhaul, many derivatives will be traded via such clearinghouses. Mr. Gensler wants to lessen banks’ control over these new institutions. But Republican lawmakers, many of whom received large campaign contributions from bankers who want to influence how the derivatives rules are written, say they plan to push back against much of the coming reform. On Thursday, the commission canceled a vote over a proposal to make prices more transparent, raising speculation that Mr. Gensler did not have enough support from his fellow commissioners.

The Department of Justice is looking into derivatives, too. The department’s antitrust unit is actively investigating “the possibility of anticompetitive practices in the credit derivatives clearing, trading and information services industries,” according to a department spokeswoman.

Read the entire article here


Anonymous said...

Maybe we can all learn something from this kid...

Maybe Obama can bring him in for advice instead of abdicating his role to Clinton.

Kid has more starch in his jeans than our leaders who fail to move decisively on the corruption in the system!

15 year old Tells Establishment to Stick-it

Anonymous said...

Who's Lying?

I hate to be a wet blanket during this festive holiday season, but the truth is that there is no self sustaining recovery happening. The powers that be, with the help of their lackeys in the mainstream media are desperately trying to convince you that everything is alright. It is not alright. It is getting worse by the day. The only people spending are Lloyd Blankfein and his ilk, while middle class Americans sink further into despair and debt.

Who’s lying? You know.

Anonymous said...

“Crime Shouldn’t Pay”: Tell the State AGs You Want Mortgage Fraud Prosecuted

Anonymous said...

Think about what he is saying...

The American Dissident

Anonymous said...

Why I'm Posting Bail Money for Julian Assange

So why is WikiLeaks, after performing such an important public service, under such vicious attack? Because they have outed and embarrassed those who have covered up the truth. The assault on them has been over the top:

They exist to terrorize the liars and warmongers who have brought ruin to our nation and to others. Perhaps the next war won't be so easy because the tables have been turned -- and now it's Big Brother who's being watched ... by us!

WikiLeaks deserves our thanks for shining a huge spotlight on all this. But some in the corporate-owned press have dismissed the importance of WikiLeaks ("they've released little that's new!") or have painted them as simple anarchists ("WikiLeaks just releases everything without any editorial control!"). WikiLeaks exists, in part, because the mainstream media has failed to live up to its responsibility. The corporate owners have decimated newsrooms, making it impossible for good journalists to do their job. There's no time or money anymore for investigative journalism. Simply put, investors don't want those stories exposed. They like their secrets kept ... as secrets.

Anonymous said...


Feast in Time of Plague: Wall Street Art of Sucking Money

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