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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, May 23, 2011

Excuses That May Save Goldman Sachs From Prosecution

Excuses, excuses, excuses. From the following article I get the impression that prosecuting executives who contributed to the financial meltdown of 2008 can be excused in many ways: it is too difficult to prosecute because executives must make false statements or omit truths regarding their financial situation; criminal cases are harder to prove than civil ones; Goldman Sachs, for instance, only "misled" clients rather than defrauding them; there is a lack of evidence of crimes; the FBI lacks personnel who were reassigned to national security; the crisis was too "multifaceted" and the crimes were too "broad;" criminal activity was a result of government policy and pressure; it is too early to develop strong cases to prosecute; the failed case of Mozilo weakens other prosecutorial efforts.

So there are a few of the many excuses that can be used by the justice system for not pursuing the frauds and lies of Wall Street titans like Goldman Sachs!

Prosecutors Faulted for Not Catching Credit-Crunch 'Bandits'
By Justin Blum - Bloomberg

In November 2009, Attorney General Eric Holder vowed before television cameras to prosecute those responsible for the market collapse a year earlier, saying the U.S. would be “relentless” in pursuing corporate criminals.

In the 18 months since, no senior Wall Street executive has been criminally charged, and some lawmakers are questioning whether the U.S. Justice Department has been aggressive enough after declining to bring cases against officials at American International Group Inc. (AIG) and Countrywide Financial Corp.

Prosecutions of three categories of crime that could be linked to the causes of the crisis -- corporate, securities and bank fraud -- declined last fiscal year by 39 percent from 2003, the period after the accounting scandals at Enron Corp. and WorldCom Inc., Justice Department records show.

“You need a massive prosecutorial effort,” said Solomon Wisenberg, a white-collar defense attorney at Barnes & Thornburg LLP in Washington and a former federal prosecutor. “I don’t see evidence that it’s happening. If we were talking baseball, it would be at the AAA level.”

The Justice Department and Federal Bureau of Investigation dispute that, saying they are continuing to investigate potential wrongdoing connected to the emergency, and some probes didn’t find criminal behavior. They say they stepped up mortgage-fraud prosecutions, which more than doubled in fiscal 2010 from 2009, the first full year for which there is data.

Hard to Prove

To prosecute fraud, the government generally must show executives knowingly made false statements or omitted the truth about a company’s financial health. Bankers have argued that they broke no laws and can’t be blamed for an industry-wide breakdown in risk controls.

An unsuccessful Justice Department criminal prosecution in 2009 of two Bear Stearns Cos. hedge-fund managers accused of misleading investors about the health of their funds suggests that such cases can be difficult to prove.

Using e-mails as evidence, prosecutors alleged the managers touted their funds while privately saying they were financially unsound. Jurors acquitted the managers and said in subsequent interviews the e-mails were inconclusive.

While prosecutors have struggled to bring criminal cases, there have been civil actions, which require a lower standard of proof. The Justice Department this month filed a civil suit for more than $1 billion against Deutsche Bank AG (DBK) for allegedly lying repeatedly to qualify risky mortgages for a government insurance program. And as of April, the Securities and Exchange Commission had brought cases against more than two-dozen senior corporate officers for misconduct related to the financial crisis, Chairman Mary Schapiro said last month.

Blaming the Banks

The seizing up of credit markets led to the collapse of Bear Stearns and Lehman Brothers Holdings Inc. and sparked the worst economic slump in the U.S. since the Great Depression.

Much of the blame belongs to banks that profited from selling products that imploded with the housing market, according to an April 13 report by the Senate Permanent Subcommittee on Investigations. Goldman Sachs Group Inc. (GS) and Deutsche Bank AG (DB) sold collateralized debt obligations, investments backed by pools of bonds and loans, that the banks’ own traders believed would lose value, the report said.

You can read the entire article here

. . . . . . . . . . . . . . . . . . . .

Rolling Stone's Matt Taibbi joins Thom Hartmann on The People vs. Goldman Sachs. A Senate committee has laid out the evidence. Now, Taibbi argues, the Justice Department should bring criminal charges.

You can view the video here


Anonymous said...

Wow-no democratic outcomes!

Paul Craig Roberts: "The Whole Thing Is a Fraud"

Anonymous said...

Marshall Auerback: Yes, that is fundamentally correct. I have nothing really to add to the excellent comments made by my friend, Bill Black. The reason so little fraud has yet been detected is because nobody has chosen to look at this. And nobody has chosen to look at it because the very people who would be implicated are now the ones running the show. Why on earth would they incriminate themselves?ii

Furthermore, I would argue that it is fundamentally a political problem, not an economic one that we face today. With deregulation came the rise of “managed money”—pension funds (private and public), sovereign wealth funds, insurance funds, university endowments, and other savings that are placed with professional money managers seeking maximum returns. Also important was the shift to “total return” as the goal—yield plus price appreciation. Each money manager competes on the basis of total return, earning fee income and getting more clients if successful. Of course, the goal of each is to be the best—anyone returning less than the average return loses clients. But it is impossible for all to be above average—generating several kinds of behavior that are sure to increase risk.

Money managers will take on riskier assets to gamble for higher returns. They will innovate new products, using marketing to attract clients. Often these are purposely complex and opaque—the better to dupe clients and to prevent imitation by competing firms. And, probably most important of all, there is a strong incentive to overstate actual earnings—by failing to recognize losses, by overvaluing assets, and through just plain fraudulent accounting. This development is related to the rising importance of “shadow banks”—financial institutions that are not regulated as banks. Recall from what I’ve argued before that the New Deal imposed functional separation, with heavier supervision of commercial banks and thrifts.

Note that over the past two or three decades there was increased “outsourcing” with pension, insurance, and sovereign wealth fund managers hiring Wall Street firms to manage firms. Inevitably this led to abuse, with venerable investment houses shoveling trashy assets like asset backed securities (ABS) and collateralized debt obligations (CDOs) onto portfolios of clients. Firms like Goldman then carried it to the next logical step, betting that the toxic waste they sold to clients would crater. And, as we now know, investment banks would help their clients hide debt through opaque financial instruments, building debt loads far beyond what could be serviced—and then bet on default of their clients through the use of credit default swaps (CDS).

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