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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

Tuesday, May 24, 2011

Marshall Auerback Comments On The Financial Crisis and Goldman Sachs

This post courtesy of an Anonymous commenter who provide this copy in Joyce's post Excuses That May Save Goldman Sachs From Prosecution, May 23, 2011.

It is an excerpt from an article written by Lars Schall from his blog Lars Schall.  The post The “Road To Recovery” Is A Dead End is interesting and worthy of a read as well as the mention here.

To understand the depth of destruction caused by Goldman Sachs and their fellow band of merry banksters we must first understand how it all began and what it was really all about (billions of dollars).  Not enough is written about the crisis- the biggest fraud the world has ever known -  began, how it flourished, how it was allowed to flourish and who allowed it to flourish.  With this knowledge we begin to see the conspiracy with all the conspirators.  One person and/or bank alone could never have pulled it off as Auerback suggests as well.

Marshall Auerback's bio heads the post by Schall.

As copied from the comment:  Thank you Anonymous for the contribution.
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).
To Read the Entire Interview with Marshall here


Anonymous said...

As he reflected on his career and on modern Wall Street, he seemed befuddled.

“I don’t recognize it. They’re all a bunch of traders. Instead of trading thousands they’re trading trillions,” he said. “There are no more John Whiteheads or anything like that,” referring to the former co-chairman of Goldman Sachs.

Mr. Forstmann has always been outspoken about the financial industry, but this time he went a little further. “It is a pretty greed-driven business, the whole thing,” he said.

While he is proud of the life he has lived — and hopes to conquer the cancer and live many more years — he is not so enamored of the industry he pioneered, he says.

“I’m not very proud of how it’s turned out.”

Anonymous said...

In Praise of Sorkin’s Praise of Lowenstein’s Praise of Financial CEOs

This is the first of a multi-part response to Lowenstein’s column. The remaining columns will address why control fraud drove the current crisis and respond to Lowenstein’s strawman arguments. The sources of the quotations used in this column, from Messrs. Lowenstein and Sorkin, are provided below.

Joyce said...

You need to read some Jonathan Swift to get the satire in Black's reply at Ritholtz above. See:

from which I quote the following potent image about attacking knowledge from the rear;

"The whole course of things being thus entirely changed between us and the ancients, and the moderns wisely sensible of it, we of this age have discovered a shorter and more prudent method to become scholars and wits, without the fatigue of reading or of thinking. The most accomplished way of using books at present is twofold: either first to serve them as some men do lords, learn their titles exactly, and then brag of their acquaintance; or, secondly, which is indeed the choicer, the profounder, and politer method, to get a thorough insight into the index by which the whole book is governed and turned, like fishes by the tail. For to enter the palace of learning at the great gate requires an expense of time and forms, therefore men of much haste and little ceremony are content to get in by the back-door. For the arts are all in a flying march, and therefore more easily subdued by attacking them in the rear. Thus physicians discover the state of the whole body by consulting only what comes from behind. Thus men catch knowledge by throwing their wit on the posteriors of a book, as boys do sparrows with flinging salt upon their tails. Thus human life is best understood by the wise man’s rule of regarding the end. Thus are the sciences found, like Hercules’ oxen, by tracing them backwards. Thus are old sciences unravelled like old stockings, by beginning at the foot."
--Jonathan Swift, "A Digression in Praise of Digressions"

Anonymous said...

You want to see why we're screwed....we have no representation...look at how this congressman calls Elizabeth Warren a liar....YET after all the revelations made regarding fraud...where is this guy? does he represent the people of North Carolina or Bank America?
100 North Tryon Street, Ste 220
Charlotte, NC 28202

Rep. McHenry Seeks More Oversight Of Consumer Bureau
Rep. Patrick McHenry, R-N.C., chairman of the Oversight Committee's subcommittee on TARP, told CNBC Tuesday the bureau has been operating without oversight as Warren, claiming to be only an adviser, extends her role behind the scenes.

He cited the bureau's recent involvement in ongoing settlement negotiations with some of the nation's largest mortgage servicers.

"If it’s advice it’s one thing. But when the terms of the settlement meet the exact expectations of Elizabeth Warren's power-point presentation, that raises a great deal of questions," he said. "She insists on simply being an adviser to the president and the Treasury Secretary and it seems as though she and her agency have been acting beyond the scope and the power they’ve been given."

Anonymous said...

This is why the congressman's panties are twisted....
from another blog...
Banks Push Consumer Bureau to Keep U.S. Complaint Line Private
This news item came out 10 days ago but I ran across it again to day and I thought people should be aware of just how two-tiered our Rule of Law system has become: There's the big banks and then there's everyone else. Here's the LINK

Anonymous said...

Were these hearings held in Salem?

Why Are Republicans So Keen to Persecute Elizabeth Warren?
Today’s spectacle had the Republicans looking like idiots who resorted bullying when their initial salvos failed to hit their target. Chairman Patrick McHenry came off like a an angry amateur, trying ineptly to play prosecutor by demanding yes and no answers to questions that were clearly setups or couldn’t be answered that simply. The problem is that this tactic works only if you have legitimate questions and keep your cool.

Another Republican, Trey Gowdy, tried this trick and when Warren patiently explained why a yes or no answer couldn’t be accurate, he simply got more and more pissy. Earth to base: you won’t find “pissy” on any map of moral high ground.

And do these Republicans have the foggiest understanding of Dodd Frank or banking regulators? It appears not, which means they also must have incompetent staffers, since any good subordinate’s job is to keep his boss from looking stupid. For instance, Representative Ann Marie Buerkle had a long windup question (meaning she was largely speechifying) criticizing Warren for having job postings where the pay levels were considerably higher than those for similar-skill-level Federal jobs. Warren explained that the compensation levels were set not by her but by Dodd Frank, using the salary grades in place for other Federal banking regulators. Buerkle simply refused to listen to Warren’s response and simply rephrased her question as a more pointed accusation that Warren was being irresponsible and wasting government money.

Anonymous said...

Things Are Spinning Out of Control (May 25, 2011)

The single greatest conceit of the Status Quo in the U.S., China and Euroland is that systems and trends can be tightly controlled. That conceit is slowly being revealed as hubris, as all sorts of things are spinning out of the control of the centralized authorities and financial elites in each geopolitical power center.

Does anyone really think the people of Greece will stand idly by while the state treasures of their nation are transferred to the banks which foolishly lent billions to a visibly risky enterprise? The banks, of course, lent freely to insolvent governments throughout the European Union, confident in the backstop of the E.U. itself.

The analogy to subprime mortgages in the U.S. is near-perfect: banks lent freely to extremely risky borrowers, breezily confident that their worker-bees in the Federal Reserve, Fannie Mae and Freddie Mac, the Treasury and Congress would all toil feverishly to transfer the risk to the U.S. taxpayers, by whatever means were necessary.
Things are spinning out of the control of the centralized mandarins in the E.U. They seem to have borrowed the Federal Reserve's playbook to keep the stripmining proceeding as planned: lie, frequently (practice helps); obscure systemic risks by printing money; and issue a foul sewage of propaganda about how nicely the economy is "recovering" to mask the real game, which is diverting the national income stream to the banking cartel.

Joyce said...

About Elizabeth Warren's lonely crusade for the ordinary consumer: If she were to be harangued out of office, I would hope that the American people would protest by the millions--I mean in the street protests. She is a national jewel and being harassed by many in the Republican party because she stands up for and represents the little person! It it weren't so sad, it would be funny to look at all those big guys so afraid of one small well-spoken woman. Republicans truly stand for the millionaire corporate interests and the banks.

We depend on this one person to represent the people over the oligarchy.

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