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.
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?iiTo Read the Entire Interview with Marshall Auerback...click here
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).