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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

Thursday, May 19, 2011

Response to Another Apologist for Goldman Sachs

Roger Lowenstein (Bloomberg Businessweek), in an article titled, Wall Street: Not Guilty, endeavors to explain why no executives have gone to jail for their roles in the financial crisis. He says that "risk taking" and "stupidity" as not criminal attributes. However, the photo at the head of the article had the right executives depicted who should be in jail, i.e., Fuld, Mozilo and Blankfein.

To quote Lowenstein: "...these sentiments (about no prosecutions) imply that a financial crisis was caused by fraud; [imply] that people who take big risks should be subject to a criminal investigation;"...."The claim that it (the crisis) was 'caused by financial fraud' is debatable, but the weight of the evidence is strongly against it. The financial crisis was accompanied by fraud,..."

It is hard to see how no fraud occurs when a crisis is accompanied by fraud. The Levin/Coburn report illustrates in detail with accompanying documentation how Blankfein and Co. played a leading role in carrying out fraud against investors. Goldman Sachs fraudulently took taxpayer bailout money via AIG and created and sold securities rated AAA that were really junk.

Fraud is deceit, trickery, sharp practice, or breach of confidence perpetrated for profit or to gain unfair or dishonest advantage. (Collins English Dictionary)

Lowenstein uses weasel words to mask what is really fraud: words like exacerbate, lax policy, weak regulation, overconfidence, ill-considered, multi-causal, frightful behavior, unfairness, incompetence, societal breakdown, part of a corrupt system, to act badly, to act unwisely, sharp practices, etc. Use the word FRAUD, man, as that is what these actions led to. When you see a pig, call it a pig!

It is criminal to commit fraud. It is criminal to be unethical in a business that requires ethics and trust. Committing fraud is not as trivial as you would have us believe with all these euphemisms for fraud.

For a refreshing alternative, let's look at Robert A. Green's take called,

It's Getting Harder to Defend Goldman Sachs
By Robert A. Green - Forbes

. . . .

As Congress and the media were debating the controversial and populist-tinged Dodd-Frank Financial Regulation bill, my first inclination was to defend Wall Street and traders overall. I didn’t like Dodd-Frank’s Volcker Rule, which divests proprietary trading and alternative investments (hedge funds and private equity) from Wall Street (commercial) banks. I believed the bill was similar to reinstating the Glass-Steagall Act separating investment banking and trading from commercial banking.

I argued that banks need trading profits — where the main profits have been the last decade — to offset losses on lending, especially during a recession. But now I agree with Chairman Volcker. We can’t be certain Goldman Sachs CEO Blankfein and other sleuths won’t steal client inside information to front run, compete, and trade against their clients and the public’s interests. The Chinese Wall is the biggest myth and lie on Wall Street.

What’s clear to me now after learning more is that Wall Street embraced and abused conflicts of interest for its own private good, directly at the great expense of its clients and the public.

Goldman should be tarred and feathered over the 2008 meltdown. Like others on Wall Street, Goldman had an active mortgage department designing, packaging, securitizing, promoting, and selling mortgage-backed securities and related synthetic derivatives. Goldman’s trading desk conceived, promoted, and sold various protection strategies as market maker, agent, and principal.

As the housing bubble got close to bursting, Goldman became enlightened sooner than other banks, partially from witnessing the “big short” strategies of its infamous hedge-fund client John Paulson.

The entire firm came around to believing the great mortgage bubble was a house of cards ready to collapse, based on delinquencies, no-doc loans, fraud, and more. This is where Goldman made a serious error in judgment.

Goldman had two choices: discontinue the sale of junk-mortgage securities and alerting the government, media, public, their clients, and investors; or, keep it a secret, sell off junk-mortgage securities to investors, profit from the inevitable bursting of the bubble, and steal and even front-run part of Paulson’s trade.

Here’s the most basic analogy of guilt: Picture Goldman as a used car salesman. When it learned it had an inventory of lemons, rather than return those lemons to the manufacturers (lemon law in most states), it put those cars on promotion with very aggressive sales tactics.

Before the unsuspecting and trusting customer bought the lemon and drove off with it, Goldman purchased “protection” — life and auto insurance policies on the driver that were set to profit when the lemon crashed and burned. Clearly, Goldman’s short (protection) trade was connected to clearing out their long trades (selling the lemons), so ill-gotten profits on all these transactions must be returned with penalties too.

Once Goldman had its “big short” trades on, it couldn’t wait for the payday, risking the market might recover. It knew marking down its own long portfolio of lemons could trigger the crisis and the huge short-trade payouts. Marking down the lemons lowered them for sale to investors and forced all other banks to do almost the same. Based on fair-value accounting rules, Goldman forced lower fire-sale marks on the industry which put some financial institutions out of business almost overnight. Which turned into another win, as Goldman had pre-purchased credit-default swaps to pay off on their competitors’ demise.

Read the entire article here


Anonymous said...

Does Lowenstein know what the word captured means?

or compromised?..or maybe "shill"?

Obama's New SEC Chief: In Through the Revolving Door

You can see WilmerHale's list of clients here: it includes Chase, Goldman, and Morgan Stanley. Just FYI, Bill McLucas, the WilmerHale lawyer quoted in that piece, is a former longstanding SEC Enforcement Division chief himself. We can now officially rework the chicken-and-egg jokefor all time: what came first, the WilmerHale lawyer, or his SEC appointment?

Anonymous said...

Meet another apologist....Megan McArdle.

Matt Taibbi Vs. Wall Street Apologist Megan McArdle On Goldman Sachs

Anonymous said...

Eric Schneiderman: One Lawman With the Guts to Go After Wall Street

Eric Schneiderman will probably fail, as did his predecessors in that job; the honest sheriff doesn’t last long in a town that houses the Wall Street casino. But decent folks should be cheering him on.

Not surprising then to find all of the power players in on the latest deals: the Obama administration that had bailed out the banks but not troubled homeowners; the regulators and Fed officials who all looked the other way when the housing bubble was inflated; and the state attorneys general who backed away from going after the perpetrators of robo-signed mortgages and other scams used to foreclose homes.

But now Schneiderman has a chance to derail the deals, given that he is supported by the state’s tough 1921 Martin Act, which one of his predecessors as New York state attorney general, Eliot Spitzer, had used to good advantage in exposing the financial behemoths that are so heavily based in New York. The Wall Street Journal describes the Martin Act as “one of the most potent prosecutorial tools against financial fraud” because, as opposed to federal law, it doesn’t carry the more difficult standard of proving intent to defraud.

Joyce said...

Thank you all for the links to important information. I appreciate them.

Anonymous said...

Recurring theme.....

When Regulators Side With the Industries They Regulate

Probably the most egregious mistake made by the Office of the Comptroller of the Currency during the subprime boom was to push back against state officials who wanted to curtail malpractice in housing loans, including predatory lending.

Naturally, post-debacle the Office of the Comptroller of the Currency talks an ostensibly better game but, as Joe Nocera put it, “it sure looks as though the country’s top bank regulator is back to its old tricks.”

The problem is not that the Office of the Comptroller of the Currency sees its primary duty as the “safety and soundness” of the financial system. Rather, the danger to the public arises because it has consistently taken the view that the best way to protect banks — and keep them out of financial trouble — is to allow them to be harsh with consumers.

Anonymous said...

Rule of Law: Banker Criminality Demands Prosecution

As usual this guy puts it all together well...

Rule of Law: Banker Criminality Demands Prosecution

A bizarre meme seems to have popped up recently regarding prosecuting banks for fraud and other crimes. What makes it weird is that its not exclusively coming from the usual collection of asshats and idealogues. Very little that tumbles out of the piehole of Megan McArdle suprises me — her record precedes her. But a few others have surprisingly been picking up on this theme. Even Roger Lowenstein had a Bloomberg column with the unfortunate headline No Jail for Economic Crisis May Mean No Crime.

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