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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

Saturday, January 21, 2012

Goldman Sachs, Occupy the SEC and the Volcker Rule

The Occupy Movement is undergoing a metamorphosis from protesting in the streets and camping in parks to discussing and supporting laws that will help remedy the weaknesses of the financial system. Naked Capitalism's Yves Smith discusses a letter sent by Occupy the SEC to the House Financial Services Committee regarding the Volcker Rule.

Goldman Sachs has supposedly divested itself of proprietary trading but it has lobbied mightily against the Volcker Rule. Lauren Tara LaCapra of Reuters in an article called Goldman lobbying hard to weaken Volcker rule wrote:

(Reuters) - Goldman Sachs Group Inc has just a few more months to put its stamp on the Volcker rule, and it is not wasting any time.

The rule, designed to limit banks from speculating with their own money, will cost Goldman at least $3.7 billion in annual revenue, by one estimate. And billions more could be at stake if regulations now being drawn up are extra-tough.

The Volcker rule was one of the main topics on the agenda when Chief Executive Lloyd Blankfein met recently with U.S. Securities and Exchange Commission Chairman Mary Schapiro.

Wall Street chiefs do not often lobby top regulators directly, but this issue is unusually important to Goldman.

"They're totally freaked out about Volcker," said a Goldman lobbyist who declined to speak on the record for fear of losing the contract. "People are working on that a lot, with agency staff, with lawmakers, you name it."

Indeed, lobbying disclosures show Goldman representatives have been working both sides of the political aisle and meeting with top officials in the White House and regulatory agencies.

One big area of concern for Goldman is that regulators who are interpreting the Volcker rule will severely limit the amount of time a bank can hold a security or derivative. Positions held long term can be backstairs bets on markets.

The Volcker rule is not the only element of financial reform that Goldman is resisting. Important issues on its lobbying docket also include derivatives reform, capital requirements and bonus restrictions.

Other bank heads, including Morgan Stanley's James Gorman, have met Schapiro about the Volcker rule. But the provision is most important for Goldman, whose business is far more weighted toward trading, three lobbying sources said.

Read the rest of the article here

As Yves says about the Occupy the SEC letter:

The letter is well documented and well argued. It goes directly after the financial services industry claim that implementation of a ban on proprietary trading will cause damage by hurting vaunted and mystical “liquidity.” An illustrative extract:

Moreover, much of the so-called “liquidity” that the banks have engineered, especially in opaque OTC markets, can be most appropriately termed “artificial liquidity.” As one commentator notes, the “very belief that the proliferation of financial derivatives and securitization techniques has enhanced global liquidity has been [the] core illusion driving the sub-prime bubble in the USA

The letter and the article can be found here


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