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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

Friday, February 10, 2012

Accounting Control Fraud and Goldman Sachs

Articles supporting Wall Street always ignore the accounting control fraud practised by the likes of Goldman Sachs. Goldman purposely bought sub-prime mortgages to bundle into securities rated as AAA. Even though Goldman knew that the securities were not worth their rating, they sold them to investors--pension funds, municipalities, etc.

The huge profits earned from selling those worthless securities were put onto Goldman's books and were used to justify the humungous salaries and bonuses paid to executives and employees. These securities were not only highly over-valued by Goldman, they were also the basis for betting against the mortgage market that brought in billions more in profit.

Such accounting control fraud is Fraud and should not be treated as just an immoral act (although it was that too). Bailouts were an error: Prosecutions should follow.

Here's an excerpt from Matt Taibbi's article, an article that challenges and shoots down Gabriel Sherman's premise with guns ablazing:

Why Wall Street Should Stop Whining
By Matt Taibbi - Taibblog (RollingStone)

Take for instance Lloyd Blankfein and Goldman, Sachs. Lloyd has the most famous reduced bonus on Wall Street – he’s making $7 million this year (it was $12.6 million last year) as his bank, Goldman, had a disastrous fourth quarter. Goldman’s $6.1 billion in revenues was down 30% off last year’s fourth quarter. To what does the big Lloyd attribute this sad development?

"This past year was dominated by global macro-economic concerns which significantly affected our clients' risk tolerance and willingness to transact," Blankfein said, "While our results declined as a consequence, I am pleased that the firm retained its industry-leading positions across our global client franchise while prudently managing risk, capital and expenses. As economies and markets improve – and we see encouraging signs of this – Goldman Sachs is very well positioned to perform for our clients and our shareholders."

Translation: Europe is such a mess right now that all our biggest clients are sitting on their money instead of letting us steal it from them. However, once Europe rebounds, as we expect it to, we will be well positioned to start stealing from them again.

Goldman’s numbers offer a hilarious counterpoint to Sherman’s piece. The bank’s earnings in total for last year were $4.4 billion, down some 65% off of last year’s numbers. Its revenues for the year were down 26%. Despite these bummerific numbers, Goldman reduced bonuses and compensation by only 21%, down to (a mere) $12.2 billion. If the era of outsized bonuses is over, how come the biggest banks aren’t even cutting them to match revenues, much less profits? One could even interpret Goldman’s numbers as a major increase in the size of the bonus pool, relative to earnings.

Read the entire article here


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