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Fraud*
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

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Tuesday, August 21, 2012

Goldman Sachs and Accounting Control Fraud

William K. Black has been infinitely patient in explaining over and over again why there was rampant fraud throughout the financial system which directly caused the financial crisis of 2008.  He does the citizenry of the US a great service in pointing out how events actually proceeded to bring about the GFC. 

It is too bad that the President and his cronies have a tin ear for the truth.

The whole video is worth watching for the many details Black presents:
Black Report:  No Criminal Prosecution of Wall St. and Who is the European, Romney or Obama?
Bill Black Finance and Fraud Report:  Goldman and MF Global avoid criminal charges...
From the Transcript of The Real News with Paul Jay and William K. Black
. . . .

BLACK: Yes. You can't have this kind of total breakdown of internal controls without senior management knowing about it and, in this context, wanting that breakdown, because it gives them precisely what proves so valuable here, and that is deniability: "What?" It's the Sergeant Klink I know nothing defense, and, you know, the Justice Department fell for it, hook, line, and sinker.

In the case of Goldman Sachs it's actually even worse, because we have the complaints by the Federal Housing Finance Administration—that's the regulator of Fannie and Freddie. In this context, they're bringing the suit as conservator for Fannie and Freddie, which means they get to the assert legal rights. And if you read the complaint, while it isn't using the word fraud, because why take on a greater burden than you need in a civil case, it pleads (in other words, it says), the following facts establish that there was a knowing, massive series of false representations for financial gain and that people relied on these representations. In other words, they've alleged that Goldman Sachs had every single element required to prosecute them for fraud. So either the Federal Housing Finance Administration is wrong or the Justice Department is wrong, and the only entity that's really done an investigation is the Federal Housing Finance Administration.

Indeed, what came out in—.  I was on, you know, CNBC's Closing Bell in a debate with Bethany McLean. Both the anchor for that show and Bethany McLean said, well, you couldn't prosecute Goldman Sachs and its officials, because Goldman Sachs lost money from the purchase and sale of fraudulent mortgages. And, again, that's just terrible criminology, because that's of course what happens when you engage in accounting control fraud.

The four-part recipe for that kind of fraud is make or purchase really crappy loans at a premium yield, while growing enormously, using extreme leverage (that means debt), and setting aside virtually no loss reserves. If you do those four things, you're mathematically guaranteed to report fictional profits, pay your senior officers very large bonuses, and then suffer catastrophic losses.

And that's exactly what Goldman did at first, Bear Stearns, Merrill Lynch. The only difference is that Goldman Sachs eventually figured out, "Whoa, the crash is coming, we'd better dump all of our crappy loans and derivatives," and they sold them to their customers wherever possible. That exacerbates their fraud. That doesn't make them less culpable.JAY: So this is just a case that the Obama administration doesn't want to take on finance, especially during an election year.

See the video and transcript here 

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