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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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Monday, February 11, 2013

The "Savage Capitalism*" of Goldman Sachs

Goldman Sachs's morality is based on the value of money:

"If you make money the center of your value system, then finally you have no value system because money is not a value."   (quotation from Georg Simmel mentioned in The Moral Order article by Morris Berman in Counterpunch)

The Federal Reserve is complicit in this savage capitalism because it, too, has a value system based solely on money.  The Fed has supported the insolvent banks and rigged the financial system to profit the banks and corporations as the expense of the population.

The Federal Reserve policy is "the massive effort to save the financial system [for the] benefit of bankers and plutocrats while 'adequate' fiscal stimulus to solve the economic pain of the populace is nowhere to be found."  (from End the Fed by Rob Urie in Counterpunch)

"However, [t]here is ample evidence of rampant lending fraud to feed the securitization pipelines of the Wall Street banks.   (Rob Urie in End the Fed)

*Savage capitalism is a phrase used by Rob Urie in End the Fed

End the Fed
By Rob Urie - Counterpunch

The Federal Reserve is supporting and maintaining a system of finance capitalism that by the ‘rules’ of capitalism should have disappeared in 2008. Wall Street, with its outposts now circling the globe, claims its ‘due’ under the premise its system of savage capitalism—permanent displacement of labor, evisceration of restrictions on activities businesses can and cannot engage in, planet-wide shifting of business costs from capital to unaffiliated citizenries, effective takeover of governments and the systematic ‘harvesting’ of constituent value from institutions built in social contexts from social resources, now asks that the rules it has put forth not be applied to it. And the Federal Reserve is the central entity keeping this system alive and intact as a permanent ward of its victims: we, the people.
 . . . .
To a point poorly understood by mainstream economists- cash-flow leverage works as follows: say a bundle of fraudulently underwritten mortgages was intended to yield 8% but will realistically yield 3%. Thanks to cheap money and lax lending standards the bundle can be leveraged 20X at cost of 1%, that is, for $1 invested in the mortgages $20 of the bundle can be bought with a realistic yield of 3% (cash-flow) – 1% funding cost = 2% X 20 (leverage) = 40% return per year on 20:1 leverage with the $1 of every $20 worth of mortgage bundle serving as collateral. How do bankers get a 1% funding cost against weak collateral? Thank you Federal Reserve. The drop in expected cash flow from 8% to 3% (fraudulent lending) on a 10-year instrument results from approximately 60% of the mortgages not paying, or 12X the collateral value, but the money is borrowed. The borrower realizes a 100% principal loss less the leveraged cash-flow yield and the lender realizes the 60% principal loss if the loan is ended ‘prematurely’ and the cash flow leverage could potentially make up the lost principal if the deal is left in place. This is in effect the Bears Stearns ‘hedge fund’ that blew up in the early stages of the financial crisis and the entire shadow banking system. But here is the important point—they blew up and did so at values far below their collateral values in an interrelated system where when one bank is short of collateral, they all are.

This system was built on abundant, cheap (private) credit provided by an ‘accommodative’ Fed and a banking system willing to kill the broader economy for individual gain with certain knowledge the Fed will bury the bodies and create enough money to revive the system. Five years hence mainstream economists are still prattling on about a ‘zero lower bound’ on interest rates when fiscal policy could have recovered ‘aggregate demand’ four years ago and the structure of the banking system keeps the likelihood the Fed will raise interest rates at minus 100%. (My published forecast in 2008 was the Fed wouldn’t (couldn’t) raise interest rates in my actuarially expected lifetime, then more than a few decades into the future). Put another way, five years into this crisis the Fed is still in full life support mode for the financial system and this is five years after the start of a purported economic ‘recovery.’ The real and promised infusion of tens of trillions of dollars in public funds did solve the narrow issue of avoiding large numbers of bank failures and the deflationary pressures of large scale forced liquidations of assets. But this has both perpetuated and accelerated the stranglehold finance has on the economies of the West. And the Fed’s plan today is to re-flate asset values to bubble levels, not to ‘fix’ the economy.

Please read The Moral Order here 
and End the Fed here

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