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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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Saturday, March 9, 2013

Goldman Sachs Fails "Stress Test"

A definition of "Stress Test:"
"A test developed by federal banking regulators in 2009 to assess the ability of 19 large banks to withstand prolonged weakness in the U.S. economy. The purpose of the tests was to determine if the banks had enough capital to cope with continued high unemployment, low housing prices, and a high number of foreclosures. Ten of the 19 banks tested were told they needed to raise additional capital."

In 2013, banks were again asked by regulators to perform stress tests on the resiliency of their capital strength in case of a severe recession.  Goldman had predicted estimates that were more optimistic in their ability to avoid trading losses than the Fed thought.  In other words, Goldman's calculation of risk is incorrect and Goldman could risk failure under severe circumstances.
 
Banks wish to obtain Federal approval for increase dividends and share repurchases and these results will change how the requests if the banks will be handled.

Are these self-administered tests just another instance of the failure of self-regulation?


Fed Sees Goldman, JPMorgan Overvaluing Capital Strength
 
Goldman Sachs Group Inc., JPMorgan Chase & Co. (JPM) and Morgan Stanley (MS) lagged behind peers in a key measure of capital strength used by U.S. regulators to stress- test their resiliency in a severe recession. 
 
The three firms submitted more-optimistic estimates of their capital strength and ability to avoid losses on trading and lending than Federal Reserve projections released yesterday for the 18 biggest U.S. banks. Of the three, the gap was widest for Goldman Sachs, which predicted that its Tier 1 common ratio may fall as low as 8.6 percent in a sharp economic downturn, compared with the central bank’s 5.8 percent estimate.  

Read the article here

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