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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

Thursday, March 7, 2013

Goldman Sachs: Usury in, and Predation of, the Economy

Since the financial crisis of 2008, we have come to realize that Goldman Sachs earns "fictitious capital" also known as earning profits in the form of interest, dividends and fees.  This fictitious capital "consists of indebtedness (bills of exchange), government securities (which represent spent capital), and stock (claims on future yields of production."   Michael Hudson explains the nature of the fictitious capital of investment banks by analyzing the theories of Marx.

Banking is no longer "subordinated to the needs of industrial capitalism" but has become usurious and predatory in nature.

From Marx To Goldman Sachs:  The Fictions of Fictitious Capital
By Michael Hudson, March 20, 2010
. . . .
 A point arrives at which bankers and investors recognize that no society’s productive powers can long support the growth of interest-bearing debt at compound rates. Seeing that the pretense must end, they call in their loans and foreclose on the property of debtors, forcing the sale of property under crisis conditions as the financial system collapses in a convulsion of bankruptcy.
. . . .
The last few decades have seen the banking and financial sector evolve beyond what Marx or any other 19th-century writer imagined. Corporate raiding, financial fraud, credit default swaps and other derivatives have led to de-industrialization and enormous taxpayer bailouts. And in the political sphere, finance has become the great defender of deregulating monopolies and “freeing” land rent and asset-price gains from taxation, translating its economic power and campaign contributions into the political power to capture control of public financial regulation. The question that needs to be raised today is therefore which dynamic will emerge dominant: that of industrial capital as Marx expected, or finance capital?
. . . .
As matters have turned out, the expansion of finance capital has taken the form mainly of what Marx called “usury capital”: mortgage lending, personal and credit card loans, government bond financing for war deficits, and debt-leveraged gambling. The development of such credit has added new terms to modern language: “financialization,” debt leveraging (or “gearing” as they say in Britain), corporate raiding, “shareholder activists,” junk bonds, government bailouts and “socialization of risk,” – as well as the “junk economics” that rationalizes debt-leveraged asset-price inflation as “wealth creation” Alan Greenspan-style.
. . . .
Six variables are at work: (1) lower interest rates for capitalizing land rent into mortgage loans, (2) lower down payments, (3) slower rates of amortization (that is, giving borrowers longer to pay off the mortgage), (4) “easier” credit terms, i.e., looser standards for “liar’s loans” and kindred, the more credit can be extended to bid up real estate prices.

Meanwhile, banks recycle their interest income into new loans – and also into campaign contributions to politicians who pledge to (5) lower property taxes, leaving more rental income to be paid to banks as interest to carry yet larger mortgage loans. Debt leveraging inflates property prices, creating (6) hopes for capital gains, prompting buyers to take on even more debt in the speculative hope that rising asset prices will more than cover the added interest, which is paid out of capital gains, not out of current income. [30]
Recent years are the first time in history that homeowners and indeed, entire economies have imagined that the way to get rich was to run deeper into debt, not to pay it down. Home ownership is the defining criterion for belonging to the middle class. Some two-thirds of the British and U.S. populations now own their own homes, and upward of 90 percent in Scandinavia. This diffusion of property ownership has enabled the propertied and financial interests to mobilize popular opposition to taxes on commercial and rental real estate as well as homes. (California’s Proposition13 is the most notorious case in such demagogy.)
. . . .
How has planning become centralized in the hands of Wall Street and its global counterparts, not in the hands of government and industry as imagined almost universally a century ago? And why has Social Democratic, Labour and academic criticism become so silent in the face of this economic Counter-Enlightenment?

The answer is, by deception and covert ideological manipulation via “junk economics.” Financial lobbyists know what smart parasites know: The strategy is to take over the host’s brain, to make it believe that the free luncher is part of its own body. The FIRE sector is treated as part of the economy, not as draining the host’s nourishment. The host even goes so far as to protect the free rider, as in the 2008-09 bailouts of Wall Street and British banks at “taxpayer expense.”

When such growth culminates in financial wreckage, banks demand public bailouts. They claim that this is necessary to enable them to resume lending. But they will not lend more against property already so deeply indebted that it remains in negative equity. Hoping to turn the crisis into an opportunity for further financial incursions into the industrial economy, bank lobbyists propose that governments help indebted homeowners and real estate investors avoid default by cutting property taxes yet further – shifting the fiscal burden yet more onto labor and non-financial business.

Tax cuts on wealth are promoted as if they will be invested rather than used to pay the financial sector more interest or be gambled on currencies and exchange rates, interest rates, stock and bond prices, credit default swaps and kindred derivatives.

Read the entire essay here


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