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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

Tuesday, August 6, 2013

Goldman Sachs Produces "Fictitious Capital"

The financialization of the economy proceeds apace.  The banks committed mortgage fraud in order to create large profits for their companies that in turn gave the executives large bonuses and salaries.  The banks continue to lobby for regulations that they perceive are necessary for their continued profit-making.  So when Goldman Sachs realizes that it has "to have riskier credit derivatives trades take place in a separately capitalized unit so that any trading failure there would not have access to the institution's commercial bank division, which is backed by insured deposits and taxpayers through the Federal Reserve's discount window" (Donald D. Orol, MarketWatch), why, it obtains two more years to comply!

That is the nature of an economy that is based on the success of the financial system at the cost of manufacturing and other productive companies.  Goldman's capital is "fictitious" and "imaginary" as Hudson defines it.  These same credit default swaps that Goldman continues to use were responsible for the huge taxpayer bailouts of 2008 and for the continuing gutting of industry in the economy.

Goldman is a past master at the sterile operation of  "making money from money."

Michael Hudson describes the way financialization has subsumed industry so that the banks and huge corporations now run the insane asylum.
From Marx to Goldman Sachs:  The Fictions of Fictitious Capital
By Michael Hudson - His Blog
. . . .
This self-expanding growth of financial claims, Marx wrote, consists of “imaginary” and “fictitious” capital inasmuch as it cannot be realized over time. When fictitious financial gains are obliged to confront the impossibility of paying off the exponential growth in debt claims – that is, when scheduled debt service exceeds the ability to pay – breaks in the chain of payments cause crises. “The greater portion of the banking capital is, therefore, purely fictitious and consists of certificates of indebtedness (bills of exchange), government securities (which represent spent capital), and stocks (claims on future yields of production).” [10]

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.
. . . .
Growing independently from tangible production, financial claims for payment represent a financial overhead that eats into industrial profit and cash flow. Today’s financial engineering aims not at industrial engineering to increase output or cut the costs of production, but at the disembodied M-M’ – making money from money itself in a sterile “zero-sum” transfer payment.

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.

Read the whole article here


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