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ParticleMan

Fraudonomics

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Thought you'd get a kick out of this one...

http://www.nypress.com/article-21163-fraudonomics.html

There was a strange moment last week during President Obama’s speech at Cooper Union. There he was, groveling before a cast of Wall Street villains including Goldman Sachs chief Lloyd Blankfein, begging them to “Look into your heart!” like John Turturro’s character in Miller’s Crossing…when out of the blue, the POTUS dropped this bombshell: “The only people who ought to fear the kind of oversight and transparency that we’re proposing are those whose conduct will fail this scrutiny.”

The Big Secret, of course, is that every living creature within a 100-mile radius of Cooper Union would fail “this scrutiny”—or that scrutiny, or any scrutiny, period. Not just in a 100-mile radius, but wherever there are still signs of economic life beating in these 50 United States, the mere whiff of scrutiny would work like nerve gas on what’s left of the economy. Because in the 21st century, fraud is as American as baseball, apple pie and Chevrolet Volts—fraud’s all we got left, Doc. Scare off the fraud with Obama’s “scrutiny,” and the entire pyramid scheme collapses in a heap of smoldering savings accounts.

That’s how an acquaintance of mine, a partner in a private equity firm, put it: “Whoever pops this fraud bubble is going to have to escape on the next flight out, faster than the Bin Laden Bunch fled Kentucky in their chartered jets after 9/11.”

And that’s why this SEC suit accusing Goldman Sachs of fraud is really just a negotiating bluff to give Obama’s people some leverage—or it’s supposed to be, anyway—according to the PE guy. He dismissed all the speculation that the fraud investigations would turn on other obvious villains like Deutsche, Merrill, Paulson & Co., the Rahm Emmanuel-linked Magnetar and so on.

“You don’t get it, Ames. Even Khuzami, the SEC guy in charge of the Goldman case, is a fraud; the ******er was Deutsche’s general counsel when they pulled the same CDO scam as Goldman. You have no idea how deep this goes.”

And it’s clear that a lot more people here are aware of how fundamentally rotten things are but they’re not willing to face the big fraudonomics bummer yet, preferring instead to stick with specific accusations.

My position on this was, “Good, throw the book at those crooks too, I don’t see what the problem is here.”

This was exactly what I argued a week ago, during a verbal slapfight with that acquaintance of mine. We were making a scene in a Midtown yuppie restaurant, arguing over just how much damage Wall Street had caused, and what to do about it.

His position was indefensible, and he knew it, so he switched tactics:

“OK Ames, which bankers would you throw the book at? Because you’re arguing that they’re all guilty. So which ones do you go after? Two of them? Three? Half of them?”

“Every last one of them. Lock ’em up in one of their private prisons.”

“Not gonna happen, Che.”

“Che? Me? Listen, Scarface, I’m about law and order. Don’t any of you PE degenerates believe in that anymore?”

“OK, here’s the deal, Che. I’m going to walk you through this nice and slow so that even an agave-sweetened hippie like you can understand this. Stick with me, this is gonna be a little complicated. Ready?” And so he began.

“Let’s say the government decides one day, ‘You know, we oughta listen to Che here, let’s throw the book at every firm and every executive that our people can make a case against. Because you know, gosh, it’s all about rule of law and blind justice, just like Che says.’ OK, so now this means indicting just about every serious player in finance, so they take down Goldman Sachs, they take down Citigroup, JP Morgan, BofA… and they also serve all the big funds who are at least as guilty, if not more. So they shut down Pimco, Blackrock, Citadel… maybe they indict Geithner and Summers, haul in some of Bush’s crooks… right?”

“Go on, I’m gonna order some hot, buttered popcorn for this. Don’t mind me.” I liked what I was hearing so far.

“OK, now guess what you’ve just done? You’ve just caused the markets to completely tank. Remember what happened after the Lehman collapse? Remember how popular that made every politician in Washington? Still wondering why they coughed up a trillion bucks? They were scared for their lives; that’s why they voted for that bailout. You’d have done the same goddamn thing. But if we go after everyone guilty of fraud and theft, the market crash this country would see would make 2008 look like Sesame Street. Open that can of worms labeled ‘Fraud’ and the whole ******ing economy collapses. You may as well prosecute people for masturbating. No one will know where the fraud investigation stops and who will be charged next—everyone will try to cash out, and the markets will tank to zero. And guess what happens when the markets tank to zero? Every ******ing American with a retirement plan, or an investment portfolio, or a 401k—every state pension plan in the country, every teacher’s pension fund, every fireman’s pension—every last one of them will be wiped out. That’s what the Lehman collapse taught us.”

“Us? It didn’t teach anything but that this country is run by maniacs.”

“Jesus H. Christ, you’re even more clueless than the idiots who managed the Lehman collapse. I mean, didn’t everyone get it how badly those idiots screwed up with Lehman? It was the biggest screw-up this hemisphere has ever seen. You had Secretary Paulson and Fed Chief Bernanke scratching their asses not knowing what to do, so then they go, ‘OK, we’re supposed to be a free market economy, and we’re supposed to be the Republicans—let’s try something different for a change since nothing else is working. Let’s go out on a limb and actually give this “free market” thing a whirl. Who knows? Maybe the “free market” really works the way we always say it does. Nothing else seems to work, let’s let the free market decide Lehman’s fate. Maybe corporate-socialism isn’t the answer.’ So they hung Lehman out in the free-market, and BAM! The. Shit. Hit. The. Fan. No shit, dudes—the free market is for suckers, didn’t your daddy teach you idiots that? Not only did Lehman collapse—everything collapsed; confidence in the entire system collapsed. And here’s what I’m trying to explain to simpletons like you: Our economy is just a confidence game. Don’t ask me how it got this way, don’t care.”

I tried saying something insulting to him, but he just talked right over me. He was on such a roll.

“I’m sure you have the answer, you and Ron Paul and all the other pot-smoking libertarian do-gooders have it all figured out. But what I’m saying is, no confidence means end of the confidence game. That’s what Lehman showed. Every single player in finance suddenly had to face the fundamental problem—this whole ******ing economy is built on fraud and lies and garbage. So when Lehman collapsed, every single player panicked, going, ‘If Lehman was nothing but a Ponzi scheme—and I know what I’m running is a Ponzi scheme—holy shit, that means everyone else is running a Ponzi scheme too! Run for the exits!’ No one trusted anyone else, everyone pulled out, and the entire global economy collapsed just like that. And that meant your parents, my parents, every teacher, every fireman, every person in the country going into retirement, every price on every asset—wiped out.

“And here’s what I’m trying to get you to understand: In the grown-up world, when an entire country’s savings accounts are wiped out because of some do-gooder and his law books and his Thomas Jefferson ‘What about free and fair markets?’ crap, that is a big problem—people don’t give a ****** about Jefferson and ‘free and fair markets,’ they just want their savings to be worth something. And people are right: Jefferson was an imbecile. He should have been a folk singer, not a Founding ******ing Father. But that’s another issue that’s over your head—the point is, the guy who destroys this economy because it’s ‘the right thing to do’ will have to flee for his life, and whatever president or political party was in power when that decision was made will be out of power for the next 200 years. That’s why Washington panicked and passed ‘the bailout,’ they didn’t want to be the fools whom all the Ponzi victims blame for tanking the Ponzi scheme, so they broke the glass and pumped up a newer, bigger Ponzi scheme. It was an expensive 14 trillion dollar lesson in, ‘Stay the ****** away from free-market experiments, assholes!’ How naive are you people to actually believe that ‘free market’ crap? The problem is when people in power are stupid enough to listen to guys like you: all the do-gooder libertarians and the do-gooder free-market Republicans who forgot that they’re supposed to lie. Hello!”

“Libertarian, me? Since when was I ever a libertarian?”

“That’s my point: Fools like you don’t even know who you are anymore. They forgot that they’re supposed to lie about all that libertarian free-market shit, keep it far the ****** out of policy. But instead of just lying about free-markets while secretly propping up Lehman, the idiots actually tried pulling off a ‘free-market’ miracle, and we had to pay $14 trillion just to find out what I could have told them for no fee at all, which is: ‘Hey, assholes, you’re supposed to be hypocrites, OK? You’re supposed to be two-faced free-market liars, not libertarian Quakers! You’re not supposed to believe in anything—your job is to get up in front of the public and lie about free markets and the rest. Period.’

“That’s it, how ******ing hard is it? Look, watch my face: Say one thing out of one side... and do the other out of the other side. Got that? Let everyone else whine and cry about, ‘Ooh, that’s not fair, ooh, that’s a bailout, that’s socialism, that’s corruption.’ That’s what losers do—they whine. You, for example, Che—you whine all the time, and look at you... Can you pay the bill for this meal? Is there a libertarian on earth who can afford to buy a decent meal in Manhattan? And now, look at me: I’m a hypocrite. Hell yes I am! I lie every day of my life, I lie to myself in my sleep. Hell, I’m lying to you right now, in fact I don’t even know what the ****** I’m saying anymore because I’m so used to lying. And yet—who’s the guy with the black card? Who’s the one who’s going to pick up the check tonight? Guys with power, guys like me, we lie. You got that? ‘Lie’ as in ‘My Lai’ the massacre—as in, ‘My Lai you long time, me so free-markety.’ You distract the dumbshits with free-market B.S. because hey, for whatever reason, that’s what the public likes to hear, it doesn’t really matter what lie you feed them so long as it’s the lie that puts them in a trance. And then behind the scenes, you do the very opposite: You fix the game, you cover up this problem here with those funds there, you move shit around, you skim budgets and you subsidize the system, you cover up the bad shit and once in a while throw a has-been to the wolves to keep the public entertained—that’s the way the system works, and anyone who’s an adult understands that. And everyone who doesn’t understand that can go form an online libertarian chat group and complain with all their little libertarian friends about free markets and Jekyll Island and ‘Wahhh! It’s not not fair, waahhhh!’”

“What’s with the libertarian accusation?”

“It’s just that you all sound the same to me. Libertarians, hippies—is there really a difference? You all whine alike: ‘It’s not fair, man! Ooh! You can’t do that, it’s fraud, it’s corruption, ooh no!’ Or: ‘It’s the income inequality, man; Goldman Sachs controls us all man; it’s socialism for the rich; it’s all too scary for my retarded 5-year-old libertarian brain!’ Seriously, anytime I meet libertarians like you—”

“Listen—I’m not a ******ing libertarian, OK? I want free handouts. How clear do I have to make this? Me—handouts. Me—Big Government. I want to collectivize your productive cash, because I am a resentful parasite. Are you capable of processing a single word of what I’m saying to you, Spaz?”

“Uh-huh, sure, whatever. Here’s the thing: I think it’s great that you and your friends memorized Road to Serfdom in between Star Trek episodes—no really, I’m happy for you. Yeah, we’re all so proud. But here’s the thing: We grown-ups are really, really busy now trying to sort out the free-market mess you made with that Lehman move of yours. Yeah, so why don’t you run along to your libertarian chat rooms and have your little debates about Jekyll Island and the gold standard, because it really means a lot to us. And report back to me as soon as you have it all figured out, m’kay? Just get the ****** out of my face and leave the adults alone.”

It got a lot more vicious and personal than this, but when our verbal slap-fight ended—and he paid the bill—I thought about what he said, and it made a lot more sense. Fraud has become so endemic in this country that it’s woven its way into America’s DNA, forming a symbiotic relationship that can’t be undone without killing off the host. If they push it just a little too hard, the entire American economy could crash, asset values could tank, and that means tens of millions of extremely pissed off retirees and Baby Boomers. As the Wall Streeter put it: “Whoever is responsible for bursting this latest bubble by exposing all the fraud—and tanking all the markets—will not only be out of power for at least a generation, but they’ll all have to get radical reconstructive surgery on their faces and seek political asylum somewhere remote. No one wants to be that guy, and that’s why it’s not going to happen.”

That may be true, but all bubbles to eventually burst, all Ponzi schemes do collapse. The only question is when. For those of us not on the verge of retiring, the sooner we have this day of reckoning and get it over with, the better.

Edited by ParticleMan

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Ah, the collapse of Lehman was great! Encore! Seriously, tank the markets, the good stuff will be fine.

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There aren't that many fraudsters

An economy based on fraud drives investors away

That PE guy sees his way of life about to disappear if fraud is prosecuted. That is all that motivates his vision of doom and gloom

Letting Lehman fail wasn't the catastrophe. Allowing CDS contracts to stand and bailing out the bankers in the days that followed was.

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If he cries like that at the though of markets collapsing, he'd have shit himself to death in 1939.

"Grandad, stop polishing your D-day medals! The FTSE has fallen 75%, and its the worst thing in living memory!"

Edited by (Blizzard)

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There aren't that many fraudsters

An economy based on fraud drives investors away

That PE guy sees his way of life about to disappear if fraud is prosecuted. That is all that motivates his vision of doom and gloom

Letting Lehman fail wasn't the catastrophe. Allowing CDS contracts to stand and bailing out the bankers in the days that followed was.

Over 40% of loans approved in 2007 were liar loans. Fraud and corruption goes right to the heart of the human condition...either that or stupidity...or both.

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Guest sillybear2

Unbacked fiat money that can be printed at will is fraud, and everything else flows from that, you can hardly blame the bankers for doing what they do best when the whole system of rigging interest rates and fractional reserve banking is enshrined in law.

http://www.youtube.com/watch?v=AIX_0nMlIBU

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Guest sillybear2

There aren't that many fraudsters

An economy based on fraud drives investors away

That PE guy sees his way of life about to disappear if fraud is prosecuted. That is all that motivates his vision of doom and gloom

Letting Lehman fail wasn't the catastrophe. Allowing CDS contracts to stand and bailing out the bankers in the days that followed was.

That's the very definition of fraud, using power, money and influence to line your own pockets and align everything else towards your own interests. Failing investment banks are a healthy thing, it means the market doesn't tolerate fraud or malinvestment forever, but using your supine cronies in the political class to rip money out of tax payers in order to prop up the house of cards and perpetuate your skimming is the real tragedy, far worse than the original con. This whole enterprise is then labeled "saving capitalism" or "saving the world", what a crock of sh1t, the only time capitalism has reared its ugly head is when Lehman failed, and it was soon put back in its box by bailing and stealing from the future.

Remember that bankers add nothing, they produce nothing, they simply skim off value added created by other people, as such if they disappeared tomorrow it would result in a huge net benefit for your average worker.

Edited by sillybear2

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Over 40% of loans approved in 2007 were liar loans. Fraud and corruption goes right to the heart of the human condition...either that or stupidity...or both.

Yes I agree. But that 40% is a smaller fraction of the total number of loans outstanding. It is still a viable and in fact necessary policy to prosecute fraudsters all the way up and down the mortgage chain.

What Mr private equity is arguing is if we go for fraudsters, the economy will collapse, whereas it remains viable if we don't. This is nonsense

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Yes I agree. But that 40% is a smaller fraction of the total number of loans outstanding. It is still a viable and in fact necessary policy to prosecute fraudsters all the way up and down the mortgage chain.

What Mr private equity is arguing is if we go for fraudsters, the economy will collapse, whereas it remains viable if we don't. This is nonsense

I was only suggesting that there are that many fraudsters if you really want to chase this all the way to the bottom.

In my opinion, Mr Private Equity is correct, in so far as if we really go for the fraudsters there will be serious turmoil and the economy will collapse, especially if we go for the fraud at the top. (Penalizing liar loaners in some way is not society destroying, and will probably happen naturally with the withdrawal of remortgagoing options. The real trouble will happen if government and bank obligations are looked at.)

It is quite clear that there is a serious confidence game going on, especially with respect to future entitlements etc. that will not stand up to proper scrutiny.Having said this, I suspect that once the suffering is over and if we did manage to come out the other side with some form of democracy (and infrastructure) left the world would be a better place for a time.

However, what he neglects to mention, and I presume this is your point, is that there will be turmoil at some stage. It may be of a different nature to that induced by actually having a good long hard look at government debt obligations and the private banks and citizens' fraud, but it will be nasty turmoil nonetheless. Mr Private Equity just doesn't want it to happen yet and is hoping when it does happen he will sidestep the worst of it.

Or do you believe that the markets could survive a real look at the fraud?

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Guest sillybear2

Yes I agree. But that 40% is a smaller fraction of the total number of loans outstanding. It is still a viable and in fact necessary policy to prosecute fraudsters all the way up and down the mortgage chain.

What Mr private equity is arguing is if we go for fraudsters, the economy will collapse, whereas it remains viable if we don't. This is nonsense

In the US the authorities decided to ignore mortgage fraud, and even acquiesced with liar loans, they didn't want to collapse the property market and spoil the party, so instead when it all finally came crashing down not only did they face a collapsed property market, but also a bankrupt financial sector, huge plunges in the equities market and a non functioning credit market, all because the rot had set in that deep, because nobody had the balls to nip the fraud in the bud.

Even today we haven't cleared the problem, banks are reporting hefty profits when they should be taking massive write downs from all the haircuts on their crappy debt, but the authorities have printed, borrowed and bailed and let the banks continue with their fraudulent book keeping and factious valuations. The next crash will reflect all the previous frauds that have been ignored or deferred.

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When you've got nothing you've got nothing to lose - Dylan.

Who's got the most to lose - Hank Paulson and Lloyd Blankfein or the 99.999999% of the remaining 300,000,000 when they realise who took their money?

The odds are stacked against them in the end.

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Guest sillybear2

When you've got nothing you've got nothing to lose - Dylan.

Who's got the most to lose - Hank Paulson and Lloyd Blankfein or the 99.999999% of the remaining 300,000,000 when they realise who took their money?

The odds are stacked against them in the end.

"Merely because of the illusion that we own our houses and have what's called 'a stake in the country', we poor saps in the Hesperides, and in all such places, are turned into Crum's devoted slaves for ever. We're all respectable householders--that's to say Tories, yes-men, and bumsuckers. Daren't kill the goose that lays the gilded eggs! And the fact that actually we aren't householders, that we're all in the middle of paying for our houses and eaten up with the ghastly fear that something might happen before we've made the last payment, merely increases the effect. We're all bought, and what's more we're bought with our own money. Every one of those poor downtrodden bastards, sweating his guts out to pay twice the proper price for a brick doll's house that's called Belle Vue because there's no view and the bell doesn't ring--every one of those poor suckers would die on the field of battle to save his country from Bolshevism." -- Coming up for Air by George Orwell, 1939.

Most people have nothing to lose and lot to gain from change, they just don't realise it. The top 1% are the only one's who need worry, that's why they keep such a tight grip on things.

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Entertaining piece, and his point is well taken. The flaw in his friend's outlook is that we're living in a global economy now innit. There's nothing Paulson, Geither, Bernanke or any member of the Goldman Sachs gang can do to prevent the UK, Europe and the Baltics imploding. They're clearly trying - shadow monetization, currency swaps, gold swaps, you name it. But in the end, they know they can't prevent contagion now matter how hard they try propping up their own ponzi economy.

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He's quite right, exposing the fraud will nuke the economy.

But so will not exposing the fraud.

it's not like you can have a small section of society completely immune from all sanction, rule of law etc and that carry on for long without a massive amount of blowback at some point.

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He's quite right, exposing the fraud will nuke the economy.

But so will not exposing the fraud.

it's not like you can have a small section of society completely immune from all sanction, rule of law etc and that carry on for long without a massive amount of blowback at some point.

“If you tell a lie big enough and keep repeating it, people will eventually come to believe it. The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie. It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State.”

Goebbels

Yep they are in the ultimate catch 22. They managed to cover the fraud so far by getting the share prices back up. The people still haven't spotted the flaw.

Unless they can create another bubble quickly it seems inevitable that this fraud is going to be revealed for all to see.

Unless you manage fiat effectively it becomes a ponzi scheme, but the idea of free wealth is too hard to resist and for a time you can pull the fraud off, because it's not been revealed you continue it ensuring the final collapse is total.

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Moneyweek had an article about Iceland recently.

The restaurants and spas are full again. The Icelandic economy is growing and soon their debt of GDP will be smaller than most EU countries.

Why?

Because they could not afford to bail out their banks and were forced to let their banks go bust.

What the US does not want to do is to lose the power that it gets from its banks - or the illusion of power. US politicians believe in the FUD promoted by the banks or perhaps aim to have a nice political retirement on the board of an investment bank?

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Guest sillybear2

Moneyweek had an article about Iceland recently.

The restaurants and spas are full again. The Icelandic economy is growing and soon their debt of GDP will be smaller than most EU countries.

Why?

Because they could not afford to bail out their banks and were forced to let their banks go bust.

What the US does not want to do is to lose the power that it gets from its banks - or the illusion of power. US politicians believe in the FUD promoted by the banks or perhaps aim to have a nice political retirement on the board of an investment bank?

No, they simply recapitalized their banks with money from British and Dutch savers, that's the only reason their domestic deposits were protected.

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  • 261 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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