Monday, February 07, 2011

Millionaires Lead In Foreclosure Race

A few years ago when we highlighted William Black’s book ‘The Best Way to Rob a Bank Is to Own One’ we talked about the concept of control fraud, a term Black coined.  (This book is the standard bearer, par excellence, in explaining the fraud in our country and our banking system.  And unlike all of the other books written with hindsight after the crash by people who didn’t see it coming, Black wrote this book before the crash from his experiences twenty years agoActually I think the only shortcoming in his analytical and fact-based text of horrifying abuse is that it doesn’t go far enough in capturing the systemic fraud across nearly every aspect of our government that he accurately attributes to a corrupt ruling class of gangster thugs.)  Below in italics I have pulled forward a few quotes from his book regarding control fraud and its pernicious effect as it relates to this post.

If you listen to the truth of how Wall Street creates its countless criminal schemes, you know it was criminal behavior on Wall Street that created this environment.  If you listen to shills for the Republican party and for Wall Street, you’ll believe it was Freddie, Fannie and poor people buying houses they couldn’t afford.  (politically correct terminology for what they really meant to say – really stupid people – elites have a high disdain for democracy and the rights of everyone in our country to a life of dignity and opportunity.) But then they never told you that the entire subprime mortgage market for some substantial period of years leading up to this crisis was only $700 billion.  And they never told you that eventually more prime mortgages were in default than subprime.  And then they never told you that million dollar homes have the highest foreclosure rate.  And they never told you that Neil Barofsky, the inspector general of TARP, has said the entire bailout may come to $23.7 trillion dollars.  (likely to be a low  figure)

Those really stupid, err I mean poor people, really did a number on us.  They really bamboozled all of those corporations with their fine print and legions of lawyers preying on people.  Those poor people used their wealth to create $23.7 trillion of fraud to bamboozle rich elites  and corporations.  To buy out our government.  To defraud us of economic opportunity.  To pay for Barack Obama’s campaign.  Those damn poor people.  They’ve been hiding behind a mountain of wealth and manipulating us all into thinking they are on food stamps and unemployment just gaming the system.   It’s a good thing we don’t embrace democracy because can you imagine what all of those really, really stupid, err poor people would do to our economy if they actually had a voice in Washington?

A control fraud is a company run by a criminal who uses it as a weapon and shield to defraud others and makes it difficult to detect and punish the fraud. Fraud is theft by deception: one creates and exploits trust to cheat others. That is one of the reasons the ongoing wave of corporate fraud is so devastating: fraud erodes trust. Trust is vital to making markets, societies, polities, and relationships work, so fraud is particularly pernicious. In a financial context, less trust means more risk, and more risk causes lower asset values.

It is a self-fulfilling prophecy that government will be ineffective if one designs it to be ineffective. ....... One of the great advantages of control frauds is their ability to cause the firm to make political contributions. Audacious control frauds use this ability to help shape their regulatory environment. They seek to undercut effective regulation. There is no "Brotherhood of Burglars" that has apparent respectability and regularly lobbies for restrictions on the quality of door locks or the number of police assigned to neighborhood patrols. Deregulation can aid control fraud in four ways. It can radically change the environment because we are poor at predicting untested dynamic events. ... Third, deregulation may allow investment in assets that lack a readily ascertainable market value. One of the keys to accounting fraud is to find such assets...... Fourth, deregulation may provide the authority to enter into reciprocal (fraudulent) transactions used to transmute bad investments into good ones. It may also provide the authority to create an entity that will be used as a straw party.

posted by TimingLogic at 9:43 AM

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