Wall Street's WMD of Choice Is ACCOUNTING.

[Octafish]

American Parasite, Mitt Romney, enjoying a quick shoe shine.



Financial control frauds' "weapon of choice" is accounting. William K. Black explains:

The Two Documents Everyone Should Read to Better Understand the Crisis

by William K. Black
Assoc. Professor, Univ. of Missouri, Kansas City;
Sr. regulator during S&L debacle
February 25, 2009 10:31 AM

As a white-collar criminologist and former financial regulator much of my research studies what causes financial markets to become profoundly dysfunctional. The FBI has been warning of an "epidemic" of mortgage fraud since September 2004. It also reports that lenders initiated 80% of these frauds.1 When the person that controls a seemingly legitimate business or government agency uses it as a "weapon" to defraud we categorize it as a "control fraud" ("The Organization as 'Weapon' in White Collar Crime." Wheeler & Rothman 1982; The Best Way to Rob a Bank is to Own One. Black 2005). Financial control frauds' "weapon of choice" is accounting. Control frauds cause greater financial losses than all other forms of property crime -- combined. Control fraud epidemics can arise when financial deregulation and desupervision and perverse compensation systems create a "criminogenic environment" (Big Money Crime. Calavita, Pontell & Tillman 1997.)

The FBI correctly identified the epidemic of mortgage control fraud at such an early point that the financial crisis could have been averted had the Bush administration acted with even minimal competence. To understand the crisis we have to focus on how the mortgage fraud epidemic produced widespread accounting fraud.

CONTINUED...

http://www.huffingtonpost.com/william-k-black/the-two-documents-everyon_b_169813.html

Accounting leaves a paper trail. So. When are the crooks going to jail? Holder? Holder?

It's not a rhetorical question.

[sabrina 1]

1. 'When are the crooks going to jail'?

When they no longer are part of the Government, when the foxes are no longer appointed to watch over the hen house. When the money is taken out of politics so they cannot buy members of Congress.

Financial control frauds' "weapon of choice" is accounting. Control frauds cause greater financial losses than all other forms of property crime -- combined.

So many credible people have called what they did 'crimes'. Yet, we are still hearing the incredibly disturbing language that what they did 'might have wrong' but 'might not have been a crime'.

Black is correct that the FBI recognized the fraud going in the Mortgage Industry in at least 2004-05. They did not have enough man-power to deal with and asked for more, airc. Bush's response was to transfer many of them to the 'War on Terror'. You could almost think this was done to protect the criminals. But that would be paranoid, I suppose

[Octafish]

3. History will keep repeating...

From the Just The Other Day Department:

Big Business gets a break on financial reform

Source: CNN

WASHINGTON (CNNMoney) -- Big business scored a major win Wednesday when two regulatory boards agreed to limit the impact of tough rules to regulate the complex trades that helped spur the 2008 financial crisis.

Regulators have been struggling for months to figure out who should be included in a new crackdown of swaps or derivatives -- complex financial bets derived from other financial products such as the price of jet fuel or mortgages.

Derivatives were the key reason that American taxpayers were on the hook for the American International Group (AIG, Fortune 500) bailout in 2008. Derivatives also threatened to take down the global financial system when Lehman Brothers collapsed.

When Congress passed Wall Street reforms in 2010, lawmakers left the big decisions of how to regulate derivatives up to supervising agencies. Generally, the Democratic-controlled Congress wanted swaps to be more transparent and safer.

CONTINUED...

Read more: http://money.cnn.com/2012/04/18/news/economy/swaps-rules/

I know you remember, Sabrina1, Poppy's crew largely got away with the same thing during the S&L crisis.

If we don't put them behind bars, we're going all to end up as economic slaves -- "peons," the landowners used to call us serfs.

[sabrina 1]

4. Derivatives, a financial WMD, the main reason for the corruption and fraud and eventual

collapse of the economy. And it's not as if no one knew the risk they presented, Brooksley Born eg, attempted to war the Government more than ten years ago, but they ran her out of town.

Derivatives were the key reason that American taxpayers were on the hook for the American International Group (AIG, Fortune 500) bailout in 2008. Derivatives also threatened to take down the global financial system when Lehman Brothers collapsed.

When Congress passed Wall Street reforms in 2010, lawmakers left the big decisions of how to regulate derivatives up to supervising agencies.

Congress, derelict in its duty, yet again. Derivatives should have the most important aspect of any new changes re regulation. It's unbelievable that this was 'left up to supervising agencies'!! The same agencies who participated, at the most, and ignored at the least, the coming collapse and gave AAA ratings, admitting later that they should not have, to these 'investments'. As I said, you could almost think they are all in on it, if you were a paranoid kind of person, OR, if you actually studied what happened!

Thank you Octafish for keeping these issues alive. Nothing will change until people start going to jail for what they did.

[laundry_queen]

2. Small correction

the problem is not accounting. While accounting is involved, generally there are pretty strict rules regarding accounting especially with IFRS coming into play. The problem here is in Finance - a separate discipline from accounting. Accounting fraud is easier to detect because of those strict rules (for instance, the demise of Arthur Andersen) and there are new rules regarding auditing that are very strict (Sarbanes-Oxley act). Finance, however, is like the wild west. They can create value out of thin air with estimates and complicated equations, and there are few regulations. If speculators are willing to buy and are ignorant to the 'real' value of the financial instrument, too bad so sad, buyer beware. This is an area that requires much stricter regulations, however fat chance getting any regulations passed with the present political reality.

[Octafish]

5. Thank you! The Financial Crooks-n-Banksters use accounting for their frauds -- ''Control Fraud''

It's just another addition to their crooked armamentarium. Louis Francis explains:

Abstract: In his book, The Best Way to Rob a Bank is to Own One, William Black describes in detail the
complex collusion between bankers, regulators, and legislators that brought about the Savings and Loan
crisis of the 1980s and early 1990s. As part of the scheme, leverage was used to purchase bankrupt
companies that became the basis for a Ponzi-like speculative bubble that ultimately collapsed. Deceptive
accounting rules were used to hide the true state of the banks. Litigation and lobbyists were used to
delay and frustrate timely enforcement, adding significantly to the taxpayer’s bill. Since the bursting of
the S&L bubble, a number of additional financial bubbles and debacles have occurred, including Enron,
the Internet bubble, the subprime bubble, and the Madoff Ponzi scheme. The details of the S&L
crisis—civil and criminal trials and federal agency investigations—have been well-documented and will
serve as a model for later crises. This paper will describe how fraud and corruption played significant
roles in these financial crises, including the current crisis that began in 2007 and is still unfolding.

Motivation. Though “moral hazard” and “the principal agent problem” are frequently cited when
discussing the causes of the financial crisis, relatively little research has focused on the role of fraud.
This paper highlights the role of fraud and corruption in the financial crisis.

Method. We review the fraud literature with respect to past financial crises, and highlight
commonalities between some of the well-documented financial frauds of the past and the current global
financial crisis. We also support our arguments with some statistics from the current crisis that
predicted the bubble before it burst.

Results. The evidence indicates that a well-established and well-known permissive attitude towards
fraud created a global systemic risk of such significance that a financial crisis of major proportions was
all but inevitable.

Conclusions. Reinstitution of previously abandoned regulations that protected the banking system
from risk (i.e., Glass-Steagall Act) and a new commitment to SEC enforcement of already existing antifraud
laws are greatly needed. If fraud is not pursued and prosecuted, future financial crises where
fraud is a significant factor are likely to occur.

PDF with complete SOURCE: http://www.casact.org/pubs/forum/10fforumpt2/Francis.pdf

Finance is how money begets money these days. When I was younger, people built things to beget money. These things actually were used to make life, in general, better -- from cars and space ships to tractors and washing machines. Hence, the quality of life improved. Nowadays, not so much. When the Big Money boys get theirs, they move it offshore where it's safe or put it into something that makes them money -- not necessarily involve creating a single real thing. It's like Danny Dravot and Peachy Carnehan told Rudyard Kipling in John Huston's "The Man Who Would Be King":

“The less said about our professions, the better, for we have been most things in our time. We’ve been all over India, and decided it ain’t big enough for such as we: We’re going to Kaffiristan to be kings. It’s a place of war tribes, which is to say, it’s a land of opportunity for such as we, who know how to train men and lead them into battle. We’ll say to any chief we can find, ‘do you want to vanquish your foes?’ He’ll say ‘Of course!’ We’ll fight for him, make him king, then we’ll subvert that king. We’ll seize his royal throne and loot the country four ways from Sunday!” -- Danny Dravot

[laundry_queen]

6. Yep. A large issue, IMO

and this is not something I learned in school (taking business right now, mostly accounting, some finance), this is just the reasoning I've put together, is that with new IFRS rules concerning recording assets as fair market value, this kind of 'creating value out of thin air' will become more prevalent. Most accountants will take their clients words for it that X asset is worth so much $. All the client has to say for proof of value is "look what it's selling for" and the accountant will record that asset at FMV. Never mind that there is no intrinsic value to the instrument, it's what that asset is worth on the open market. Gone are the days of using historical cost for valuation.

I watched the move 'Margin call' several weeks ago and it depicts the demise of a large investment firm (it never says which one, but it mirrors some of the failures in 2008) due to a valuation of assets based on one (erroneous) estimate inserted into a particular valuation equation. Unfortunately there are likely hundreds of investment firms with the same issues. The accountants that enable them give the profession a bad name and should be shut down a la Arthur Andersen.

ETA: I also watched a documentary about Bernie Madoff and I think people are going to have to realize the SEC is pretty useless in controlling this type of fraud. Half of them once sat on the boards of these large investment firms that profited off of people like Bernie Madoff.