The Government Is Trying Hard to Convince You That There Isn't Much Financial Fraud

Karl,
Below in this post is a long list of economists, bloggers, fed  
officials, gov't officials, and other respected (non-hack) people who  
have admitted FRAUD is at the heart of this process.

regards,
-Lance



The Government Is Trying Hard to Convince You That There Isn't Much  
Financial Fraud


The U.S State Department's website says (click on link entitled  
"economic")"
Economic conspiracy theories are often based on the false, but  
popular, idea that powerful individuals are motivated overwhelmingly  
by their desire for wealth, rather than the wide variety of human  
motivations we all experience.

This one-dimensional, cartoonish view of human nature is at the heart  
of Marxist ideology, which once held hundreds of millions under its  
sway.)
If I didn't know better, I would say that the State Department is  
implying that anyone that questions the intent of a particular  
powerful individual's actions is a conspiracy theorist or a Marxist.

More importantly, Obama's current head of the Office of Information  
and Regulatory Affairs - and a favored pick for the Supreme Court  
(Cass Sunstein) - previously:

Defined a conspiracy theory as "an effort to explain some event or  
practice by reference to the machinations of powerful people, who have  
also managed to conceal their role."
William K. Black - professor of economics and law, and the senior  
regulator who put 1,000 top executives in jail during the S & L crisis  
- says that that the government's entire strategy now - as during the  
S&L crisis - is to cover up how bad things are: "the entire strategy  
is to keep people from getting the facts".

Similarly , 7 out of the 8 giant, money center banks went bankrupt in  
the 1980's during the "Latin American Crisis", and the government's  
response was to cover up their insolvency.

So powerful people have conspired to try to downplay the severity of  
various economic crises.

And - as Matt Taibbi notes that the government is doing more to  
protect them than to prosecute them:
Federal regulators and prosecutors have let the banks and finance  
companies that tried to burn the world economy to the ground get off  
with carefully orchestrated settlements — whitewash jobs that involve  
the firms paying pathetically small fines without even being required  
to admit wrongdoing. To add insult to injury, the people who actually  
committed the crimes almost never pay the fines themselves; banks  
caught defrauding their shareholders often use shareholder money to  
foot the tab of justice.

***

A veritable mountain of evidence indicates that when it comes to Wall  
Street, the justice system not only sucks at punishing financial  
criminals, it has actually evolved into a highly effective mechanism  
for protecting financial criminals. This institutional reality has  
absolutely nothing to do with politics or ideology — it takes place no  
matter who's in office or which party's in power. To understand how  
the machinery functions, you have to start back at least a decade ago,  
as case after case of financial malfeasance was pursued too slowly or  
not at all, fumbled by a government bureaucracy that too often is on a  
first-name basis with its targets. Indeed, the shocking pattern of  
nonenforcement with regard to Wall Street is so deeply ingrained in  
Washington that it raises a profound and difficult question about the  
very nature of our society: whether we have created a class of people  
whose misdeeds are no longer perceived as crimes, almost no matter  
what those misdeeds are. The SEC and the Justice Department have  
evolved into a bizarre species of social surgeon serving this  
nonjailable class, expert not at administering punishment and justice,  
but at finding and removing criminal responsibility from the bodies of  
the accused.
The systematic lack of regulation has left even the country's top  
regulators frustrated. Lynn Turner, a former chief accountant for the  
SEC, laughs darkly at the idea that the criminal justice system is  
broken when it comes to Wall Street. "I think you've got a wrong  
assumption — that we even have a law-enforcement agency when it comes  
to Wall Street," he says.

A wild conspiracy theory?

Kansas City Fed President Thomas Hoenig doesn't think so. He  
recommends Taibbi's article.

Indeed, Bill Gross, Nouriel Roubini, Laurence Kotlikoff, Steve Keen,  
Michel Chossudovsky, the Wall Street Journal and Bernie Madoff all say  
that the U.S. economy is a giant Ponzi scheme.

They Didn't MEAN to Cause a Depression

Sunstein argues:
Many social effects, including large movements in the economy, occur  
as a result of the acts and omissions of many people, none of whom  
intended to cause those effects. The Great Depression of the 1930s was  
not self-consciously engineered by anyone; increases in the  
unemployment or inflation rate, or in the price of gasoline, may  
reflect market pressures rather than intentional action.
However, Sunstein is neither an economist nor a criminologist, and -  
as such - is completely out of his depth.

Whether or not anyone intended to cause the Great Depression, top  
economists - including Robert Shiller, Robert Kuttner, William Black  
and John Kenneth Galbraith, and the former chief accountant of the  
S.E.C. ( Lynn Turner) - have said that criminal fraud led to the Great  
Depression (and to the current crisis). Even Alan Greenspan says fraud  
caused the current crisis.

Economics professor James K. Galbraith testified as follows to the  
Senate Judiciary Committee's Subcommittee on Crime:
I write to you from a disgraced profession. Economic theory, as widely  
taught since the 1980s, failed miserably to understand the forces  
behind the financial crisis. ... Economists [argued that] widespread  
fraud therefore could not occur. Not all economists believed this –  
but most did.

Thus the study of financial fraud received little attention.  
Practically no research institutes exist; collaboration between  
economists and criminologists is rare; in the leading departments  
there are few specialists and very few students. Economists have soft- 
pedaled the role of fraud in every crisis they examined, including the  
Savings & Loan debacle, the Russian transition, the Asian meltdown and  
the dot.com bubble. They continue to do so now. At a conference  
sponsored by the Levy Economics Institute in New York on April 17, the  
closest a former Under Secretary of the Treasury, Peter Fisher, got to  
this question was to use the word “naughtiness.” This was on the day  
that the SEC charged Goldman Sachs with fraud. ..."

***

An older strand of institutional economics understood that a security  
is a contract in law. It can only be as good as the legal system that  
stands behind it. Some fraud is inevitable, but in a functioning  
system it must be rare. It must be considered – and rightly – a minor  
problem. If fraud – or even the perception of fraud – comes to  
dominate the system, then there is no foundation for a market in the  
securities. They become trash. And more deeply, so do the institutions  
responsible for creating, rating and selling them. Including, so long  
as it fails to respond with appropriate force, the legal system itself.

***

Ask yourselves: is it possible for mortgage originators, ratings  
agencies, underwriters, insurers and supervising agencies NOT to have  
known that the system of housing finance had become infested with  
fraud? Every statistical indicator of fraudulent practice – growth and  
profitability – suggests otherwise. Every examination of the record so  
far suggests otherwise. The very language in use: “liars’ loans,”  
“ninja loans,” “neutron loans,” and “toxic waste,” tells you that  
people knew. I have also heard the expression, “IBG,YBG;” the meaning  
of that bit of code was: “I’ll be gone, you’ll be gone.”

***

Some appear to believe that “confidence in the banks” can be rebuilt  
by a new round of good economic news, by rising stock prices, by the  
reassurances of high officials – and by not looking too closely at the  
underlying evidence of fraud, abuse, deception and deceit. As you  
pursue your investigations, you will undermine, and I believe you may  
destroy, that illusion.

But you have to act. The true alternative is a failure extending over  
time from the economic to the political system. Just as too few  
predicted the financial crisis, it may be that too few are today  
speaking frankly about where a failure to deal with the aftermath may  
lead.

In this situation, let me suggest, the country faces an existential  
threat. Either the legal system must do its work. Or the market system  
cannot be restored. There must be a thorough, transparent, effective,  
radical cleaning of the financial sector and also of those public  
officials who failed the public trust. The financiers must be made to  
feel, in their bones, the power of the law. And the public, which  
lives by the law, must see very clearly and unambiguously that this is  
the case.
William K. Black has made the same points.

Sunstein is Using the Wrong Standard

Of course, "intent to cause" harm is not the standard. If two  
criminals disable the power to a nuclear power plant in order to steal  
a computer containing valuable information (to sell it to a foreign  
country), and if the lack of power to the cooling systems causes a  
core meltdown which releases radioactivity into the surrounding town,  
they are guilty of mass murder, even if they didn't intentionally try  
to expose anyone to radioactivity.

Similarly, if two robbers unplug an old tycoon's dialysis machine so  
that they can steal his wallet, ring and watch, and don't bother to  
plug it back in, they are guilty of murder even if they didn't  
actually intend to kill him.

Likewise, as Nobel prize winning economist George Akerloff  
demonstrated in 1993, big financial players intentionally loot the  
economy time and again, knowing that could very well lead to an  
economic crisis.

This is not rocket science. It is a dynamic which has been understood  
for "hundreds of years".

Therefore, Sunstein's argument that - because the heads of the giant  
financial companies probably didn't intend to cause a depression -  
that shows that there was no conspiracy to commit fraud makes as  
little sense as saying that the criminals who caused a nuclear  
meltdown or killed the old tycoon couldn't have engaged in a conspiracy.

In fact, nobel prize winning economist Joseph Stiglitz, PhD economists  
Dean Baker, Michael Hudson, Paul Craig Roberts and Michel Chossudovsky  
and Time Magazine's Justin Fox all say that financial conspiracies  
have been committed by big American financial players. Leading  
Austrian economist Murray Rothbard agreed.
The REAL Conspiracy

Indeed, the real conspiracy is that the government is trying to hide  
the fact that massive conspiracy to commit fraud by Wall Street's  
biggest players is a prime cause of the financial crisis.

As I noted a year ago:


The label "conspiracy theory" is commonly used to try to discredit  
criticism of the powerful in government or business.

***

Acceptable Versus Unacceptable Conspiracy Theories
Bernie Madoff's Ponzi scheme was a conspiracy. The heads of Enron were  
found guilty of conspiracy, as was the head of Adelphia. Numerous  
lower-level government officials have been found guilty of conspiracy.  
See this, this, this, this and this.

Time Magazine's financial columnist Justin Fox writes:

Some financial market conspiracies are real ...

Most good investigative reporters are conspiracy theorists, by the way.

Indeed, conspiracies are so common that judges are trained to look at  
conspiracy allegations as just another legal claim to be disproven or  
proven by the evidence.

But - while people might admit that corporate executives and low-level  
government officials might have engaged in conspiracies - they may be  
strongly opposed to considering that the wealthiest or most powerful  
might possibly have done so.
Indeed, those who most loudly attempt to ridicule and discredit  
conspiracy theories tend to focus on defending against criticism  
involving the powerful.

This may be partly due to psychology: it is scary for people to admit  
that those who are supposed to be their "leaders" protecting them may  
in fact be human beings with complicated motives who may not always  
have their best interests in mind. And see this.

***

Similarly:

Michael Kelly, a Washington Post journalist and neoconservative critic  
of anti-war movements on both the left and right, coined the term  
"fusion paranoia" to refer to a political convergence of left-wing and  
right-wing activists around anti-war issues and civil liberties, which  
he claimed were motivated by a shared belief in conspiracism or anti- 
government views.
In other words, prominent neocon writer Kelly believes that everyone  
who is not a booster for government power and war is a crazy  
conspiracy theorist.

Similarly, psychologists who serve the government eagerly label anyone  
"taking a cynical stance toward politics, mistrusting authority,  
endorsing democratic practices, ... and displaying an inquisitive,  
imaginative outlook" as crazy conspiracy theorists.

This is not really new. In Stalinist Russia, anyone who criticized the  
government was labeled crazy, and many were sent to insane asylums.
Using the Power of the State to Crush Criticism of the Government

The bottom line is that the power of the state is used to crush  
criticism of major government policies and actions (or failures to  
act) and high-level government officials.

Pay attention, and you'll notice that criticism of "conspiracy  
theories" is usually aimed at attempting to protect the state and key  
government players. The power of the state is seldom used to crush  
conspiracy theories regarding people who are not powerful . . . at  
least to the extent that they are not important to the government.
Sunstein has called for the use of state power to crush conspiracy  
allegations of state wrongdoing. See this, this and this.

And as I've previously noted, the government is using massive state  
power to try to redirect people away from even questioning the  
financial system. See this, this, this and this.

As Glenn Greenwald has pointed out, the government is already  
implementing Sunstein's program (starting around 20 minutes into video):



And the government is gaming many of the economic indicators - such as  
unemployment - and allowing the big financial players to use ipse  
dixit accounting and sleights of hand, in order to try to convince  
everyone that things are not that bad, that everything is returning to  
normal, that the fraud isn't really that widespread.

As Warren Buffet noted, when the water level drops, the rocks at the  
bottom of the river are exposed. In other words, if the true financial  
conditions of the big financial players - and the U.S. economy - were  
reported, the massive fraud would be exposed.

  Washingtons Blog 3/1/11 6:37 PM Washington's Blog

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