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This economic and financial meltdown originated from, and is even now being driven by, fraud, says Black. Massive fraud. The essence of fraud is, "I gain your trust so as to get you to give me something of value on the promise that I will provide something of greater value for you, and then I betray your trust." And there's no more effective way to destroy trust in an entire society than by way of fraud systemically perpetrated by top elites. Sadly, that's exactly what we have happening in America today, he says.
Calculated dishonesty, by the people in charge, is at the heart of our largest corporate failures and scandals, including, of course, those of the S&Ls. And it was in America's boardrooms and CEO offices where this fraud began again, but this time on a scale much much larger than before.
Some of the first part of the report that follows is old news, but it's very important that we thoroughly understand what happened initially, before we proceed to understand the immensity of the implications, consequences and fallout that our society and our world are about to experience.
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As long as the market for them continued to grow, liar loans paid much better than loans based on truth. Not surprisingly, the banks that issued them most rapidly grew most rapidly, and profited most rapidly " just like with a Ponzi scheme. Then too, lots of leverage (lots of borrowed operating capital) helped. The combination of lots of borrowed money, to make the many many loans that could not have been made were they not founded on lies, created a situation where you had guaranteed record profits in the early years -- again just like with a Ponzi scheme. The people making the loans got rich, of course, provided they could find enough suckers to buy these ˜securitized' garbage loans after they were pooled and packaged into securities marked triple-A, then sold far and wide. Inevitable was the disaster down the road, when housing finally stopped appreciating in value, and when new suckers stopped buying into this grand Ponzi-like scheme.
Whether you call it a Ponzi scheme or not, it's an undeniable fact that the CEOs of many of these banks and mortgage firms, in order to increase still further their own personal income, deliberately set out to make as many bad loans as they could. But how did they get away with it? Yes the federal regulators under Bush had been taken away or otherwise ˜neutralized,' but what about the normal corporate system of checks and balances? What about their accounting divisions of those very firms?
The answer, of course, is that all of those "checks and balances report to the CEO, so if the CEO goes bad, all of the normal checks and balances in the company are easily overcome. The art form for the CEO was to suborn these employees, turning them into his greatest allies. And it was through the very generous bonus programs that they went about doing this.
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