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Epidemics of 'Control Fraud'

Lead to Recurrent, Intensifying Bubbles and Crises

by William K. Black, University of Missouri at Kansas City - School of Law, April 15, 2010

 

Abstract: “Control frauds” are seemingly legitimate entities controlled by persons that use them as a fraud “weapon.” A single control fraud can cause greater losses than all other forms of property crime combined.

This article addresses the role of control fraud in financial crises. Financial control frauds’ primary weapon is accounting. Fraudulent lenders produce exceptional short-term “profits” through a four-part strategy: extreme growth (Ponzi), lending to uncreditworthy borrowers, extreme leverage, and minimal loss reserves. These exceptional “profits” defeat regulatory restrictions and turn private market discipline perverse. The profits also allow the CEO to convert firm assets for personal benefit through seemingly normal compensation mechanisms. The short-term profits cause stock options to appreciate. Fraudulent CEOs following this strategy are guaranteed extraordinary income while minimizing risks of detection and prosecution.

The optimization strategy causes catastrophic losses. The “profits” allow the fraud to grow rapidly by making bad loans for years. The “profits” allow the managers to loot the firm through exceptional compensation, which increases losses.

The accounting control fraud optimization strategy hyper-inflates and extends the life of financial bubbles. The finance sector is most criminogenic because of the absence of effective regulation and the ability to invest in assets that lack readily verifiable values. Unless regulators deal effectively with the initial frauds their record profits will produce imitators.

Control frauds can be a combination of “opportunistic” and “reactive”. If entry is easy, opportunistic control fraud is optimized. If the finance sector is suffering from distress, reactive control fraud is optimized. Both conditions can exist at the same time, as in the savings and loan (S&L) debacle.

When many firms follow the same optimization strategy a financial bubble hyper-inflates. This further optimizes accounting control fraud because the frauds can hide losses by refinancing. Mega bubbles produce financial crises.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1590447


 
 
MORE ON KILLING AMERICANS WHO LIVE ABROAD

This article below is deeply disturbing. And how interesting that it is written by a former intelligence officer and political conservative!

What, if anything, can overseas Americans do now to try to protect ourselves from some bureaucrat deciding in secret that it is time for us to die?

No due process or other Constitutional rights for us because we are not physically present in the United States. No right to know of the accusation, no right to a trial, no way to defend ourselves.

How in the world did this happen and no one spoke out in our defense?

And, to cut to the chase real quick, is there a single individual that anyone can identify anywhere in the U.S. Government who is responsible for protecting the fundament rights and interests of Americans who live overseas?  And, if not, why not?

Any thoughts here?

Deep Background - Assassinating Americans

By Philip Giraldi, The American Conservative, 30 March 2010.

Philip Giraldi, a former CIA Officer, is a fellow with the American Conservative Defense Alliance.

Even in World War II, the United States did not attempt to assassinate U.S. citizens who went over to the enemy, but that has now changed with President Obama’s overseas contingency operations.

On Feb. 3, Director of National Intelligence Dennis Blair told the House Intelligence Committee that the United States government has developed procedures for killing American citizens abroad who are “involved” with groups threatening to carry out terrorist acts directed against other Americans.

Three U.S. citizens have already been approved by the White House for summary execution as soon as actionable intelligence is developed to enable a pilotless drone’s hellfire missiles to do the killing.

One is Yemeni cleric Anwar al-Aulaqi; the second is American al-Qaeda member Adam Perlman, who goes under the name Adam Yahiye Gadahn; and the third is believed to be a Somali from Minnesota who has joined the al-Qaeda affiliate al-Shabab in the Horn of Africa.

Anwar al-Aulaqi, linked in the media to the Christmas underwear bombing and with Major Malik Nadal Hasan, the Fort Hood shooter, has denied any involvement in either incident. Perlman, a propagandist for al-Qaeda, is in Waziristan. Killing these men would involve using military drones to attack targets in three countries with which the United States is not at war.

The Fifth and Sixth Amendments to the U.S. Constitution guarantee a citizen due process and a public trial, as well as the right to confront his accuser.

The Obama administration is arguing that these American turncoats do not have constitutional rights because they are not physically in the United States and are actively engaged in planning terrorist acts that the government has the right to disrupt by killing them preemptively.

Blair has also explained that there are “defined policies and legal procedures,” but as the criteria for inclusion on the kill list are secret, due process is likely limited to the ruminations of a senior bureaucrat and a government lawyer, neither of whom has a mandate to protect the rights of the suspect.

Furthermore, Blair’s use of the world “involved” suggests that the definition of terrorist activity might be somewhat elastic.

The result is that secret information used to make a secret decision can very definitely get you killed in the Obama White House’s Brave New World.

It will also kill many of your friends and family, as the hellfire missiles are notorious for their infliction of collateral damage.

Killing dissident citizens without due process is not a unique practice.

Libyans, Iranians, and Soviets all did it in the 1980s and 1990s.

But it is unusual in a liberal democracy where there are restraints on depriving a citizen of his life.

 

The odd thing is that no one who matters seems too disturbed.

No congressional committee protested, the New York Times only ran a short discussion thread on its online opinion page, and the Washington Post relegated the story to page 3 without any follow-up.