Prosecuting Wall Street Fraud: The US Economy is A Giant Ponzi Scheme

Published on Global, by Washington’s Blog, December 14, 2010.

Bill Gross, Nouriel Roubini, Laurence Kotlikoff, Steve Keen, Michel Chossudovsky and the Wall Street Journal all say that the U.S. economy is a giant Ponzi scheme (see also Charles Ponzi)  … //

Fraud Causes Growing Inequality, Which Undermines the Economy:

Growing inequality is very harmful to our economy. Indeed, if wealth is concentrated in too few hands, the “poker game” ends, as only too few fat cats are left with all of the chips. See this, this, this and this.

Fraud benefits the wealthy more than the poor, because the big banks and big companies have the inside knowledge and the resources to leverage fraud into profits. Joseph Stiglitz noted in September that giants like Goldman are using their size to manipulate the market. The giants (especially Goldman Sachs) have also used high-frequency program trading (making up between 40- 70% of all stock trades) which not only distorts the markets, but which also lets the program trading giants take a sneak peak at what the real traders are buying and selling, and then trade on the insider information. See this, this, this, this and this.

Similarly, JP Morgan Chase, Bank of America, Goldman Sachs, Citigroup, and Morgan Stanley together hold 80% of the country’s derivatives risk, and 96% of the exposure to credit derivatives. They use their dominance in the market to manipulate the market.

Fraud disproportionally benefits the big players (and helps them to become big in the first place), increasing inequality and warping the market.

Fraud Increases the Severity of Boom-Bust Cycles:

More and more people – such as the Bank of International Settlements and Barons – are saying that bubbles inevitably lead to busts, thus destabilizing the economy.

Professor Black says that fraud is a large part of the mechanism through which bubbles are blown.

Without strong laws against fraud, bubble after bubble will be blown, guaranteeing that the financial system cannot be stabilized in a fundamental sense.

Failure to Prosecute Fraud Is Worsening the Housing Crisis:

Finally, failure to prosecute mortgage fraud is arguably worsening the housing crisis. See this and this. (full text).

Comments are closed.