THE BUBBLE AS THE WORK OF CRIMINALS

By Albrecht Mueller

[This article published on: NachDenkSeiten, August 17, 2007 is translated from the German on the World Wide Web,  http://www.nachdenkseiten.de/?p=2564.]


Recently I read many intelligent analyses and commentaries about the bubble on the financial markets and in particular about the rotten credits on the US mortgage market. Regarding the financial products in play, the sub prime business for example, the emphasis was on “innovation,” the “modern financial world,” financial geniuses, computer cracks in the banking centers of the world” and “clever novel securities.” That was the most critical undertone. In my opinion, these descriptions are complete trivializations of events. A conscious and organized deceit is perpetrated on investors, nothing less than a criminal fraud, when several bandits or sharks create marketable securities out of bad mortgages on an overheated real estate market. No investor at the end can see what he invested in.

Those who accepted these securities at a totally unconventional compound interest and knew as banking experts that they joined in a kind of chain-letter scam can only be described as deceivers. They knew that high profits could only arise out of an assets fraud, not out of real wealth creation. They knew risk and deception were involved. They knew the securities they bought were not worth what they promised.

What about those who failed in their oversight duty or the mammoth auditing companies that vouched for their harmlessness? What about the state regulatory boards that intervened so late or those in politics who equipped the state regulatory boards so poorly they could not fulfill their supervisory duty amid crafty financial maneuvers?

The regulating agencies had to know that capital profits of 20% and more cannot usually be earned with clean businesses and that those financial institutes boasting such profits must have worked with “crafty financial products.”

In the current debate, we do not label the intrigues uncovered by many experts as “criminal” because well-respected citizens, the cream of our economic leadership class, were active advisors. The trivializing and often admiring language is peculiar because the consequences for the uninvolved, for people who lose their savings or their jobs as a result of the crisis, are terrible.

When members of this so-called ruling class do or encourage awful things, a trivializing campaign protects their actions from being described as what they are criminal, criminal diversions.

Current language trivializes the intrigues of Private Equity and hedge funds. They like to be called “investors,” although they usually only bring a drop of their own capital. They do not become indebted themselves but rather the taken-over business. They withdraw money for themselves and transfer profits to tax shelters. Then they carve up the business and profitably sell off the individual parts dirt cheap. Official Berlin calls them investors and grants them tax exemption in buying and selling businesses and tax privileges for their dubiously gained profits.