Commentary - 07/19/09

"The Accounting Department Is Our Profit Center"

That statement was made by Charles Keating, back in the 80s S&L crisis, as stated in William K. Black's book The Best Way To Rob A Bank Is To Own One.
On page 4 of that book, Mr. Black writes:
Keating called his accountants a profit center. Control frauds shop for accommodating accountants, appraisers and attorneys.
. . .
Investments that have no readily ascertainable market value are superior vehicles for accounting fraud . . .
So today in the New York Times, we're treated to the following article:
Windfalls for Bankers, Resentments for the Rest
It was the morning that Goldman Sachs reported net income of $3.44 billion, a number that surprised even analysts who follow investment banking. JPMorgan Chase came two days later with news that it had earned $2.7 billion in the second quarter, even more than it earned in the same period last year, before the economy had a cardiac infarction.

Then on Friday, Citigroup and Bank of America -- two of the great basket cases of the meltdown -- reported outstanding numbers, too.
. . .
If these companies can return to the festivities so quickly, were they really having the near-death experience they and the government claimed? And if taxpayers risked their money when they backstopped Wall Streetís misadventures, why arenít they sharing in the upside now that the party has started again? And did these companies have the time to rethink the risk culture that landed us in this jam in the first place?

Folks should wonder just how these so-called "great basket cases" are able to report profits. If I had just borrowed a boatload of money to pay off my creditors to avoid having to post bail, how is it that I could declare profits if I had not yet earned enough to pay back the money?

On the first subject, what would I have had to do in order to make profits while almost everyone else suffered losses?
The only thing that comes to mind is to bet against my customers and my countrymen, then orchestrate the collapse.

After the Federal Reserve Act was passed in 1913, Congressman Charles A. Lindbergh Sr. is quoted as saying, "From now on, depressions will be scientifically created."

How could this be accomplished? Well, Warren Buffett exposed the technique in his 2008 Annual Report, Page 4 of the Chairman's Letter to be found here, (3rd paragraph from the bottom of the page):

"This means that our $58.5 billion of insurance "float" -- money that doesn't belong to us but that we hold and invest for our own benefit -- cost us less than zero. In fact, we were paid $2.8 billion to hold our float during 2008. Charlie and I find this enjoyable."
I understand that the insurance business is different from managing stock, but when any stock fund is able to vote their customer's stock (that which they hold for others) for their own benefit (which may not be to the desired benefit of their customers or shareholders); when they naked-short against their own customers and conceal how they earned their profits, then fund management has committed control fraud. They've sold out their customers and their countrymen for a few dollars more.

There's really only one way to win this game and that is not to play. Move your funds away from these folks and do business with folks you can trust NOT to use your resources against your own self-interests. Sounds simple, but it is difficult to execute. Readers of this site know just how inter-connected most businesses are to these casino operators.

One last thing.
In William K. Black's book (Appendix C) is a copy of the short memo to Jim Grogan from Charles Keating, dated 7/13/87,
which may explain why you might not get much help from government regulators.
It simply stated,



WRIGHT was Speaker of the House Jim Wright during those times.
William K. Black was then deputy director of the FSLIC.
Jim Grogan was a lobbyist and corporate counsel for Charles H. Keating.

Sometimes The Dragon Wins entirely too often.

© 2009 by Edward Ulysses Cate
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