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10 Profit from Failure

In today's financial system, profit from failure has provided incentive for vandalism on an institutional scale, which threatens the economic foundations of our social order. It threatens the long trade chains necessary for economies of scale to work and in turn for highly technological societies to function.

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If we do not prevent profit from failure, speculators will destroy our markets and so perhaps our world economy.

This is not new. People would over insure ships and then wreck them to collect the insurance.

In this section I shall cover just some of the evil that may and has resulted from incentives to induce failure.

See the sub-pages Naked Short Selling and Naked Credit Default Swaps to get some idea of some criminal practices to which regulators turn a blind eye and a few other stories are below on this page.

Real trade chains need stable prices where as speculators need unstable prices. Where speculators dominate the trade such as in FOReign EXchange, they may well have their way and the price will end up being determined by the speculators rumours rather than genuine facts.

There are, for the most part, two ways for non-insiders to improperly influence prices: either through manipulative trading or the spreading of misinformation. Both are done with the intention of sparking unwarranted hype or panic in the broader market. See Deep Capture for more on market crime.

SEC goes after Goldman & Paulson

Lots of people are puzzling through the SEC’s fraud allegations against Goldman Sachs, trying to work out how it allegedly committed fraud. The way Paddy Hirsch sees it, it’s a bit like a bookie and gambler teaming up to fix a horse race. See film on this bank con

The SEC alleged in a civil lawsuit that Goldman /quotes/comstock/13*!gs/quotes/nls/gs (GS 160.08, +2.30, +1.46%) structured and marketed a collateralized debt obligation that hinged on the performance of subprime residential-mortgage-backed securities, or RMBS. However, it failed to disclose the role that a major hedge fund, Paulson & Co., played in the portfolio selection process as well as the fact that the hedge fund had taken a short position against the CDO. Full Article Market Watch 2010-04-16 Goldman charged with fraud over Paulson CDO trade

Euro Bond Scare

Government Debt And Bankrupt Banks Scare Investors In The Euro Area Away

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(C)2010 Tom de Havas. The information under this section is my own work but with excerpts from other referenced material.