How to rob a bank from within
Former bank regulator, William Black, gives a Tedx Talk detailing fraudulent banking practices prior to the financial crisis. I think the most important part of the talk is between minutes 11:00 – 18:48 where Mr. Black talks about the reason for few prosecutions and convictions of fraudulent institutions (& senior managers).
Appraisal Fraud – Inflating the value of an asset above its actual value.
Accounting Control fraud – Is what happens when people who have control of an enterprise (i.e. ceo) use their power and insider status it to defraud. In other words, the weapon of choice to defraud people in finance is accounting.
A recipe for how fraud occurs:
1. Grow like crazy
2. Make crappy loans at a premium yield (justified by committing appraisal fraud & issuing liar loans )
3. Employ extreme leverage
4. Provide only trivial loss reserves.
If you follow the recipe 3 things will happen:
1. Your bank will record record profits.
2. The ceo will be made very wealthy by modern executive compensation.
3. Down the road the bank will suffer catastrophic losses.