The other day many of us were exposed to a BBC interview where a business reporter kept repeating the tired old mantra that hedge funds had no involvement with the global economic meltdown.
Then surely, given the opaque nature of these private investment concerns, there would be no surprises forthcoming if they were to be intensively audited by forensic accounting teams together with certified fraud examiners?
And while we're at it, might not the same auditing processes yield interesting results if also directed at those private equity leveraged buyout funds (LBOs) and the major credit derivatives dealers, Goldman Sachs, JP Morgan Chase, Morgan Stanley, Citigroup and Bank of America (with Credit Suisse FB, UBS and Deutsche Bank in the mix as well)?
Awhile back, Dr. John L. Goldberg of the University of Sydney, was brought in by the Australian government as a consultant to research the financing behind a number of public-private partnerships concerning Australian toll roads and infrastructure projects.
Now public-private partnerships, where securitizations with the subsequent generation of credit derivatives occur, incorporate the same underlying fundamental financial model as hedge funds, private equity firm LBOs and credit derivatives dealing by major ("too big to fail") banks.
Dr. Goldberg's three principal points, taken from one of his executive summaries, were as follows:
"Paying equity dividends with virtually no cash flow available (CCT)"
"The introduction of large spurious amounts of debt capital of unknown origin to augment cash flow, and the drawing down of fictional amounts of capital from reserves (LCT)."
"The use of dual entries to disguise the non-amortization of project debt (M2)."
[The codes in parentheses are toll road project designations.]
Now what do you suppose such an intensive audit of those hedge funds, private equity LBOs and bankster credit derivatives deals would reveal? (Perhaps those amazing returns from the hedge funds weren't really so amazing after all?)
In the U.S.A. there has been convened an official Financial Crisis Inquiry Commission. Now generally speaking, the usual purpose of any commission is to whitewash and obfuscate the truth, and given that some of this particular posse are affiliated with the American Enterprise Institute and the Peterson Institute, one should expect nothing less!
A real investigative body, of course, would thoroughly scrutinize any and all relationships between the financing and ownership of the InterContinental Exchange (ICE, and ICE Futures, ICE Clear, ICE Europe), TradeSpark, the Climate Exchange, PLC, the DTCC, the Markit Group, those pertinent transactions involving Markit Wire, and later named Swaps Wire, and ELX Futures, and the leveraged speculation, market rigging and manipulation which took place leading up to, and during, the global economic meltdown.
Naturally, we can rest assured that nothing of the sort will transpire.
Goldberg, John L. "The Fatal Flaw in the Financing of Private Road Infrastructure in Australia - Executive Summary" 2006.
Goldberg, John L. "The Fatal Flaw in the Financing of Private Road Infrastructure in Australia" 2006.
Goldberg, John L. "A Quantitative Examination of the Financial Risk to Superannuation Funds From Investment In Toll Road Infrastructure" 2006.
Soon to come: The Strange Case of the Shorting of the Eurozone