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Have you noticed more fraud lately?

I certainly have...

It's literally everywhere (and I'm trying to figure out if that's good or bad...)

Now I'm not saying that fraud is good: no-one thinks that except the fraudsters...

It's the discovery of the fraud I'm focused on...

Why?

Excellent question!

The answer... Creative Destruction ๐Ÿ’ฅ๐Ÿ‘‡

The opening up of new markets, foreign or domestic, and the organizational development from the craft shop to such concerns as U.S. Steel illustrate the same process of industrial mutationโ€”if I may use that biological termโ€”that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.
This process of Creative Destruction is the essential fact about capitalism.


Make sense?

If not, try this.

Visualise the economy as a forest, then start on the right and work clockwise ๐Ÿ‘‡



As metaphors for the economic cycle go, it doesn't get much better...

New growth continually competes with established woodland for the same nutrients & resources...

Without the creative destruction that fire brings, new growth cannot flourish...

In an economic sense, companies that exist purely to survive/service debt (zombies) are utilising resources that could be destined for more productive endeavours instead...

Merely keeping the patient alive with low interest rates is not the path to a healthy economy...


If we take the Covid pandemic as the fire that should have cleared our economic forest, governments & central banks wrapped the larger trees in fireproof materials with their actions...

Is this merely prolonging the inevitable...?

Eurozone haunted by โ€˜ghostโ€™ bankruptcies
More than 200,000 firms are at risk across Europeโ€™s major economies, Bank of America research suggests

We haven't seen the typical economic destruction we would expect, and many companies have been able to restructure rather than go bankrupt...

Nearly 62% of U.S. corporate bankruptcy filings in 2020 sought reorganizations, the highest rate for any year going back to at least 2010, according to S&P Global Market Intelligence data.
Companies were less likely to liquidate in 2020, a departure from 2019 and 2018 when corporate liquidations outpaced reorganizations in bankruptcy filings.
As of March 30, the share of filings seeking restructuring is larger in 2021 than in 2020.


This is why the frauds have my attention...

Booms and busts are a common feature of market economies.
Almost as common is the belief that a boom encourages and conceals financial fraud and misrepresentation by firms, which are then revealed by the ensuing bust. - From this 2007 'Booms, Busts & Frauds' paper

Onto the juicy frauds...

Credit Suisseโ€™s Prime Unit Risk Chief Had Been Archegos Salesman
Wall Street banks have long relied on a familiar system to limit the dangers of trading with big clients: assign sales staff to win deals, and risk controllers to keep them in check -- even if it sacrifices some profit.At Credit Suisse Group AG, executives had given the point salesman to Archegos Caโ€ฆ

If you've ever met a salesman, you know why they should never become risk managers: and these are the consequences ๐Ÿ‘‡

Credit Suisse to Cut Hedge Fund Lending by Third After Archegos
Credit Suisse Group AG is planning to slash lending to hedge funds by a third after the Archegos Capital blowup cost the bank $5.5 billion and forced it to tap investors for additional capital.

Then there's the Greensill saga (summed up perfectly by this headline)

Imaginary Invoices Are Hard to Collect
Also discount SPACs, digital yuan, index funds and pilot CEOs.

More stories coming out from Wirecard (going to make a fantastic film)

FT

In the crypto space, Elon's pumping Dogecoin to the moon, people are being offered cash to shill sh*tcoins to their followers, and a Turkish Crypto exchange CEO has apparently disappeared with $2 billion ๐Ÿ‘‡

Turks Suspect Big Crypto Losses as Exchange CEO Goes Missing
Unable to retrieve their investments, users of Turkish crypto exchange Thodex have filed a complaint alleging fraud, with their lawyer saying hundreds of millions of dollars may have been stolen. The head of the exchange has been unreachable and allegedly fled the country.

Perhaps to Thailand...


Then we look at China again...

Huarong Debacle Highlights Problems at Hundreds of Chinese Banks
Lai Xiaomin, former chairman of China Huarong Asset Management Co., was found guilty of accepting $277 million in bribes, as well as bigamy, crimes serious enough to see him summarily executed in January.
Exclusive: Yet Another Corrupt Executive Exposed at Chinaโ€™s Biggest Policy Bank
Zhang Maolong was the chief operating officer at the China Development Bank for three years, before retiring in 2013

It's this type of corruption & fraud that has led to the authorities clamping down with tighter regulations and a forced deleveraging...

China was long overdue, especially in their banking system...

But how much fraud is hiding in the west...?

And if these frauds continue to surface, what does that do for confidence in the system?

We saw what it meant in 2007, the credit machine ground to a halt...

The Fed stepped in to save the day, just as they did last year...

But what could they actually do if trust in the system was undermined on a wider scale?

Hwang's exposure was as much as $100 billion and his leverage ratio may have hit as high as 20x in some trades...

How many Hwang skeletons are in the financial systems' closet?