Financial manipulation is hard to resist for all financial organizations. Fraud, deception and financial scam are very attractive operations that could prove ruinous for any organization.The goal of the scammer is of course to make money from the scam.
Certainly, institutions and modern financial markets are expected to be highly regulated (which can also be a source of ambiguity) and closely monitored. But the wheels of finance are working with human beings and when there is money at stake, the temptation to cheat is just too great. In addition, the "watchdogs" do not always work, either because of incompetence or deliberately.
Despite all qualities of human beings, and all possible precautions and surveillance, people demonstrate, among other things, greed, delusion, and sheep mentality - everything needed for a financial manipulation to be put in motion.
The financial crisis of 2007-2009 is a typical example of the widespread use of dishonest practices. The banks had provided loans to many "bad" borrowers, have grouped these debts and turned them into financial assets and derivative contracts - virtually worthless to investors.
The main incentives which contributed to this financial manipulation and which helped to create one of the largest political financial scams of all time were:
- A massive creation of money due to a policy of money creation and lax credit rates (cash abundant and essentially free) by US monetary authorities.
- Combined with great neglect (incompetence, naivety) in the monitoring of the rapid changing technical and financial practices.
- Securitization (grouping as marketable funds) of worthless assets.
- Creation of more or less ghost investment companies to negotiate these assets. It has been talked about a shadow banking system.
- Derivative contracts (credit capacity) has been made without warranties or organized market liquidity.
It has been made difficult for investors to know what had been hidden behind the appealing appearance of the financial products.
These procedures of financial manipulation:
- replied in a huge "leakage" with very little equity and large debts. These have become "toxic debts" or "toxic assets" with nobody wanting to buy them.
- took the form of a gigantic Ponzi scheme of several trillions of dollars.
This incredibly huge scam, collapsing, produced a crisis that nearly all financial institutions both American and global, interconnected by relationships of account, going bankrupt one after another in a domino effect.