Tuesday, January 27, 2009

Financial Fraud – More or Less?

Every day it seems the feds are tracking down another financial fraudster. Does it indicate more fraud is being committed? No. Does it mean they are becoming more diligent in fighting fraud? No.

One of the dirty little secrets of a "bull" market is that it allows fraudsters to cover up their crimes. In the bull market, Madoff was able to draw more "new" money into his scheme year after year. After his clients were hit with other financial problems, they needed cash and Madoff's money was a good source to tap. Unable to keep bringing in "new" money to cover redemptions, he was forced to turn himself in.

Although other fraudsters haven't turned themselves in, the damages of the stock and bond market make it impossible to cover up their crimes.

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