The Institutional Risk Analyst

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A Tale of Two Frauds: Bitcoin & GSE Shares

Updated: Jan 23

New York | Across the financial world, readers of The Institutional Risk Analyst know very well, there seems to be a growing incidence of fraud and chicanery, this as the rate of interest paid on securities falls. The “bezzle,” what John Kenneth Galbraith described as the “inventory of undiscovered embezzlement,” is contracting along with the cash flow from financial assets.


The European Central Bank is threatening to place limits on leveraged loans even as interest rates in Europe sink further negative. Do you think anyone at the Fed or ECB understands the connection between low interest rates and financial fraud? More than merely shifting risk preferences, low or negative interest rates create a seller's market for bad securities and, worse, nothing at all.



The shrinkage in available plunder causes those living on the edge of propriety to develop ever more devious and complex games. Technology enables this wastage as do the pressing needs of the criminal world. And the ability of policy makers and regulators to keep pace with the new scammers is similar to the situation facing online security vendors. The perpetrators are just a little faster and certainly better motivated.


Bitcoin: Money for Nothin'


Our favorite game in recent years has been bitcoin, the first and only “independent” crypto token that also is a technologically enabled fraud. People exchange legal tender dollars or other currencies for, well, the equivalent of a bus token or lottery ticket. The value of bitcoin is based entirely upon the existence of a greater fool who will give you a thing of value in the future in exchange for this token. But not all bitcoin is bought for value, as we discuss below.


Proponents of bitcoin point out that the exchange of tokens is independent of