Central Banks, Global Debt & COVID

My first introduction to fraud began on Wall Street after I received my MBA from Indiana University,  I was a young electric utility analyst in the research department of Donaldson Lufkin & Jenrette from 1997 to 1999. The firm was sold to Credit Suisse Bank years after I left but the firm was known as a premier stock research firm and was referred to as “The Investment House that Research Built.”

In my time there I witnessed the internet teams in research grow large, as they were in the middle of the DotCom boom and were busy bringing to market IPOs of internet companies that were sprouting up by the hundreds if not thousands. It was a heady time, and companies with not much in the way of revenues were quickly run through the due diligence process and deemed acceptable for investors. The demand for these IPOs seemed insatiable, and the money pouring into the bank from the fees was eye popping. Needless to say, the party continued, and the deals became more ridiculous, but the stocks of these future worthless companies continued to rise as demand for what was called the ‘New paradigm” continued apace.  The belief then was that the stock market is forward looking, and these companies would disintermediate all the boring old brick and mortar companies that had real capital investments and take over the world. As a backdrop though, and what people couldn’t see at the time, was that the Federal Reserve was providing (by historical standards then) very accommodative monetary policy as the world was deathly frightened by the Y2K phenomenon.  The easy money found its way into this speculative craze, and I witnessed my first mass formation psychosis event amongst the professional investment crowd. This easy money also found its way into junk bonds, which also provided another source of capital for these newly created companies. Flush with IPO cash and junk bonds, these revenue challenged companies went on a buying binge of epic proportions and bought real estate, software products, and hired countless people.  The end result of all of this was creation of an explosion of growth in Nasdaq tech companies’ top line as they provided the arms to these new companies to take over the world.  The Nasdaq bubble was born, and the party lasted until the Federal Reserve began raising interest rates and took away the easy accommodation. The first companies to implode were those with no revenues, and their funding dried up. The cascading effects lasted 2 years, and the US economy went into recession. As always, easy money leads to fraud and the corporate accounting frauds of Enron, World Com, Lucent, Nortel & Quest all came to light. These real firms all fed off the easy money created by the new companies’ capital spend and the trend of hype. Many of the newly created companies engaged in revenue fraud as well, where they had back door agreements to purchase items from each other to create the illusion of growth. It was a halcyon time for fraud and malfeasance.

The key thing to remember is that the easy money from the Federal Reserve was responsible for speculation, which in turn led to a gigantic misappropriation of capital that ended up driving tremendous losses, fraudulent behavior and theft. Without easy money none of this would have happened.

The Cycle Begins Anew: Central Bank Enabled Housing Fraud