Professor Thayer Watkins of San Jose University Department of Economics recounts the tale of Equity Funding whose fake insurance policy scams were uncovered by auditors in 1973 causing the company to collapse. And since Wall Street's high assessment of Equity Funding had allowed buyouts of other profitable firms, the dominoes fell.
Yes, Equity Funding became a major success on Wall Street which shows you the company the scalliwags were keeping on both sides. Equity Funding created fake insurance policies early on - no one seems to know exactly when - to inflate their profits for Wall Street's admiration, then they sold them through the reinsurance market.
Stop me if any of this sounds familiar, because it should.
Prof Watkins uses Dirk's and Gross' book, The Great Wall Street Scandal as his source. A quick foray to Amazon shows that this book seems to be available from sellers but is out of print.
The Equity Funding section by Prof Watkins is part of his "Episodes of Financial Fraud and Speculation" which includes an article on the 1924 scandal of counterfeiting in Portugal by Alves Reis, a Keynesian scheme which turned out to have been better for the Portugese economy than the policies of former economics professor, Salazar, who became dictator of the country in 1932.
Another fraudulent epic included is the saga of the Penn State Bank of Oklahoma City and Bill 'Monkeybrains' Patterson which involved the oil and gas industries of OK and TX. Now I know that we're not supposed to mess with Texas (and as a rule, I don't), but apparently certain folks in Texas were cleared to mess with us a long time ago.
In summary, Prof Watkins provides some interesting reading here if you're in the mood for how fraud is perpetrated by the 'experts' which makes a perfect companion to the Fed's slight-of-hand today, esp if you click on some of the other links in the History category on the Home Page - ex: I highly recommend his article on the causes of the Great Depression and the Fed's blame due to their actions which precipitated the decline in money supply, along with banks hoarding the money, the general populace holding on to cash (sound familiar?), and the liquidationist policy of Treasury secretary Andrew Mellon.
Mellon and his pals thought that the liquidation of 'weak' banks was necessary for the recovery of the banking system.
Now I know we've all heard that before!
You may also be interested in reading a previous post of 10.8.08, your money is no good here which contains a link to James Cumes' article on the systemic financial collapse we are witnessing.