Corruption, tax fraud and financial dilettantes

“Who burned our money?” exposes fraudulent schemes in the financial system


“An all-finance authority like BaFin truly experiences a lot in the course of a year – including nasty surprises.

But the subprime crisis that hit us in mid-2007 dwarfs anything we have seen before. Clever financial engineers exploited national and international supervisory loopholes, leveraged the Basel I banking regulations and orchestrated a large-scale regulatory arbitrage, the consequences of which the financial markets are still suffering severely:

Banks were able to pump themselves full of risks without hindrance because they did not have to back them up with equity capital. The profit machine ran at ever higher speeds until it completely overheated and brought the international financial system to a near standstill with a piston seizing.

“Let’s hope it doesn’t get as bad as it is,” Karl Valentin once said, as if he had anticipated the instant discussion about the valuation of burning structured paper.


The experience of financial supervisors is clear on this point:

Of all the fears we are constantly forced to entertain by our profession, the worst almost always come true. But since the future has too many unknown factors, we are almost never able to predict what form the “worst case” will take next time. With the successful business model of Sherlock Holmes – to know what others do not know – the financial supervision is unfortunately overtaxed.

Evil game of managers “We didn’t know the evil game that had been played on the other side of the Atlantic in recent years.”

These are the comments by Jochen Sanio, President of BaFin, on the situation on the international financial markets in his institution’s current annual report.


And worse was to come:

The modern financial system is undergoing a stress test without stress test, the likes of which have never been seen before. Professionals in the trading rooms look into the abyss and the “small investor” wonders if his money is still safe. The world financial market will not collapse, but it will not be the same after the crisis as it was before.

In addition to the taxpayer, investors are once again having to foot the bill for the wicked game played by financial managers in recent years. Systematic legal errors and in-built tax fraud in insurance products, false interest and expense statements at banks, deliberate misinformation in product advice, dubious machinations in the use of money – the fraudulent varieties in the financial system are manifold.

The wealthy in the “wealth management” of the big and private banks are no better off than the “small investor” at the savings bank next door. And for the latter, this often means the loss of his retirement provision. A foray through the financial industry that shows how, by what and by whom the billions were burned. But it is also a guide for investors who want to protect themselves against capital losses in the future.

It is questionable whether our financial supervisors are at all equal to the current global financial crisis. They do not even manage to sweep out the “system of financial fraud” in their own country. Belief in the solvability of problems is not enough, as financial supervision has criminally demonstrated in recent years. How much more money should investors lose year after year? For many, the only thing that seems to help already is “In God we trust”. (To guard against greed, heathens, and locusts, the U.S. once printed “We trust in God” on coins and dollar bills).


The others will find support for a trip through the financial jungle:

The brutally pedagogical financial ABC opens the view into abysses of bitter insights and alternative options in dealing with risks and money. In around 200 articles ranging from A for “Abassiert – wie Banken tricksen” to Z for “Zinsaufblähungsmodell”, the two authors Hans-Lothar Merten and Johannes Fiala delve into the shallows of the financial sector. Her ABC of financial scandals, now published by Walhalla Fachverlag, shows how and by whom billions have been destroyed to date.

by Dr. Johannes Fiala and Lothar Merten

by courtesy of (published in Digital Insider 11/2009)

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About the author

Dr. Johannes Fiala Dr. Johannes Fiala

Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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