Posts Tagged ‘Statistics’

Lock, Stock & Money

Saturday, March 14th, 2009

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The idea of investing in stocks seemed like a bright prospect a few months back but now it sends shivers down the spines among prospective investors. Share investors have witnessed a tough time over the past six months. Investing in stocks or shares has always been a risky affair, but more so during the past few months as the stock prices went tumbling down, with a steep fall in the economy. Interestingly stock trading is not a new thing and its history can be traced back to the Romans, but the first company to issue stocks was the Dutch East India Company. They pooled in public investment and used it primarily for the building of ships.

Experts in the stock market claim that the one thing that is important for a person trading in stocks is his timing. Investors were quick to realize that they needed to be on the tip of their toes to trade effectively in the stock market. However in the olden days, not everybody had the time to keep a track on the stock prices on a daily basis, and that itself gave rise to a new profession- the Stock Broker. He kept a watch on all your stocks and helped you make a decision on what to buy and what to sell, and charged you a commission (called the brokerage) for his services.

With the advent of technology, the stock markets have seen a radical change over the years. Increasingly sophisticated broking software has not only made it easy for Stock Brokers to trade on the market, it has also meant that a newbie, with a little knowledge about the share markets can take a plunge. The internet has also made it easy for people to trade on stocks sitting at the comfort of their homes, with millions of dollars changing hands in a few milliseconds. Technology has made it possible for algorithmic trading to take place, wherein computer systems are programmed to buy or sell shares when a certain market condition is met.

As with all things related to money, the Stock Market has seen its share of financial scams amounting to millions of dollars. Among the various major scams that have hit the Stock Market hard, the earliest was in 1986 when Barry Minkow claimed to be building a multi-million dollar company and went public with a market cap of $200 million before being discovered that it was a mere scam. However the largest investor fraud ever committed by a single person amounting to a whopping $65 billion was the one orchestrated by Bernard Madoff. He introduced his Ponzi scheme, where instead of investing the money offered to him by his clients it was simply deposited to his business account in Chase Manhattan Bank.

A totally different form of stock scam came into picture in the form of the boiler room. A lot of people have been hit most by boiler room scams, where a smooth talking salesman calls up and tries to peddle worthless shares to unsuspecting customers. Police have called it the biggest threat to households, much bigger than credit card frauds. These are called boiler room scams because the people involved operate out of cramped office spaces with desks and telephones. Police have estimated that there are about 500 boiler rooms operating out of Spain, employing over 400 people. Other favourite Boiler room destinations are USA, Dubai, Berlin and France.

With the economy in recession, investors are thinking twice before plunging into the Stock Market. With statistical figures showing that approximately more than 50% of American households invest in the stock market, it is something that is still considered to be a good investment. It is just a matter of time before the Stock Market hits back with a vengeance. Better hold on to your money until then.

Money Laundering – is it a common thing?

Monday, March 9th, 2009

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Money Laundering - by definition means to hide illicit income, or disguise it in a form that it no longer appears to be illegitimate. This can be done in a variety of ways. Money laundering can be as simple as stashing away illicit cash in a big bag, so that apart from the person hiding it, nobody else knows about it.  In the modern world however, criminals tend to lock up their illicit money in foreign banks, with less stringent bank laws, or hide it in the form of investment in a business, or discreetly purchase personal property.

Money laundering is a punishable offence by law. In October 2005, U.S congressman Tom Delay was charged with money laundering, forcing him to step down as House Majority Leader. In U.S the average prison sentence for Money laundering is six years.  In late December 2006, the Chinese authorities uncovered a five billion Yuan (633 million U.S Dollars) money laundering scandal, the country’s biggest ever. Apparently this scandal was only accidently exposed following a probe into false business registrations, raising fears over how money laundering can be easily concealed.

With the rise of global finances, money laundering has become easier than ever. Countries with bank secrecy laws are directly connected with countries with bank-reporting laws, making it easy to carry out anonymous transactions to deposit “dirty” money. Also, with recent technological advances, money can zip through two countries in a flash. Considering that an estimated 700,000 wire transfers occur daily in the United States moving well over $2 trillion, illicit wire transfers are easily hidden.

The advent of internet and electronic cash has made money laundering an easy affair, and extremely difficult to trace. DigiCash, a form of electronic cash introduced by an Amsterdam based company is said to be the most secure form of electronic cash available. It uses a technology called ‘blinding’ which makes it unconditionally untraceable, thus making it a boon for money launderers across the globe. Recently UK authorities busted a gang of international criminals trying to launder £229 million from a City bank by exploiting the high-tech security measures designed to protect money transfers.

That brings us to our next question. Is money laundering only used by individuals to hide their illegitimate money? Recently, the United Nations’ crime and drug watchdog has indicated that “dirty” money  made in the illicit drug trade has been used to bailout large banks in the global financial crisis, since it was the only form of liquid capital available. The amount of money involved in this bailout is said to be hundreds of billions, which could make this the largest money laundering operation in the history of the world.

While it is impossible to ascertain the statistics of money laundering, a frequently cited figure places it to be about 2-5% of the worldwide global economy. With no discreet data available for the statistics these are just mere guesses and the actual figures are estimated to be much higher. Money laundering is a huge problem, and although current money laundering laws apply to cyber laundering, their efficiency is rather limited.

The truth is that although Money laundering may not be a common thing now, technology has created the means and ability to launder money by use of completely untraceable digital currency, and the future may have something different in store for us.

Currency Counterfeiting - A global nemesis

Sunday, March 8th, 2009

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The history of counterfeiting traces itself to the history of money itself. Counterfeiting had started when money was in its most primitive stages. The ancient Greeks and Romans resorted to shaving down legal coins, reducing their value, and use the shavings to cast new coins. The advent of paper money led to the modern day counterfeiting. With potential ill–effects being as huge as bringing a whole nation down, counterfeiting has proved to be a nemesis among nations, and the punishment for this crime can be as extreme as death.

Apart from being a human crime, counterfeiting by itself has been used among various nations to destabilise the economy of an entire nation. Governments have used it to a great degree of success by overflowing the target nation with fake bank notes, causing the real value of the currency to crash. During, the Revolutionary War, the Government of England resolved to counterfeit to reduce the value of the Continental Dollar. The United States government took a similar course but the fake Confederate currency they produced was of a superior quality as compared to the real thing.

The most professional campaign of counterfeiting was conducted by the Germans in World War II. The Germans manufactured very convincing paper, and used the professional expertise of prisoners held captive in Sachsenhausen concentration camp, to produce the fake currency. The Bank of England managed to obtain some bogus German currency, and found the forgeries so good that it is said that the only way to distinguish it from the real thing was that the forged one was better.

In the modern days, counterfeiting has been used to promote and sponsor terrorism. The Central Bureau of Intelligence (CBI) in India has reported that rupee notes are supplied by the Pakistan government press, free of cost to Dubai-based counterfeiters who, in turn smuggle it into India. This money is later used for funding terrorist activities inside India, and is also reported to be the main source of funding for the recent Mumbai blasts.

With advances in technology, the quality of counterfeiting has improved drastically, making it difficult to tell the real thing apart from its counterfeit. It is claimed that the U.S dollar bills produced in North Korea, are the finest counterfeit banknotes, and are called Superdollars because of their high amount of detail and quality. However, with the advent of the Euro, there has been a substantial decrease in the amount of forged U.S currency.

Counterfeiters use various measures to produce replicas of the original currency. Devices can range from a simple colour photocopier to much technologically advanced printing techniques like those used at the national mint depending on the level of accuracy and detail desired. Counterfeiting has become more of a bother now than ever before as it is easier for small-time operators to pull it off. All that is required is a high-resolution scanner, a high-end colour printer and a personal computer system.

Considering the nemesis that counterfeiting has on the economy, the governments of various nations have taken a number of steps to combat it. Techniques like making intricate designs, using ink patterns that are hard to duplicate have been employed. US greenbacks were traditionally printed in two inks. Many nations print engraved money, which use specially engraved plates that are very difficult to replicate. Some countries also resort to coming up with new designs frequently.

Statistics for counterfeiting remain uncertain, as it is difficult for most people to recognize a forged currency unless they are trained to do so. Some estimates place the proportion of bogus currency in Western Europe at about 3%, but the ratio is much higher in less developed countries. The usual target for counterfeiting is the $100 bill, and many of the forgeries are very good.

With so many techniques applied by various nations, the truth is that until money is being printed, counterfeiters will exist.