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Guest Post: The United States Of Organized Financial Crime - "If the Fraud Stops, The Financial System Collapses"

Tyler Durden's picture





 

Submitted by Charles Hugh Smith from Of Two Minds

U.S.O.F.C.: If the Fraud Stops, the Financial System Collapses

U.S.O.F.C.: the United States of Organized Financial Crime. The Status Quo is dependent on a Financial Mafia for its wealth, and it is loathe to surrender it.

What happens if fraud and misrepresentation of risk is expunged from the U.S. financial system? In President Bush's memorable phrase: This sucker's going down.

There is a fascinating disconnect between the "law and order" society ceaselessly depicted on TV and the realities of the American financial system, which is now totally dependent on lies, fraud, embezzlement and misrepresentation of risk.

Remove those and the system implodes.

As I observed in Fraud and Complicity Are Now the Lifeblood of the Status Quo:

Fraud, collusion, embezzlement, manipulation and misrepresentation of risk are not isolated incidents, they are now the essential fabric of our entire financial system.

Though fraud and complicity are presented in the mainstream media as isolated conspiracies outside the status quo, the truth is that the status quo is now entirely dependent on fraud and complicity for its very survival. Every level of the status quo would immediately implode were fraud and complicity suddenly withdrawn from the system.

Bernie Madoff's Ponzi Scheme was systemically ignored despite its blatant transparency and warnings submitted to authorities. Even a financial neophyte could see that Madoff's options bets were an order of magnitude too small to generate the vast profits he was claiming.

Why were warnings ignored? Because the Status Quo implicitly understands that misrepresentation and fraud are the essential lifeblood of America's financial empire. Impose "law and order" on the Wall Street/mortgage crowd and what do you get? "This sucker's going down."

Indeed, if we parse President Bush's inimitable summary closely, we discern a pre-existing awareness that this possibility was not a surprise but rather an anticipated consequence of systemic Ponzi fraud.

Americans love to see street criminals and petty gangsters brough to "justice," but we turn a blind eye to organized financial crime. Why is this so? Is it just that systemic financial fraud is not very dramatic? Is it that financial forensics are so boring compared to a decomposing corpse?

I think the truth is much more self-serving.

The Power Elites of the status quo, both political and financial, are well aware of the system's total dependence on legerdemaine, misrepresentation of risk, manipulation, lies, fraud and well-oiled machines of embezzlement (for instance, the entire mortgage and mortgage-backed securities markets).

Bringing "law and order" to Wall Street and the banking/mortgage sectors would mean indicting your pals and contributors, and bringing down the entire house of cards which has enriched and empowered you. No wonder indictments have been piecemeal and modest in scope: a few probes into insider trading, a few fines here and there--not what anyone would characterize as "cleaning house."

Here is an illustration of the dominoes I saw falling in mid-2006 once the system of mortgage/credit fraud unraveled. Not every detail fell into place as predicted, but the rough course of events is certainly accurate: when the global credit/housing/mortgage fraud imploded, it took the global banking sector which had grown dependent on debt addiction and misrepresentation of risk down, too.

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The Power Elites of the U.S. are now dependent on an organized financial crime syndicate
. Like parasites living the high life in a household funded by the Mafia's trading in addiction and corruption, the American Power Elites don't dare allow "law and order" to sweep through Wall Street and the bankin/mortgage sector, lest their privileged lifestyle abruptly end.

So next time you see a TV broadcast schedule loaded with crime dramas and forensic programs, ask yourself: where are the real-life investigations, financial forensics and indictments in the financial system? Where are the dramas about bringing the bankers and Wall Street fraud packagers to justice?

The answer is self-evident: if law and order were imposed on America's fraud-dependent system, then "this sucker's going down." As well it should. Parasitic organized financial crime is bleeding the real economy dry as it siphons off hundreds of billions and redistributes it to the nation's Power Elites.

Enjoy the bread (extended unemployment) and circuses: "law and order" dramas about "bringing criminals to justice."

 


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Sat, 01/08/2011 - 14:18 | Link to Comment cossack55
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Law & Order Bitchez!!!!

 

 

 

My first Bitchez comment. Can I now no longer be considered a cherry boy?

Sat, 01/08/2011 - 16:32 | Link to Comment FullFaithAndCretin
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There. Have a junk.

Sat, 01/08/2011 - 23:58 | Link to Comment Dr. Sandi
Dr. Sandi's picture

Pop!!

Oooze, oooze, ouch.

Itch.

There, you're now part of the _____ Bitchez! cadre!

Sat, 01/08/2011 - 14:22 | Link to Comment the mad hatter
the mad hatter's picture

More on bankers as fuctional parasites, living off of the hard work of the common man:

http://129.3.20.41/eps/mac/papers/0203/0203005.pdf

"Fractional Reserve Banking as Economic Parasitism"

Sat, 01/08/2011 - 14:56 | Link to Comment Stevm30
Stevm30's picture

Fractional reserve banking is inherently bankrupt.  At it's root it means loaning out money that the bankers DON'T HAVE.  Modern banking is nothing without the fist of government backing it up.  Bankers are parasitical.  No this is not a metaphor.  They cannot survive without taking from the average citizen.  Time to get the truth out.

Sat, 01/08/2011 - 15:00 | Link to Comment Shylockracy
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+1913

Sat, 01/08/2011 - 16:36 | Link to Comment I need more cowbell
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This should go viral; help out if you agree.

 

http://www.silverbearcafe.com/private/01.11/takeamerica.html

Sat, 01/08/2011 - 14:21 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Tyler, you are stating the obvious again.  So long it is legal, people will keep doing it, the genie (a.k.a. the moral hazard) has been unleashed for some time now.  Younger folks thinking about their futures don't want to be engineers and scientists or create things of real value (or contractors for that matter), they want to learn how to play the game and get rich.  Nothing short of citizens exercising their second amendment rights will put the genie back.  People would have to get off their couch and "risk" being injured and you and I both know the average American is too lazy or scared for that to happen.  Moreover, they would get a real lesson in precisely what "wealth" and "value" really mean.

Sat, 01/08/2011 - 15:28 | Link to Comment topcallingtroll
topcallingtroll's picture

I have to agree the average american is too lazy and risk averse to do anything if they might get an ouchie.  I once heard someone say that "those islands of wealth" will be targeted and easily taken.  I think it is possible that you could easily target the first few islands of wealth, but they will quickly organize.  Then those islands of wealth will be targeting you.

Sat, 01/08/2011 - 23:26 | Link to Comment JLee2027
JLee2027's picture

I have to agree the average american is too lazy and risk averse to do anything if they might get an ouchie.

Congratulations. You two get the "I am really stupid" daily award.

Sat, 01/08/2011 - 18:27 | Link to Comment Artful Dodger
Artful Dodger's picture

Tyler didn't write the article. With the number of contributors here and the varying obviousness of attribution, well it's worth paying attention to who the author is.

Sat, 01/08/2011 - 14:24 | Link to Comment Alex Kintner
Alex Kintner's picture

Fredo can't take you to Las Vegas today. He's going fishing.

Sat, 01/08/2011 - 14:56 | Link to Comment Wynn
Wynn's picture

I never understood why Michael whacked Fredo. He was a dimwit, taken advantage of by the powerful money guys ... kinda like 99% of Americans today.

Sat, 01/08/2011 - 16:28 | Link to Comment flattrader
flattrader's picture

You are clearly not Sicillian, are you?

Sat, 01/08/2011 - 14:26 | Link to Comment USD Long
USD Long's picture

There may be room for a sliver of optimism with yesterdays mortgage fraud related rulings, ...nevermind, it would require opening far too many windows and doors into the fraudsters' dealings.

Sat, 01/08/2011 - 14:28 | Link to Comment subqtaneous
subqtaneous's picture

Put a lid on the debt ceiling like you promised, boyz and girlz.  Bring on the tanks and martial law . . . . or was that just more prattle?

Sat, 01/08/2011 - 14:30 | Link to Comment Thanatos
Thanatos's picture

"Americans love to see street criminals and petty gangsters brough to "justice," but we turn a blind eye to organized financial crime. Why is this so? Is it just that systemic financial fraud is not very dramatic? Is it that financial forensics are so boring compared to a decomposing corpse?"

The psychology behind this issue is something that is fully perfused in our society and I will sum it up quickly:

IF YOU ARE RICH YOU CANNOT BE WRONG.

If you are you rich you "must be doing something right".

If you are rich, we are not angry we want to be rich too... If you are a gangster, that is great, we will emulate you if it makes us rich.

It's called GREED, GREED and more fucking GREED.

Sat, 01/08/2011 - 14:42 | Link to Comment Alex Kintner
Alex Kintner's picture

It's no mistake that colleges now fart out more far more MBAs than engineers. Americans listened to Gordon Gecko and decided that indeed "Greed is Good."  This will not end well.

Sat, 01/08/2011 - 14:47 | Link to Comment equity_momo
equity_momo's picture

Thats about the sum of it yes.  Fear and Greed : greed is by far the stronger force.  And the thing the average American fears most is being left behind financially , which is a feedback loop into greed.

Hail ponzi.

Sat, 01/08/2011 - 15:32 | Link to Comment Gigliola Cinquetti
Gigliola Cinquetti's picture

No , it goes deeper than that ,  following  this (perverted and  twisted) ethic  logic

If you are rich , God must love you , so you must be a good guy .

If you are poor , the Big One obviously hates your guts , so you must be a bad guy .

Swear to God , heard that argument being used , more than a few times .

Sat, 01/08/2011 - 23:53 | Link to Comment JustACitizen
JustACitizen's picture

It's just a little "twisting" of the original "Protestant Work Ethic". If you work hard and live a frugal life (whilst obeying God) you will be blessed. The blessing will be apparent since you now have money (capital).

 

The current interpretation is "if you have money you are one of God's chosen" - regardless of how you got the money or the life you lead. It's pretty shallow stuff - but what do you expect nowadays? IMO - there's gonna be some big disappointments at the pearly gates though!

Sat, 01/08/2011 - 16:12 | Link to Comment Troy Ounce
Troy Ounce's picture

 

If you are rich you cannot be wrong

 

Thanatos, you're 100% right. A month ago I was sitting next to an American in an airplane and complaining about the fact thet 44% of the American Congress members are milionaires. I mean, should a parliament not be representive of a country? Not according to him, his thinking was that only rich people can do a good job and lead a country.

Alan de Botton wrote about this: the US is a meritocracy, the winner takes it all; the loser stands in awe at what happened as he lost the game of getting rich and goes into a depression. Rather a depression and misery than objecting against fraud, embezzlement as everybody knows how the game is being played: the winner takes all; the loser eats humble pie.

Fascinating........http://www.youtube.com/watch?v=CERfoDIU2Yw

 

 

 

 

 

 

 

 

Sun, 01/09/2011 - 08:14 | Link to Comment Chappaquiddick
Chappaquiddick's picture

Alan de Botton - an excellent chap and good egg all round - his book "Status Anxiety" covers much of this and hints at the deeper forces being welded on an unsuspecting public.  Of course thanks to the internet the number of folks walking through the veil of misinformation to see the disturbing truth it conceals, is growing daily.

Sun, 01/09/2011 - 17:22 | Link to Comment PD Quig
PD Quig's picture

There has also been a concerted effort to make difficult to understand that which is really fairly simple: the Fed is a private entity that is owned by the big banks that allows the banks to create money out of noting more than electrons. Then, the U.S. Government borrows the money from the banks at much higher interest rates. The banks make ridiculous amounts of money that goes into paying bonuses and contributing to politicians campaign chests. The politicians grease the laws for the banks and ensure that if anything goes wrong that the U.S. taxpayer will pick up the tab.

Not one American in one thousand understand this process because the transactions and terminology are kept as arcane as possible.

 

Mon, 01/10/2011 - 22:02 | Link to Comment TDoS
TDoS's picture

Very true.  People don't associate the concept of success with health, family, or happiness; they equate it with financial gain, regardless of source or method.

Not to mention, the fourth premise of Derrick Jensen's "Endgame:" 

Premise Four: Civilization is based on a clearly defined and widely accepted yet often unarticulated hierarchy. Violence done by those higher on the hierarchy to those lower is nearly always invisible, that is, unnoticed. When it is noticed, it is fully rationalized. Violence done by those lower on the hierarchy to those higher is unthinkable, and when it does occur is regarded with shock, horror, and the fetishization of the victims.

Sat, 01/08/2011 - 14:42 | Link to Comment brodix
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Capital is subject to the law of supply and demand. In a society where "everyone wants theirs," the only way to maintain the desired level of supply is to create artificial demand, ie, bad loans, synthetic securities, derivatives, etc. Capital is worthless without viable demand, but they have spent the last forty years creating enormous piles of capital, while stripping the borrowers at every possible opportunity.

Capital is like seed and borrowers are like the field. If you never put any fertilizer on it and just keep harvesting as much as possible, eventually it all dries up. Welcome to reality.

The rat race has reached the finish line and the finish line is a cliff.

Sat, 01/08/2011 - 14:38 | Link to Comment guidoamm
guidoamm's picture

Fraud is not happening because of greed. At least not directly. Fraud is built into the monetary system.

Of all human dynamics, the monetary system is the one single dynamic that frames all others. The monetary system is the ultimate driver of all social and economic dynamics.

Debt based fiat money is predicated on inflation. However, inflation is a dynamic that conforms to the law of diminishing marginal utility. This being the case, you always need more inflation in order to obtain the same economic result.

Conforming to the law of diminishing marginal utility, inflation has real mathematical limits.

In order to overcome these mathematical limits, government must progressively intervene in the economy at ever growing degrees till eventually it becomes the largest actor in the economy.

Being the largest actor in the economy necessarily results in policy aberrations as the government must simultaneously place itself above the law and modify the law in an attempt at maintaining a positive inflatioanry trajectory. This can only be achieved by disregarding or, at least, interpreting the law to your advantage, and ensuring preferential and legal treatement for those entities that have critical political and economic weight to assist you in this endeavor.

 

Sat, 01/08/2011 - 15:16 | Link to Comment harveywalbinger
Sun, 01/09/2011 - 00:43 | Link to Comment RockyRacoon
RockyRacoon's picture

Succinct, aren't you?  It appears you have won the kewpie doll.

Your comments are on the mark as an explanation of the mechanics of institutionalized and legalized greed and looting.

There isn't much difference in the breaking of plate glass shop windows in Watts and running away with the TVs and the confiscation of 401Ks is there?  I suppose the perps guilty of the latter wear nicer attire.

Sat, 01/08/2011 - 14:44 | Link to Comment williambanzai7
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Sat, 01/08/2011 - 23:21 | Link to Comment Trifecta Man
Trifecta Man's picture

A sucker born every second.

Sun, 01/09/2011 - 02:39 | Link to Comment Dr. Sandi
Dr. Sandi's picture

Thank you for the visual, liambanz!

The picture doesn't scare me as much as it should though. But I like the suit. Has that Ricky Ricardo moire effect.

Sat, 01/08/2011 - 15:12 | Link to Comment Yardfarmer
Yardfarmer's picture

much like what Will Rogers said of politics: "if you inject truth into politics, then you have no politics"

Sat, 01/08/2011 - 15:12 | Link to Comment Gigliola Cinquetti
Gigliola Cinquetti's picture

Remove all narco money laundring and you loose already a trillion a year .

War on drugs bitchez !

Sun, 01/09/2011 - 10:15 | Link to Comment Dr. Sandi
Dr. Sandi's picture

We know they're laundering a shit-load of narco money. But what I REALLY want to know is where it goes when it's dry.

Sat, 01/08/2011 - 15:21 | Link to Comment topcallingtroll
topcallingtroll's picture

I hate to be such a troll but fraud schmaud.   Is it not now and has it not always been caveat emptor?  Even stupid ol me knew to stay away from mbs and other exotica.  A fool and his money are soon parted.   It takes a fool to think we can "certify" investments as "high quality" so that people who have no financial sense can blindly buy.  I'll bet half the investors out there don't know the difference between a buy side analyst and a sell side analyst.  In fact once when I used a live broker at my cheapo brokerage to make a trade he asked me if I wanted a limit order or a market order, then he paused and asked "do you know what that means?"  If there are people out there who don't know the difference between speculation and investment and who have to be told the difference between a market order and a limit order then they are guaranteed to lose their money, fraud or no fraud, especially if they listen to sell side analysts  and don't know which "side" they are on.  All the rating agencies were essentially sell side analysts, so what did anyone expect?  Human nature is what it is and no amount of certifying and stamping triple A on something should substitute for one's own judgment.  People whining about fraud should not have been in the market.  if a person can't tell the difference between a beautiful chic and a pig with lipstick, then that person is  going to get covered in disgusting hog slobber, among other things.

Sat, 01/08/2011 - 17:45 | Link to Comment mouser98
mouser98's picture

the problem is not people like you getting ripped off.  its when pension fund managers, who have large sums of money that they must invest to protect it against the persistent inflation of fiat currency, but who are not educated or experienced enough to recognize a pig when they see it, and have to rely on the advice of "experts" (read con-men) and the ratings agencies (read get-away-drivers).  these people are forced to swim in a pool full of sharks where they have no business and are easy pickings.  they just don't realize how they are being set up because they believe that Uncle Sugar is protecting them vis-a-vis the SEC.  thats what makes it fraud.

Sun, 01/09/2011 - 05:10 | Link to Comment ViewfromUnderth...
ViewfromUndertheBridge's picture

USA either has Rule of Law or not...

An excellent expose is "Fooling Some of the People (All of the Time)" by David Einhorn. It tracks his battle against those who think like you, Troll. He won.

Do not give up, demand legal accountability. This is why there is the Separation of Powers....the wheels of justice grind slow...but exceedingly fine. Crush 'em all. Demand it.

Sat, 01/08/2011 - 15:31 | Link to Comment buzlightening
buzlightening's picture

Yep! The bankster gangsters and corrupt politicians have created the weapons by which the vermin destroy themselves!! Fight the outer financial circumstances all you want but until the heart is changed from corruption to incorruption the end comes swiftly!!!! Saw it coming right off as it is the nature of most all men to immediately exercise unrighteous dominion whenever they receive power as they suppose!! 

Sat, 01/08/2011 - 15:48 | Link to Comment spinone
spinone's picture

I've been playing with the idea that the fraud was not 'pushed' into the economy, but the demand for dollars 'pulled' it out of the economy, since we offshored much of our real productive capacity.  The demand for dollars is because of the Triffin Dilemma of the USD being the WRC. So either we re-constitute our productive capactity (not likely for a number of monetary reasons) or the USD is no longer WRC, and the demand pull can stop, ending the fraud.

Sat, 01/08/2011 - 16:37 | Link to Comment flattrader
flattrader's picture

Wow.

A topic of discussion worth kicking around for a while.

Oddly, with the exeption of myself, you can hear the crickets chirping.

Sat, 01/08/2011 - 16:54 | Link to Comment spinone
spinone's picture

Chirp chirp.

This would have to be done with the acceptance of the other countries that use USD as WRC.  They use it cause it works, we keep making USD even if we need to condone fraud because we need it for oil.  Looks like we reached peak oil, so this arrangement is only needed for a little bit longer. 

Sat, 01/08/2011 - 18:21 | Link to Comment flattrader
flattrader's picture

It's not clear to me yet that Peak Oil has come and gone or how long a little bit longer could be...

Nevertheless...

It IS clear China and Russia are taking matters into their own hands where direct trade is an issue.

That's smart of them.

There's been a certain lack of reaction/analysis from the US financial press regarding this arrangement that I find suspicious.

It's as if we ignore it, we can pretend it didn't happen.

Sat, 01/08/2011 - 15:57 | Link to Comment jmc8888
jmc8888's picture

Wow he only figured this out recently.

Who here who reads ZH didn't think this way even a year ago? two? 10?

This is have been glaringly obvious to everyone with a brain for a very, very, very, long time.

Sun, 01/09/2011 - 01:00 | Link to Comment RockyRacoon
RockyRacoon's picture

So, it is solutions we need, not reiteration of the problem.

Sun, 01/09/2011 - 02:40 | Link to Comment Dr. Sandi
Dr. Sandi's picture

Problems, we've got plenty of.

Solutions, now those will cost extra.

Sun, 01/09/2011 - 07:27 | Link to Comment w a l k - a w a y
w a l k - a w a y's picture

Touché

Mon, 01/10/2011 - 23:51 | Link to Comment Dr. Sandi
Dr. Sandi's picture

Arggh. Where do you get the é character from? I always want to use the correct letters when I know better, but my keyboard stops at 26.

Sat, 01/08/2011 - 16:32 | Link to Comment flattrader
flattrader's picture

CHS,

Big Yawn.  Nothing new here.

Not even a link to another article/essay (that is not your own) this time around.

Usually you manage to link to something with some real analysis.

Do someting useful and develop a new recipe or something.

Sat, 01/08/2011 - 20:27 | Link to Comment Misean
Misean's picture

Too many of y'all are here preaching to the choir. Why does J6P and wifey allow this?

Ask them...go ahead.  They'll hear the question and look at you like you're from Gallifrey.  And if they do have an inkling, they'll change the subject, so institutionalized are the people. The elite have nearly full spectrum control, and until that cracks, they go scott free.

I'm going back to watching the playoffs.  Can't believe the Seahawks are in the lead...

Sun, 01/09/2011 - 02:47 | Link to Comment Dr. Sandi
Dr. Sandi's picture

They'll hear the question and look at you like you're from Gallifrey.

Gallifrey? I WISH they'd look at me like I'm from Gallifrey, here to save their stupid, squalid little planet from yet another greedy little plot that will lead to their destruction.

No, when they hear "the question" from me, they look at me more like I'm from Vogon and run away, clutching their children and screaming.

Sat, 01/08/2011 - 21:22 | Link to Comment Misean
Misean's picture

Too many of y'all are here preaching to the choir. Why does J6P and wifey allow this?

Ask them...go ahead.  They'll hear the question and look at you like you're from Gallifrey.  And if they do have an inkling, they'll change the subject, so institutionalized are the people. The elite have nearly full spectrum control, and until that cracks, they go scott free.

I'm going back to watching the playoffs.  Can't believe the Seahawks are in the lead...

Sat, 01/08/2011 - 23:20 | Link to Comment Bartanist
Bartanist's picture

What we have in this country is a massive misallocation of resources, resulting in a country dying to save the lifestyle of parasites (people who neither think they are parasites, nor believe that they are undeserving, but parasites nonetheless). They believe they deserve everything they receive because of "who they are" and especially who they are relative to others, not what they REALLY contribute.

Think about how money is earned and spent in this country. I am sure all of the high priced lawyers, bankers, think tank members, consultants, politicians, analysts, massively paid executives ... and on and on ... get their money and what they do with it.

Is it a productive use of resources? I think not. 

Sun, 01/09/2011 - 02:41 | Link to Comment Dr. Sandi
Dr. Sandi's picture

Sounds like it's time for Adam Smith's "Unseen Hand" to descend and slap us around for awhile.

Sun, 01/09/2011 - 01:16 | Link to Comment Dr. Porkchop
Dr. Porkchop's picture

People will put up with it because they want to be rich. The religious believe god has smiled upon those who are successful. The casino metaphor for wall St is apt, and it's the same for those who go to las Vegas, it's based on the idea of getting something for nothing.

Same reasons why people so readily accepted the easy money of the real estate bubble... Live like the rich, flip that house and get something for nothing.

Sun, 01/09/2011 - 14:05 | Link to Comment blindman
blindman's picture

.

Mon, 01/10/2011 - 07:58 | Link to Comment Bitch Tits
Bitch Tits's picture

I submit to you this thought: fraud and corruption are at the core of all U.S. "success". 

As a resident and former business owner in Florida, I can attest to the fact that State laws allow for fraud and deceit and corruption. Nay, State laws encourage it.

Mon, 01/10/2011 - 23:56 | Link to Comment Dr. Sandi
Dr. Sandi's picture

I guess that's why politicians keep calling this, "A nation of laws."

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