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For much of the twentieth century, Saving and Loans (S&L) banks made m

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For much of the twentieth century, Saving and Loans (S&L) banks made m  [#permalink]

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New post Updated on: 29 Dec 2017, 19:08
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For much of the twentieth century, Saving and Loans (S&L) banks made mortgage loans to individual middle class families, allowing many to buy houses. In the 1970s, the combination of inflation and falling oil prices created economic conditions to place S&L banks at risk. In the early 1980s, Congress deregulated the S&L banks, allowing them to expand the kinds of investments from which they drew profits.

The deregulation was designed to open beneficial options which would allow the flagging S&L banks to save themselves. Instead, many S&L banks pursued investments in sectors they did not understand well, such as commercial real estate: they entered these sectors with large amounts of cash although they were not fully apprised of the risks. The collapse of the housing market in the mid 1980's, following an unprecedented building boom over the previous ten years, led to the failure of numerous S&L banks. As these banks were protected by federal insurance, this collapse cost the American taxpayers over $100 billion. In some of the S&L banks that failed, the bank leaders were found guilty of embezzlement and other kinds of fraud. In some cases, the burden of fraud caused otherwise viable banks to fail, and in other cases, a bank that was going to fail anyway had its life prolonged by fraud, creating additional expenses for the federal bank bailout.

Former bank regulator William Black has argued that the US government has not adequately learned important lessons from the S&L crisis. While stronger regulations for all banks are in place now, little has been done to strengthen the fraud procedures. Black has pointed out that bank fraud has the opportunity to thrive whenever regulation or oversight is loosened, and systemic occurrences of bank fraud pose a major risk to the well-being of the economy. While individuals may resist fraud because of their own ethics, this is not sufficient to protect the economy as a whole. Congressmen, responding to Black's charges, argue that the SEC has in place strict guidelines for what constitutes bank fraud, and that both SEC investigators and congressmen themselves are well-poised to detect even individual instances of fraud, to say nothing of widespread fraud. Black points out that SEC investigators do not have criminologist training: while they understand the rules well, they are not familiar with all the methods used to subvert or violate them. Furthermore, congressmen, under certain conditions, can turn a blind eye to bank fraud. For example, in the 1980s, the so-called "Keating five" senators accepted cash contributions from Charles Keating, the head of a S&L bank, and in return gave Mr. Keating undue protection which allowed him to continue his fraud.

1. The passage mentioned the "unprecedented building boom" of the late 1970s and early 1980s in order to

A show how the commercial real market responds to changes in oil prices
B provide an example of conditions susceptible to fraud
C give evidence of the disappearance of the middle class
D explain the economic circumstances that were supporting the Savings and Loan banks in that period
E demonstrate what kept some Savings and Loan banks in business through the crisis


2. The primary purpose of this passage is to

A outline the ethical issues that arise in banking
B indicate a potential vulnerability in the national economy
C trace the history of the Savings and Loans crises
D describe Black's contribution to banking theory
E explain the leading economic forces dominating the American economy in the 1980s


The passage implies which of the following?

A All bank deregulation leads to instances of fraud.
B William Black regulated a Savings and Loans bank.
C Without bank fraud, the Saving and Loans crisis would not have happened.
D Congressmen are well-informed about the operation of the SEC.
E Criminologists have a deep understanding of how to subvert the law.


4. The final paragraph implies which of the following?

A. Not all of those implicated on charges of financial fraud were bank leaders.
B. Less attention has been given to fraud procedures than to stronger bank regulations.
C. A solid grounding in ethics is a reliable deterrent to financial fraud.
D. Understanding the way in which financial rules are commonly subverted is closely tied to a criminologist's training.
E. Several politicians involved in the Keating scandal were indicted on charges of financial fraud.


Originally posted by chesstitans on 28 Dec 2017, 15:57.
Last edited by broall on 29 Dec 2017, 19:08, edited 1 time in total.
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New post 29 Dec 2017, 04:22
hello, I have a question concerning the question number 3. I am stuck with C and D.
I doubt that OA may be incorrect. D seems to directly connect with the passage. On the other hand, "the crisis" indicates that the bank fraud has something to do with S&L banks.
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New post 29 Dec 2017, 04:26
DPANJA wrote:
1 D 2 C 3 E
4 b

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Re: For much of the twentieth century, Saving and Loans (S&L) banks made m  [#permalink]

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New post 08 Jan 2018, 05:33
chesstitans wrote:
For much of the twentieth century, Saving and Loans (S&L) banks made mortgage loans to individual middle class families, allowing many to buy houses. In the 1970s, the combination of inflation and falling oil prices created economic conditions to place S&L banks at risk. In the early 1980s, Congress deregulated the S&L banks, allowing them to expand the kinds of investments from which they drew profits.

The deregulation was designed to open beneficial options which would allow the flagging S&L banks to save themselves. Instead, many S&L banks pursued investments in sectors they did not understand well, such as commercial real estate: they entered these sectors with large amounts of cash although they were not fully apprised of the risks. The collapse of the housing market in the mid 1980's, following an unprecedented building boom over the previous ten years, led to the failure of numerous S&L banks. As these banks were protected by federal insurance, this collapse cost the American taxpayers over $100 billion. In some of the S&L banks that failed, the bank leaders were found guilty of embezzlement and other kinds of fraud. In some cases, the burden of fraud caused otherwise viable banks to fail, and in other cases, a bank that was going to fail anyway had its life prolonged by fraud, creating additional expenses for the federal bank bailout.

Former bank regulator William Black has argued that the US government has not adequately learned important lessons from the S&L crisis. While stronger regulations for all banks are in place now, little has been done to strengthen the fraud procedures. Black has pointed out that bank fraud has the opportunity to thrive whenever regulation or oversight is loosened, and systemic occurrences of bank fraud pose a major risk to the well-being of the economy. While individuals may resist fraud because of their own ethics, this is not sufficient to protect the economy as a whole. Congressmen, responding to Black's charges, argue that the SEC has in place strict guidelines for what constitutes bank fraud, and that both SEC investigators and congressmen themselves are well-poised to detect even individual instances of fraud, to say nothing of widespread fraud. Black points out that SEC investigators do not have criminologist training: while they understand the rules well, they are not familiar with all the methods used to subvert or violate them. Furthermore, congressmen, under certain conditions, can turn a blind eye to bank fraud. For example, in the 1980s, the so-called "Keating five" senators accepted cash contributions from Charles Keating, the head of a S&L bank, and in return gave Mr. Keating undue protection which allowed him to continue his fraud.
1. The passage mentioned the "unprecedented building boom" of the late 1970s and early 1980s in order to

A show how the commercial real market responds to changes in oil prices
B provide an example of conditions susceptible to fraud
C give evidence of the disappearance of the middle class
D explain the economic circumstances that were supporting the Savings and Loan banks in that period
E demonstrate what kept some Savings and Loan banks in business through the crisis


2. The primary purpose of this passage is to

A outline the ethical issues that arise in banking
B indicate a potential vulnerability in the national economy
C trace the history of the Savings and Loans crises
D describe Black's contribution to banking theory
E explain the leading economic forces dominating the American economy in the 1980s


The passage implies which of the following?

A All bank deregulation leads to instances of fraud.
B William Black regulated a Savings and Loans bank.
C Without bank fraud, the Saving and Loans crisis would not have happened.
D Congressmen are well-informed about the operation of the SEC.
E Criminologists have a deep understanding of how to subvert the law.


4. The final paragraph implies which of the following?

A. Not all of those implicated on charges of financial fraud were bank leaders.
B. Less attention has been given to fraud procedures than to stronger bank regulations.
C. A solid grounding in ethics is a reliable deterrent to financial fraud.
D. Understanding the way in which financial rules are commonly subverted is closely tied to a criminologist's training.
E. Several politicians involved in the Keating scandal were indicted on charges of financial fraud.



are we sure the answer for Q3 is C? the information in the 2nd para seems to suggest that it could only be a part of the reason.
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For much of the twentieth century, Saving and Loans (S&L) banks made m  [#permalink]

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New post 08 Jan 2018, 06:44
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Q3 The passage implies which of the following?

I feel the OA for Q3 is incorrect. In fact, there is none that is undisputed as per the passage.
A. All bank deregulation leads to instances of fraud. - too broad an answer
B William Black regulated a Savings and Loans bank. Not at all
C Without bank fraud, the Saving and Loans crisis would not have happened.
S&L crisis ocurred because of irrational investments in real-estate with unmeasured risks.
Passage excerpt: In some of the S&L banks that failed, the bank leaders were found guilty of embezzlement and other kinds of fraud. In some cases, the burden of fraud caused otherwise viable banks to fail, and in other cases, a bank that was going to fail anyway had its life prolonged by fraud, creating additional expenses for the federal bank bailout. - Suggests this can never be the OA
D Congressmen are well-informed about the operation of the SEC.
Passage excerpt: " Congressmen, responding to Black's charges, argue that the SEC has in place strict guidelines for what constitutes bank fraud, and that both SEC investigators and congressmen themselves are well-poised to detect even individual instances of fraud," D changes the object altogether- wrong
E Criminologists have a deep understanding of how to subvert the law. 'Deep' would be an overstatement, as nothing as such has been menioned. But, this choice is better than the rest, though not the undisputed one.
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Re: For much of the twentieth century, Saving and Loans (S&L) banks made m  [#permalink]

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New post 15 Jan 2018, 04:33
sir,please explain 3rd question answer.
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New post 22 Jan 2018, 13:45
TaN1213 wrote:
Q3 The passage implies which of the following?

I feel the OA for Q3 is incorrect. In fact, there is none that is undisputed as per the passage.
A. All bank deregulation leads to instances of fraud. - too broad an answer
B William Black regulated a Savings and Loans bank. Not at all
C Without bank fraud, the Saving and Loans crisis would not have happened.
S&L crisis ocurred because of irrational investments in real-estate with unmeasured risks.
Passage excerpt: In some of the S&L banks that failed, the bank leaders were found guilty of embezzlement and other kinds of fraud. In some cases, the burden of fraud caused otherwise viable banks to fail, and in other cases, a bank that was going to fail anyway had its life prolonged by fraud, creating additional expenses for the federal bank bailout. - Suggests this can never be the OA
D Congressmen are well-informed about the operation of the SEC.
Passage excerpt: " Congressmen, responding to Black's charges, argue that the SEC has in place strict guidelines for what constitutes bank fraud, and that both SEC investigators and congressmen themselves are well-poised to detect even individual instances of fraud," D changes the object altogether- wrong
E Criminologists have a deep understanding of how to subvert the law. 'Deep' would be an overstatement, as nothing as such has been menioned. But, this choice is better than the rest, though not the undisputed one.


TaN1213:

Option E:Criminologists have a deep understanding of how to subvert the law.
By definition : Subvert means undermine the power and authority of (an established system or institution) or de-stabilize

So option E becomes : Criminologists have a deep understanding of how to de-stabilize law?

Congressmen, responding to Black's charges, argue that the SEC has in place strict guidelines for what constitutes bank fraud,
and that both SEC investigators and congressmen themselves are well-poised to detect even individual instances of fraud, to say nothing of widespread fraud.
Black points out that SEC investigators do not have criminologist training: while they understand the rules well, they are not familiar with all the methods used to subvert or violate them.

What does the pronoun"them" refers to? How can we infer that "them" is referring to laws?
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New post 06 Sep 2018, 18:03

Official Explanation of Q2



The passage begins by giving the outline of Savings & Loans banks, then talks about the problematic changes in the 1970's and 1980's, leading to the crisis. Part of the crisis involved bank fraud. Then Black indicates we haven't solve the problem with fraud. Congressmen disagree with Black, and Black responds to their objections. The discussion of the Savings and Loan's crisis makes us aware of a much larger problem.

The credited answer is (B): the "potential vulnerability in the national economy" is the damage that can be caused by widespread fraud, as happened in the Savings & Loans scandal.

The passage does discuss bank fraud, in part an ethical issue, but it discusses no other ethical issue in banking at all. So it's purpose cannot be to "outline the ethical issues, because that implies more than one is elaborated on. Choice (A) is incorrect.

The first half of the passage does trace the Savings & Loans crises, but if this were the passage's only purpose, it would not be clear why any of the material in the second half was introduced. Choice (C) is incorrect.

The passage mentions William Black's comments on bank fraud, but we know absolutely nothing else about Black or what else he might have said about banks. That is not the purpose of the passage because it's not discussed. Choice (D) is incorrect.

The Savings & Loan crisis happen to have occurred in the 1980s, but other major event (e.g. end of a housing boom, the fluctuations of commercial real estate) were only mentioned in passing, and what cause them not discussed at all. We know from the passage that major economic forces of the 1980s were NOT discussed, so this can't be the purpose. Choice (E) is incorrect.
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New post 09 Sep 2018, 21:52
I did not understand the answer for Q4. Please explain!!!
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New post 14 Sep 2018, 03:54
1. The passage mentioned the "unprecedented building boom" of the late 1970s and early 1980s in order to Relevant text: "Instead, many S&L banks pursued investments in sectors they did not understand well, such as commercial real estate: they entered these sectors with large amounts of cash although they were not fully apprised of the risks. The collapse of the housing market in the mid 1980's, following an unprecedented building boom over the previous ten years, led to the failure of numerous S&L banks."
A show how the commercial real market responds to changes in oil prices the response was to bank deregulation, not the oil prices, which played a part in bank deregulation
B provide an example of conditions susceptible to fraud fraud is not discussed until the fourth paragraph
C give evidence of the disappearance of the middle class a stretch
D explain the economic circumstances that were supporting the Savings and Loan banks in that period correct - bank deregulation gave freedom to diversify and the booming market gave incentive to invest in it
E demonstrate what kept some Savings and Loan banks in business through the crisis the part of the text in question discusses actually what led to the crisis

2. The primary purpose of this passage is to
A outline the ethical issues that arise in banking just some words found in the text
B indicate a potential vulnerability in the national economy correct - banking sector deregulation may create favorable conditions for banks to commit fraud
C trace the history of the Savings and Loans crises not really, approx. only 10 years discussed
D describe Black's contribution to banking theory some words found in the text
E explain the leading economic forces dominating the American economy in the 1980s if anything, touches only some part of the text; economic environment that lead to bank deregulation and so on and so on

The passage implies which of the following?
A All bank deregulation leads to instances of fraud. is a stretch
B William Black regulated a Savings and Loans bank. that's not given
C Without bank fraud, the Saving and Loans crisis would not have happened. Actually, it seems that had the S&L were banks were more cautious in investing in real estate, then the crisis could have been avoided. However, it seems to be the only left
D Congressmen are well-informed about the operation of the SEC. "<...> well-poised to detect even individual instances of fraud <...>" - not given
E Criminologists have a deep understanding of how to subvert the law. potential answer, but seems too strong as "deep" is not justified

4. The final paragraph implies which of the following?
A. Not all of those implicated on charges of financial fraud were bank leaders. maybe
B. Less attention has been given to fraud procedures than to stronger bank regulations.
C. A solid grounding in ethics is a reliable deterrent to financial fraud. "While individuals may resist fraud because of their own ethics, this is not sufficient to protect the economy as a whole."
D. Understanding the way in which financial rules are commonly subverted is closely tied to a criminologist's training.
E. Several politicians involved in the Keating scandal were indicted on charges of financial fraud. they turned he blind eye, but whether they were indicted isn't certain

Can anybody comment on Q4? I picked B, but the correct answer is D. Relevant part of the text for B: "While stronger regulations for all banks are in place now, little has been done to strengthen the fraud procedures." This seems to match both the time frame and idea. Perhaps "procedures" mentioned in the answer choice is a deal breaker?
The same for D: "Black points out that SEC investigators do not have criminologist training: while they understand the rules well, they are not familiar with all the methods used to subvert or violate them." This seems true as well.
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New post 19 Sep 2018, 06:41
jawele wrote:
1. The passage mentioned the "unprecedented building boom" of the late 1970s and early 1980s in order to Relevant text: "Instead, many S&L banks pursued investments in sectors they did not understand well, such as commercial real estate: they entered these sectors with large amounts of cash although they were not fully apprised of the risks. The collapse of the housing market in the mid 1980's, following an unprecedented building boom over the previous ten years, led to the failure of numerous S&L banks."
A show how the commercial real market responds to changes in oil prices the response was to bank deregulation, not the oil prices, which played a part in bank deregulation
B provide an example of conditions susceptible to fraud fraud is not discussed until the fourth paragraph
C give evidence of the disappearance of the middle class a stretch
D explain the economic circumstances that were supporting the Savings and Loan banks in that period correct - bank deregulation gave freedom to diversify and the booming market gave incentive to invest in it
E demonstrate what kept some Savings and Loan banks in business through the crisis the part of the text in question discusses actually what led to the crisis

2. The primary purpose of this passage is to
A outline the ethical issues that arise in banking just some words found in the text
B indicate a potential vulnerability in the national economy correct - banking sector deregulation may create favorable conditions for banks to commit fraud
C trace the history of the Savings and Loans crises not really, approx. only 10 years discussed
D describe Black's contribution to banking theory some words found in the text
E explain the leading economic forces dominating the American economy in the 1980s if anything, touches only some part of the text; economic environment that lead to bank deregulation and so on and so on

The passage implies which of the following?
A All bank deregulation leads to instances of fraud. is a stretch
B William Black regulated a Savings and Loans bank. that's not given
C Without bank fraud, the Saving and Loans crisis would not have happened. Actually, it seems that had the S&L were banks were more cautious in investing in real estate, then the crisis could have been avoided. However, it seems to be the only left
D Congressmen are well-informed about the operation of the SEC. "<...> well-poised to detect even individual instances of fraud <...>" - not given
E Criminologists have a deep understanding of how to subvert the law. potential answer, but seems too strong as "deep" is not justified

4. The final paragraph implies which of the following?
A. Not all of those implicated on charges of financial fraud were bank leaders. maybe
B. Less attention has been given to fraud procedures than to stronger bank regulations.
C. A solid grounding in ethics is a reliable deterrent to financial fraud. "While individuals may resist fraud because of their own ethics, this is not sufficient to protect the economy as a whole."
D. Understanding the way in which financial rules are commonly subverted is closely tied to a criminologist's training.
E. Several politicians involved in the Keating scandal were indicted on charges of financial fraud. they turned he blind eye, but whether they were indicted isn't certain

Can anybody comment on Q4? I picked B, but the correct answer is D. Relevant part of the text for B: "While stronger regulations for all banks are in place now, little has been done to strengthen the fraud procedures." This seems to match both the time frame and idea. Perhaps "procedures" mentioned in the answer choice is a deal breaker?
The same for D: "Black points out that SEC investigators do not have criminologist training: while they understand the rules well, they are not familiar with all the methods used to subvert or violate them." This seems true as well.


I am having the same concern for Q4, some help would be great
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New post 19 Sep 2018, 06:45
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Official Explanation for Q4



Vid explanation - https://www.youtube.com/watch?v=EMMiGQcSeuw

The credited answer is (D). In the sixth paragraph, the passage says: "Black points out that SEC investigators do not have criminologist training: while they understand the rules well, they are not familiar with all the methods used to subvert or violate them." Therefore, criminologist must have a deep understanding of how criminals subvert the law.

Choice (A) is incorrect because the final paragraph is not specific about who is guilty of financial fraud. It focuses mainly on the conditions that allow bank fraud to happen.

Choice (B) is tempting because it correctly identifies information in the final paragraph that is explicitly stated: "While stronger regulations for all banks are in place now, little has been done to strengthen the fraud procedures." The question is asking us to find something that is implied, not something that is directly stated.

Choice (C) is wrong because the passage says that individuals can rely on their conscience, their sense of ethics, but that this check on the likelihood of committing bank fraud is NOT sufficient. In other words, some will continue to commit bank fraud because ethics is not a reliable deterrent.

Choice (E) is incorrect because the final paragraph mentions congressmen, not as those who are committing the fraud, but those who act as a deterrent on fraud. True, it says congressmen may turn a blind eye. But from this statement, it is too much of a logical leap to say that therefore some politicians must have been indicted as part of the Keating scandal.
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New post 03 Sep 2019, 03:16
Hi everyone,
Took 11:20 minutes and got 2/4 correct. Took 4:20 minutes to read, write down paragraphs' summaries and main point.

P1: Savings and loans banks intro
P2: Unintended outcomes of deregulation
P3: William Black points out a weakness in the system (fraud)

MP: Discuss the S&L banks' situation along with the outcomes of that situation

----------------------------------------------------------------------------------------------------------------------------------

1. The passage mentioned the "unprecedented building boom" of the late 1970s and early 1980s in order to

Pre-thinking
We are talking about the outcomes of deregulations. One of the outcomes of deregulations is that s&l banks took risks in field they did not fully understand. One of them was the housing market. And why did they invest in the housing market? Because there was a boom in building without precedence. So the role of the boom is to support why the investment was made.

A show how the commercial real market responds to changes in oil prices
This is not the purpose. Hence incorrect

B provide an example of conditions susceptible to fraud
not the purpose. Hence incorrect

C give evidence of the disappearance of the middle class
not the purpose. Hence incorrect

D explain the economic circumstances that were supporting the Savings and Loan banks in that period
In line with pre-thinking. Hence correct

E demonstrate what kept some Savings and Loan banks in business through the crisis
The boom didn't keep the banks in business through the crises but it supported the banks before the crisis. Hence incorrect

----------------------------------------------------------------------------------------------------------------------------------

2. The primary purpose of this passage is to

Pre-thinking
Refer to main point above to analyze the answer choices

A outline the ethical issues that arise in banking
Ethic is mentioned to state that ethical behavior itself does not help the economy as a whole. Hence incorrect

B indicate a potential vulnerability in the national economy
If we think at the structure and at the purpose we can build the following scheme:
S&L banks enter a crisis due to deregulation-> one of the unintended consequences is fraud->william black points out that fraud is still a problem.
So we can safely say that the passage is oriented to highlight this weakness and all the S&L banks' crisis is used to set the context for this purpose.
Hence correct


C trace the history of the Savings and Loans crises
The history of S&L crisis is limited to P1 and P2

D describe Black's contribution to banking theory
Black points out a weakness and no theory is presented. Hence incorrect

E explain the leading economic forces dominating the American economy in the 1980s
Completely out of scope. Hence incorrect

----------------------------------------------------------------------------------------------------------------------------------

3 The passage implies which of the following?

Pre-thinking
Let's evaluate the answer choices

A All bank deregulation leads to instances of fraud.
This statement is too extreme because of the use of "All". Hence incorrect

B William Black regulated a Savings and Loans bank.
Cannot be inferred from the information given. As far as we are concerned he just points to a weakness in the system. Hence incorrect

C Without bank fraud, the Saving and Loans crisis would not have happened.
It seems to me that the opposite is true.

"In some of the S&L banks that failed, the bank leaders were found guilty of embezzlement and other kinds of fraud. In some cases, the burden of fraud caused otherwise viable banks to fail, and in other cases, a bank that was going to fail anyway had its life prolonged by fraud, creating additional expenses for the federal bank bailout."

In this portion of the passage the use we cannot establish a direct cause-effect relation because in some cases the S&L failure led to fraud and in some other cases the the burden of fraud led to the failure. But in the last case the fraud might come from the S&L crisis.
The only way to mark this answer as correct I think is to reflect upon of the meaning of the word crisis in this context.
Is the crisis related only to S&L banks' failure or does the author mean crisis= S&L banks' failure + frauds?

If the latter is the case we might infer that without frauds we cannot talk about crises. In this case the answer choice is correct.


D Congressmen are well-informed about the operation of the SEC.
Nowhere this can be inferred from the information given. Hence incorrect

E Criminologists have a deep understanding of how to subvert the law.
Although we can infer that criminologists have some sort of understanding of how to subvert the law it is not clear whether they have a DEEP understanding of it. Hence this choice is inconsistent and incorrect

It would be helpful to have the official explanation for this question!

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4. The final paragraph implies which of the following?

Pre-thinking
Let's look at the answer choices

A. Not all of those implicated on charges of financial fraud were bank leaders.
Cannot infer this from the information given. Hence incorrect

B. Less attention has been given to fraud procedures than to stronger bank regulations.
Although this information is true this IS MENTIONED in the last paragraph so it is not something implied. Hence incorrect

C. A solid grounding in ethics is a reliable deterrent to financial fraud.
It is mentioned in the text that ethic is not enough. Hence incorrect

D. Understanding the way in which financial rules are commonly subverted is closely tied to a criminologist's training.
This can be inferred as discussed in one of the previous questions. Hence correct

E. Several politicians involved in the Keating scandal were indicted on charges of financial fraud.
We don't have clues about whether they were indicted or not. Hence incorrect

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It is a good day to be alive, cheers!
GMAT Club Bot
Re: For much of the twentieth century, Saving and Loans (S&L) banks made m   [#permalink] 03 Sep 2019, 03:16
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