Author Archives: William Black

The Three Impossible Things Trump’s Base Must Believe before Breakfast

By William K. Black
July 19, 2018     Bloomington, MN

The Republican Party, for over 70 years, did not simply oppose the Soviet Union; it demonized Democrats as ‘soft’ on Russia.  This history makes the Republican Party’s increasing embrace of Putin’s Russia particularly bizarre.

Forty percent of Republican’s now consider Russia “friendly” or an “ally” of the United States.  That percentage is nearly twice as large as in 2014 despite a large number of Russian attacks on the U.S. and the West (and Russians) since 2014.  Seventy-nine percent of Republicans had a positive response to Trump and Putin’s infamous (to most Americans) Helsinki press conference.

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Executive Coaching Achieves Miracle Success, and Self-Parody, at Nortel

By William K. Black
July 10, 2018     Bloomington, MN

Economists generally focus on increasing productivity as the driver of development.  Among the most troubling economic developments in the West in the last decade is the weak gains in productivity, particularly in a time of rapid technological advances.  Neoclassical economics pictures firms as engaged in a fierce, endless battle for survival where failure is certain for firms that are even slightly less efficient that their rivals.  This struggle is supposed to produce relentless, rapid advances in productivity.  Something has gone very wrong with the neoclassical narrative of competition, productivity, and growth.

Weak productivity and efficiency is supposed to remedy itself.  The neoclassical (and Austrian) economics claim is that it creates a profit opportunity for entrepreneurs to enter who either will run a more productive firm or serve as consultant to explain to existing firms’ CEOs the secret of improving efficiency.  This series of articles focuses on one of these supposed examples of Austrian “spontaneous order” – executive coaching.

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Kill the Hastert Rule: A Pedophile’s Indefensible Rule Harms America

By William K. Black
June 20, 2018     Kansas City, MO

The House Speaker is the answer to the trick question:  “Who is the second most powerful elected official in the United States.”  The importance of the Speaker is obvious to anyone with even a modestly sophisticated understanding of U.S. politics and government.

One of the reasons for this astonishing level of sycophancy of Republican House candidates that run for office by presenting themselves as moderate conservatives is the ‘Hastert rule.’  They run as moderates, but they vote consistently in favor of legislation that creates the most radically right policies in modern American history.  If you have never heard of the Hastert rule or do not know what it is, blame the Democrats (and the media).  The fact that the Hastert rule is not infamous with the public proves (again) the ineptness of Democrats as politicians (and the failure of most of the media as journalists).  The rule bears the name of then-Speaker of the House Dennis Hastert, who decreed and implemented the rule.  If you do not know that Hastert is infamous, and why he is infamous, blame the Democrats (and the media).

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Bitcoin Frauds Keep Growing

By William K. Black
June 18, 2018     Kansas City, MO

One of the prime myths that white-collar criminologists have to refute repeatedly is that blockchain makes fraud impossible.  Blockchain, in some settings, is a costly means of making some frauds much more difficult.  Blockchain is useless against the most important frauds.  The primitive worship of blockchain as a supposed garlic capable of warding off evil breeds complacency, and complacency produces increased fraud and greatly extends the life of fraud.

The difference between making fraud impossible and (in a few specialized settings) ‘much more difficult’ brings to mind the critical difference explained in The Princess Bride between ‘dead’ and ‘mostly dead.’  Blockchain is useless in stopping, for example, any or the three epidemics of ‘control fraud’ that drove the 2008 financial crisis and the Great Recession.  Lenders’ executives extorted appraisers to inflate appraised values of homes, creating a Gresham’s dynamic in which bad ethics tends to drive good ethics out of the markets and professions.  The second fraud epidemic in loan origination was ‘liar’s’ loans, which were designed to aid lenders and their agents to inflate the incomes of borrowers.  Note that both of these primary fraudulent loan origination schemes involve lenders deliberately seeking to provide false (inflated) data designed to inflate the market value of homes.  The third fraud epidemic that drove the U.S. financial crisis was the fraudulent sale of these mortgages to the secondary market through false “reps and warranties” about loan underwriting – principally the fraudulently inflated appraisal values and borrowers’ incomes.

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Democrats Should Reject Bernanke’s ‘Wily E. Coyote’ Criticism of Trump’s Deficits

By William K. Black
June 11, 2018     Kansas City, MO

Ben Bernanke recently gave a speech predicting that President Trump’s deficits will cause the economy to “go off a cliff in 2020.”  Many Democratic Party politicians, of course, will rush to embrace the criticism and prove that they are the true party of fiscal responsibility.  They can then get back to pushing for increased taxation and cuts to the safety net “to save it” from collapse – and feeling virtuous.  These Democrats will glory in their supposed virtue and gravitas as they oppose ‘excessive’ stimulus, cut the safety net to ‘save it,’ oh-so-judiciously cut funding for social programs, and push for higher taxes.  They know this is bad politics, but that adds to their faith that the more bitter the medicine the greater the curative properties.  Faith-based federal deficit phobia, however, is terrible economics and terrible politics.

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The New York Times Editorial Board’s Incoherence on Italian Austerity and the Euro

William K. Black
June 2, 2018     Bloomington, MN

(Third in a series of articles on Italy, Austerity, and the euro)

The New York Times’ editorial board published a May 29, 2018 editorial about Italy’s ongoing political and financial issues that praised austerity in Italy.  The board cheered the anti-democratic appointment of “Carlo Cottarelli, a solidly pro-Europe and pro-austerity economist and former official of the International Monetary Fund, to form a nonelected government.”  In particular, the board expressed its horror that Italy (which continues to have unemployment levels one expects to find in a severe recession) would have adopted “grandiose spending plans” (fiscal stimulus) if the Italian establishment had not sought to block the results of the recent Italian election.

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The EU Commission’s In-House Bigot Invites Financiers to Extort Italian Voters

By William K. Black
May 30, 2018     Bloomington, MN

The European Union’s (EU) leadership continues to prove our family rule that it is impossible to compete with unintentional self-parody.  “EU leadership” is an oxymoron, largely composed of regular morons.  Consider only two examples — European Commission (EC) President Jean-Claude Juncker and Commissioner and Budget and Human Resources Minister (one of the EC’s most powerful leadership positions) Günther Oettinger.

Juncker heads the EC because he led the most infamous EU tax giveaway to wealthy corporations as Luxembourg’s finance minister and then prime minister.  Whistleblowers and the International Consortium of Investigative Journalists (ICIJ) eventually exposed the fact that for over a decade the wealthiest companies in the world created front companies in Luxembourg and met secretly with the finance minister to negotiate secret sweetheart deals allowing the companies to pretend to earn their income in Luxembourg – and to pay obscenely low tax rates.  The secret deals “allowed some of them to pay effective tax rates of less than 1 percent on profits shuffled into Luxembourg.”  Luxembourg is so tiny that even at these ridiculously low tax rates the covert deals made the country wealthy (at the direct expense of the public sectors of other EU nations and the United States).  Juncker’s eagerness to aid plutocrats made him the EU’s longest-serving leader as Luxembourg’s PM until a different scandal brought him down.  These sweetheart tax scandals led, not prevented, Juncker’s elevation to run the EC.  In response to the exposure of the scandal, Luxembourg: greatly increased the number of sweetheart deals, prosecuted the whistleblowers and the investigative journalists, and took no action against Luxembourg’s “let’s make a deal” leaders or the plutocrats (which included Koch Industries).

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The New York Times Praises the Italian Establishment’s Economic Illiteracy and Assault on Democracy

By William K. Black
May 29, 2018     Bloomington, MN

Italy’s establishment has just revealed its truest beliefs and priorities.  The context was the two parties that received the most votes in the last election forming a coalition government.  The two parties seeking to form a coalition government won a majority of the seats in both houses of Italy’s parliament in the most recent election.  The New York Times reported many of the key facts, but missed the key analytics.

Italy’s populists seethed and the European Union sighed with temporary relief on Sunday night after an anti-establishment alliance poised to govern the bloc’s fourth-largest economy imploded at the last minute amid concerns that it was planning to sneak out the back door of the eurozone.

Less than a week after Italy’s populist parties, the anti-establishment Five Star Movement and the anti-immigrant League, ironed out their policy differences and jubilantly received a mandate to form a government that they said would usher in a new era in Italian and European history, its designated prime minister announced on Sunday evening that he had failed to form a government.

Both paragraphs are lies.  Bizarrely, the rest of the article demonstrates both lies.  I do not support key aspects of either party’s platforms, so I am not writing as a disgruntled supporter.  I start with the NYT’s second lie, for exposing it also exposes the first lie.  Giuseppe Conte, the “designated prime minister,” did not “announce … that he had failed to form a government.”  He announced an undisputed fact – a political rival, President Sergio Mattarella, refused to allow the two parties to form a coalition government because he objected to their selection of Paolo Savona as their economics minister.

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Fair Seas and Following Wind John McCain

William K. Black
May 15, 2018     Bloomington, MN

As a savings and loan regulator, on April 9, 1987, I experienced Senator John McCain at his very worst.  He, and his four Senate colleagues, collectively, the “Keating Five,” pressured my colleagues and me to withdraw our recommendation that our agency place Charles Keating’s Lincoln Savings and Loan into conservatorship.  Keating was looting Lincoln Savings and would soon defraud thousands of widows.  Lincoln Savings became the most expensive failure because the combination of the ‘Keating Five’ and Speaker of the House James Wright, Jr. successfully intimidated the new leadership of our regulatory agency.  The cowardly new leadership team refused even to consider our conservatorship recommendation and took the unprecedented action of removing our regulatory jurisdiction over Lincoln Savings.  Senator McCain and his colleagues acted badly for poor reasons and caused grave harm.  Senator McCain has said that his actions on behalf of Keating caused him greater pain than his North Vietnamese torturers.

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John Cochrane Loves the Rule of Law (Some Exceptions Apply)

By William K. Black
December 22, 2017     Bloomington, MN

As Brad DeLong aptly puts it, John Cochrane was once an economist.  Cochrane is now a right wing ideologue surrounded by similar ideologues at Hoover.  He is pushing his new chapter in a Hoover book entitled American Exceptionalism in a New Era.  His chapter’s title is “Law and the Regulatory State.”  I will be writing several articles responding to Cochrane’s chapter, but this first piece concentrates on one key belief that Cochrane said he held that we all agree with.  My point is that Cochrane is not living up to his claimed beliefs, which he summarized in his introduction.

To be a conservative—or, as in my case, an empirical, Pax-Americana, rule-of-law, constitutionalist, conservative libertarian—is pretty much by definition to believe that America is “exceptional”—and that it is perpetually in danger of losing that precious characteristic. Exceptionalism is not natural or inborn but must be understood, cherished, maintained, and renewed each generation—and its garden is always perilously unattended.

This first column shows that under Cochrane’s own reasoning the “danger” to the “precious” “rule of law” has never been greater in the last 50 years.  Instead of “cherish[ing]” and “maintain[ing]” the “garden,” Cochrane has chosen to leave it “perilously unattended” because of his fanatic partisanship.  Trump is ripping up and sowing salt in Cochrane’s “precious” “garden” and Cochrane stirs himself primarily to attack Trump’s critics.  Brad’s description requires amendment.  Cochrane was once an economist and once a self-described “rule-of-law constitutionalist, conservative libertarian.”  Now, he is an unexceptionable apologist for Trump’s authoritarianism, venality, and corruption.  Whatever remains of Cochrane is what you get when you burn a substance and retain only its most noxious waste gases. Continue reading