Author Archives: William Black

The Inaugural Financial Fraud Lemons of the Week Award Goes to DOJ

William K. Black
February 12, 2016     Bloomington, MN

The Bank Whistleblowers United announce the inaugural Financial Fraud Lemons of the Week award.  There can be no more fitting recipient than the ironically named Department of Justice (DOJ).  The “lemon” is used in the economics and criminology literature to refer to a car of surpassingly terrible quality.  The quality is so bad that the car can only be sold through fraud.  We will award it each week to an example of dishonesty or cowardice about financial fraud that is worthy of public ridicule.  We want to leave room in our scale for truly spectacular examples, so this first award will only receive Four Lemons.  The first award is for what has become a routine example of dishonesty and cowardice by DOJ.  Its conduct should be a scandal of national proportions, but by now everyone expects DOJ to embarrass our Nation when it deals with elite bankers.

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The Whistleblowers’ Plan Offers Hillary the Perfect Opportunity

William K. Black
February 10, 2016     Bloomington, MN

I am writing as one of the four founding members of Bank Whistleblowers United.  We came together recently to create a detailed plan that could restore the rule of law to Wall Street and dramatically reduce the risk and damage of future financial crises.  We crafted it so that it could be implemented without any new legislation or regulation.  We offered our aid in the implementation process to any candidate who wins the election – and pointed out that President Obama could implement it immediately.  Our plan and approach virtually defines the word “pragmatic.”  It would also transform finance and begin to end its corrupt culture.

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Pro-Marriage Propaganda: AEI and Brookings’ Plan to Fight Poverty

William K. Black
February 8, 2016     Bloomington, MN

This is second article in my series on the AEI and Brookings report on how to fight poverty.  In my first article I dealt with their plan to oppose any material increase in the minimum wage being hyped by Eduardo Porter in the New York Times as a “bipartisan” plan to “champion an increase in the minimum wage.”  Indeed, Michael Strain, an AEI member of the group continues to attack the minimum wage on the AEI web pages after the release of the report.  I explained that the group was chosen to ensure that it was dominated by New Democrats and hard right Republicans who shared a core belief that poverty was caused by the poor choices of poor people, that it was verboten to even discuss how the economic and political system was rigged, and that a “new paternalism” aimed against the poor was essential.  The word “rigged” never appears in the report though it is a dominant feature of any progressive critique of poverty.

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Chinese Communists and Wacko U.S. Right Want to Save us from Effete Males

William K. Black
February 7, 2016     Bloomington, MN

The New York Times has produced a wonderful, unintended, juxtaposition in their pages on February 6, 2016.  Two articles report on think tanks calling for the government to engage in right-wing propaganda campaigns to restore “manly” men.  One article discusses the Chinese think tanks that have convinced the (Communist) government to engage in a massive propaganda campaign.

Worried that a shortage of male teachers has produced a generation of timid, self-centered and effeminate boys, Chinese educators are working to reinforce traditional gender roles and values in the classroom.

This is how the article begins:

FUZHOU, China — The history class began with a lesson on being manly.

Lin Wei, 27, one of a handful of male sixth-grade teachers at a primary school here, has made a habit of telling stories about warlords who threw witches into rivers and soldiers who outsmarted Japanese troops. “Men have special duties,” he said. “They have to be brave, protect women and take responsibility for wrongdoing.”

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Hillary, the Banksters Committed “Fraud” not “Shenanigans”

William K. Black
February 4, 2016     Bloomington, MN

Former Secretary of State Hillary Clinton, in her debate with Senator Sanders minutes ago, said that she went to Wall Street and told them to stop their “shenanigans.”  The context was that she was being asked to respond to the complaint that she was too close to on Wall Street billionaires.  She had every incentive, therefore, to demonstrate how tough she would be on Wall Street.  In that context, the best she could muster was the pusillanimous “shenanigans.”  Here is a typical definition of that word with examples.

  1. : a devious trick used especially for an underhand purpose
  2. 2a:  tricky or questionable practices or conduct —usually used in pluralb :  high-spirited or mischievous activity —usually used in plural

Examples of shenanigan

  1. students engaging in youthful shenaniganson the last day of school
  2. an act of vandalism that went way beyond the usual shenanigansat summer camp

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Liar’s Loans, Plus Loan Brokers, Equals Fraud Heaven

William K. Black
February 4, 2016     Bloomington, MN

This is the fourth part of my series on the lies about “liar’s” loans that suffuse the Wall Street Journal article reporting that “big money managers” want to bring back “liar’s loans.”  This part focuses on the fact, which the WSJ treated as so obviously reasonable that it was unworthy of analysis, that:

Money managers want to bankroll the loans while relying on the mortgage firms to handle the process with borrowers, basically acting as a lender, “one step removed from the process,” one of these people said.

When the real lender taking the risk of making the home loan employs an agent from a separate for-profit firm to actually recruit the borrowers in return for receiving a sales commission from the real lender (the “big money managers”) we call that agent a loan broker.  The “big money manager’s” plan is (a) to make loans that are endemically fraudulent, (b) by incentivizing de facto loan brokers to find the buyers and handle the loan applications.

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Better Bankers Symposium

The Quest for Better Bankers, Better Banks Requires Better Economists

Review by William K. Black

[This review originally appeared in Concurring Opinions]

In Better Bankers, Better Banks, Claire Hill and Richard Painter of the University of Minnesota Law School signal their approach in the subtitle:  “Promoting Good Business through Contractual Commitment.”  This review explains why their thesis is so timely in terms of the most important theoretical debates boiling in economics and banking regulatory policy and the severe degradation of bankers and banks over the last 30 years.  Contractual commitment was, of course, the heart of Dr. Oliver Williamson’s approach to explaining modern capitalism.  Williamson, in work that led to being made a Nobel Laureate in Economics, argued that corporations were not simply a “nexus of contracts,” but also that these contracts had evolved to suppress the enormous danger to commerce posed by the powerful incentive of profit-maximizing actors to engage in “opportunistic behavior” whenever “information” was “asymmetrical.”  In The Economics Institutions of Capitalism, Williamson defined opportunistic behavior broadly and starkly as “self-interest seeking with guile.”

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How long did it take for the WSJ to Lie about Liar’s Loans? Two Sentences

William K. Black
February 3, 2016      Bloomington, MN

This is the third column in my series about the Wall Street Journal report that “big money managers” want to bring back “liar’s loans.”  Here are the article’s first two sentences.

Wall Street wants to bring back the “low-doc” loan.

These mortgages, which are given to borrowers that can’t fully document their income, helped fuel a tidal wave of defaults during the housing crisis and subsequently fell out of favor.

The second sentence begins the lies with an important lie.  “Low-doc” is a euphemism for endemically fraudulent “liar’s” loans.  The second sentence repeats a lie that the fraudulent lenders have told for decades – it is their carefully crafted creation myth of liar’s loans.  If the WSJ had done its job and exposed the lie, the creation myth and the fraud scheme would have died decades ago.  Instead, the WSJ endorses the lie.  Liar’s loans were not designed for or “given to borrowers that can’t fully document their income.”  The two keys lies by the fraudulent lenders about liar’s loans arise from their use of the word “can’t.”  As I explained in my second column in this series, the IRS created, decades ago, Form 4506-T, which allows the borrower to give the lender access to transcripts of the borrower’s two most recent tax returns.  This means that the self-employed can easily and cheaply permit the lender to verify their income – and home lenders routinely require borrowers to sign the 4506-T as a mandatory part of the loan application.  The first lie is that there are borrowers that are incapable (“can’t”) document their (purportedly ample) income.

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How Many Lies Can the WSJ Pack into a Chart on Liar’s Loans?

William K. Black
February 3, 2016     Bloomington, MN

This is the second article in my series prompted by the Wall Street Journal report that “big money managers” want to bring back “liar’s loans.”  Given that the best study of liar’s loans during the crisis found a fraud incidence of 90% — this is a startling proof of how openly addicted to fraud the “big money managers” remain.  It demonstrates some of the terrible costs of the Department of Justice’s refusal to prosecute the fraudulent loan originators’ controlling officers.

In this installment I lay out briefly the lies that the banksters made, and continue to make, about liar’s loans and why those lies are so harmful.  The WSJ chart on liar’s loans faithfully repeated those lies as if they were revealed truth.  The chart is shown below.  Let us count the lies.

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Lenders’ Lies about Liar’s Loans and “Rigorous Underwriting”

William K. Black
February 2, 2016     Bloomington, MN

It is time to break out one of our two family rules again – it is impossible to compete with unintentional self-parody.  How fraudulent is finance even now?  The Wall Street Journal reports that “big money managers” want to bring back “liar’s loans.”  I am trying to write much shorter columns, so there will be many columns in this series because the WSJ article so beautifully exemplifies the lies that the industry and the media told about liar’s loans before and after 2008.

Spoiler alert:  liar’s loans, as the name admits, are pervasively fraudulent.  Only fraudulent lenders make liar’s loans as a regular business practice.  These home loans make the officers wealthy through the “sure thing” of the “fraud recipe” for “accounting control fraud.” The WSJ, of course, ignores these facts and presents instead falsehoods provided by fraudulent officers.

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