Author Archives: William Black

Note to Dudley: Everyone Questions the NY Fed’s Motives – For Good Reasons

By William K. Black
San Francisco, CA: November 20, 2014

The NY Fed and Goldman have combined again to produce fingers scraping on a moral blackboard. The story is – not – told coherently in a NY Times piece.

I’ll comment on only two aspects of the incoherent story. First, contrary to the NYT portrayal of the story, there is typically no ambiguity about whether regulatory information is confidential and there was no ambiguity about the particular information that we read (albeit, not in the NYT) that the NY Fed employee leaked to his former colleague after he joined Goldman Sachs.

Second, the NY Fed’s head, William Dudley’s, response to the latest scandal was “I don’t think anyone should question our motives.” I will argue that given the NY Fed’s intolerable institutional conflicts of interest, and the defense of continuing that conflict by the NY Fed’s leadership, e.g., Dudley, everyone should the regional Feds’ motives.

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Cochrane Demands that the Public Unilaterally Disarm while the Banksters Loot

By William K. Black
San Francisco, CA: November 19, 2014

(I’m participating in the annual meeting of the American Society of Criminology. I presented Wednesday on a panel honoring the 75th anniversary of Edwin Sutherland’s announcement of the concept of white-collar crime.)

 

John Cochrane has written an article with an initial sentence that should spark broad agreement: “confiscating wealth is ultimately about political power.” The banksters who led the frauds that caused the financial crisis “confiscate[ed]” immense wealth from the public and “their” firms’ customers, creditors, and shareholders. They did so with nearly complete impunity, which is “ultimately about political power,” indeed it defines the extraordinary nature of their power. The banksters’ confiscation of wealth has caused a dramatic increase in inequality, which has exacerbated the banksters’ domination of the levers of power. In a prior article, Cochrane stated that the financial crisis was driven by runs on financial institutions and that the runs were typically driven by elite accounting fraud.

“Not for nothing have most runs been sparked by an accounting scandal or fraud.”

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The New York Times Misses the Irony of Austerity and Economic Illiteracy

By William K. Black

The New York Times published a story by Liz Alderman dated November 17, 2014 entitled “As Japan Falls Into Recession, Europe Looks to Avoid It.” The article begins with a burst of (unattributed) economic illiteracy.

“Japan looked like the model for economic revival. Growth was back on track. The stock market was surging. Inflation, which had eluded Japan for decades, was even returning.

But Japan’s grand economic experiment, a combination of fiscal discipline and monetary stimulus, is collapsing. On Monday, the country unexpectedly fell into recession, a downturn that has painful implications for the rest of the world.

Japan’s unorthodox strategy was supposed to offer a road map for other troubled economies, notably Europe. Fiscal belt-tightening and tax increases, while leaning on the central bank to pump money into the economy, was expected to help overcome a malaise.”

In a prior column I gave mock praise to Alderman because after editorializing for eurozone austerity for years in her columns she finally admitted that “many economists” criticized those policies. I cautioned, however, that the NYT reporters, including Alderman, assigned to cover the eurozone “are austerians to the core.” Here comments about Europe and Japan prove my point. First, Japan did not look like “the model for economic revival” when it endorsed austerity through sharp increases in its sales tax. It looked like a model for a gratuitous recession. The stock market surge and moving towards achieving desirable levels of modest inflation occurred in part in response to the fiscal stimulus that the new Japanese government decided to replace with fiscal austerity. But other government policies were more important in explaining these results – and explaining why they were artificial. By announcing the rise in the sales tax from five to eight percent in advance the government spurred a sharp increase in consumption of durable goods prior to the increase. By moving government funds from safer investments to stock purchases the government spurred a rise in the stock market.

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Standard Chartered Is Outraged That It Is Treated Like A Criminal For Its Criminal Acts

By William K. Black

After a decade of committing tens of thousands of felonies that the U.S. government believes helped fund terrorism and Iran’s development of nuclear weapons, having the great fortune of settling the cases without any senior officers being prosecuted or its license to operate in the U.S. being pulled, having immediately violated the settlement agreement by lying about its prior actions, being discovered to have mislead the U.S. during the settlement negotiations, and being found to have continued to violate the same U.S. laws after entering into the settlement, one might think that Standard Chartered’s leaders would learn to keep their mouths shut and to obey the law at least until the settlement agreement restrictions lapse. Standard Charter’s senior leadership, however, is composed of the most arrogant and entitled class. When the bank’s Chairman of the Board is “Sir John Peace” entitlement (but no longer noblesse oblige) comes naturally. So, instead of mea culpa, the Standard Chartered mantra is: how dare you criticize us?

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CEO Compensation: “Cheaters Prosper”

By William K. Black

As financial regulators we have been warning since 1984 that accounting control fraud is optimized by modern executive compensation. Modern executive compensation is so perverse that it creates overwhelming incentives to engage in fraud and the means of committing the fraud that makes it far more difficult to prosecute. The CEO is able to convert the firm’s assets to his own benefit through seemingly normal corporate mechanisms. CEOs also use executive and professional compensation to generate “Gresham’s” dynamics and incentivize fraud by employees, officers, and professionals.

George Akerlof and Paul Romer added their voice to this point in1993 in their article “Looting: The Economic Underworld of Bankruptcy for Profit.” Among the points they emphasized were that accounting control fraud was a “sure thing” and that the way for the CEO controlling a lender to optimize to optimize his looting was to cause the lender to make very bad loans at a premium nominal yield. White-collar criminologists and the National Commission on Financial Institution Reform, Recovery and Enforcement (NCFIRRE) reached similar conclusions beginning in 1993.

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Zero Prosecutions Aren’t Few Enough – Wall Street Wants SEC Sanctions Reduced to DMV Points

By William K. Black
Kilkenny, Ireland: November 8, 2014

Wall Street’s full depravity was put on display in Joseph Fichera’s November 6, 2014 op ed in the New York Times. I hasten to add that the reason that the op ed is so revealing is that Fichera is one of the sometimes good guys who, for example, accurately warned that “auction-rate securities” were a dangerous scam and criticized JPMorgan’s odious abuse of Denver. When the Ficheras of the world join in Wall Street’s “race to the bottom” Federal Reserve Bank of New York’s President Dudley’s point about the corrupt culture that characterizes Wall Street is proven irrefutably.

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Germany’s Passive-Aggressive “Stimulus” Program

By William K. Black
Kilkenny, Ireland: November 7, 2014

Kilkenomics, being a festival of economists and comedians, has long reflected the economic consensus that austerity in response to a Great Recession is economic malpractice akin to bleeding a patient to make him healthy. One of the great changes in Europe in the last month is that the number of economic voices willing to make this same point have grown rapidly. Germany’s “there is no alternative” (TINA) to austerity claims were always absurd, but now many more European voices are willing to point out that there are superb alternatives – in Germany. A recent Irish Times article provides a good example.

“Leading economists have criticised Germany on its public investment restraint which, at 18.4 per cent of GDP, is below the EU average of 19.2 per cent. A study by Berlin’s DIW economic think tank suggests a €1 trillion backlog has built up in Germany since 2000.”

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Let’s Call It What It Is – Murder

By William K. Black
Kilkenny, Ireland: November 8, 2014

Clarence Ditlow and Ralph Nader wrote a column in the New York Times on October 29, 2014 that should be reread in light of the November 6, 2014 NYT article’s subsequent revelations about the Takata’s cover up of sometimes lethal defects in its airbags – a cover up that reportedly continued for over a decade.

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The Euphemistic “White Collar Watch” is Addicted to Euphemism

By William K. Black
Kilkenny, Ireland: November 7, 2014

Kilkenomics pairs top professional comedians with economics contributors who share two characteristics: wide-ranging interests and knowledge and candor. This means that the contributors take clear positions and defend those positions with facts and logic. That refreshing willingness to actually be blunt about important things may be what set my teeth so on edge when I read the New York Times’ “White Collar Watch” feature. It is written by Peter J. Henning, who teaches, and writes about, white-collar crime. The problem is evident in the “brand” that Henning has chosen for his columns. Note the deliberate exclusion of the word “crime.” What is Henning doing – writing a column (from Detroit) on the lives of “white-collar” employees, professionals, and officers? His very brand is based on the bowdlerization of his academic specialty through euphemism.

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Germany’s Leaders Denounce those who “Take an Axe to European Solidarity”

By William K. Black
Kilkenny, Ireland: November 7, 2014

The news in Europe (I’m in Kilkenny, Ireland participating in Kilkenomics V) is filled with coverage of the latest travesty of the Troika – a leak disclosed the “let’s make a (secret) deal to virtually eliminate your corporate taxes” practices of Luxembourg under the reign of Jean-Claude Juncker. The leaks show that over 300 corporations have used such deals to produce what German leaders aptly describe as “non-taxation.” I described the resultant “magical fairyland” of tax havens that resulted in an earlier column. Juncker is the newly appointed head of the European Commission (EC). The EC is the most deranged member of that Troika – the home turf of those that insist on inflicting the most ruinous austerity and the war on workers’ wages. Juncker was chosen by the Germans to run the EC as a reward for his willingness to support these twin German diktats.

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