Author Archives: William Black

AOC# and MMT Spook the AEI

William K. Black
January 17, 2019     Bloomington, MN

AOC# drives Republicans berserk.  Booing her, and only her, at the ceremony admitting the members of Congress, raging at her for dancing – yes dancing – in a college video, and attacking her for having a nickname (“Sandy”) in high school demonstrate the degree of derangement and the pathetic ammunition they have found in their failing efforts to discredit her.  MMT has become an indirect beneficiary of this derangement.  AOC# has expressed support for MMT – so the right is now eager to reach the famous second stage of opposition to good ideas (‘first they ignore them, then they attack them’).  It is far better for the right to attack our good ideas, than ignore them.  As with the right’s attacks on AOC#, the nature of their attacks on MMT is laughably extreme and nonsensical.  When they attack MMT, they spread our views.

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Trump’s Version of ‘Let Them Eat Cake’

By William K. Black
January 14, 2019     Bloomington, MN

Queen Marie-Antoinette of France was libeled by the claim that when she was told that her starving peasants could no longer find bread to eat, she responded “then let them eat cake.”  (If you want to get precise she supposedly said let them eat ‘brioche.”)  There is no evidence she said any such thing.

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Trump CFPB Plans Obscene Change to Payday Lender Rule

William K. Black
January 14, 2019     Bloomington, Mn

Kate Berry, the American Banker reporter that covers consumer financial protection, has written another important article about the continuing horror story of Trump’s increasingly successful efforts to pervert the Consumer Financial Protection Bureau (CFPB) into an agency dedicated to harming consumers and protecting our Nation’s most predatory lenders.  Unfortunately, her January 14, 2019 article is behind a paywall.

The Predatory ‘Sweet Spot’

The context is one of the CFPB’s most important and useful anti-predatory lending rules by payday lenders.  Payday lenders often charge working class Americans interest rates well above 100 percent.  (In Missouri, a hotbed of predation, they can charge more than 500 percent.)  The ‘sweet spot’ for payday lenders is borrowers who will be unable to repay promptly the initial loan (with an obscene, but vastly lower initial interest rate).  This sets off a cycle of additional borrowing and extending of payday loans that places the borrower into a debt spiral that frequently results in bankruptcy.  Payday lenders, who exist to predate on customers, make their extraordinary profits largely from borrowers who cannot repay the initial payday loan when it comes due, but have some income and will continue to reborrow and attempt to repay for months.  Predatory payday lenders optimize by finding this ‘sweet spot’ of those who have enough income and a compelling intent to repay – but not enough income to pay off the entire series of loans.

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Countering Chinese Accounting Control Fraud and Predation Against U.S. Investors

William K. Black
December 18, 2018     Bloomington, MN

On December 13, 2018, the Wall Street Journal published an interesting op ed by Jesse M. Fried, a famous law professor in multiple areas of corporate law, and Matthew Schoenfeld, who works at a hedge fund that is the leading funder of civil lawsuits, primarily fraud and tort suits.  The title is “Will China Cheat American Investors?  The answer, of course, is yes – it will continue to cheat American (and non-American) investors.  Fried also has a strong background in economics, which is relevant to his op ed and my blog article.

The op ed is interesting in part because it was published just after a documentary on Chinese stock fraud (“The China Hustle”) had its general video release.  The China Hustle explores the pervasive defrauding of primarily U.S. investors by those that control Chinese corporations.  Though the documentary does not make the point, it is describing “accounting control fraud.”  A ‘control fraud’ is a seemingly legitimate entity used by the person that controls it as a “weapon” to defraud or predate.  For the sake of brevity, I use “CEO” rather than “the person that controls the corporation.”

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Trump Models His War on Bank Regulators on Bill Clinton and W’s Disastrous Wars

William K. Black
December 13, 2018     Bloomington, MN

The Wall Street Journal published an article on December 12, 2018 that should warn us of coming disaster:  “Banks Get Kinder, Gentler Treatment Under Trump.”  The last time a regulatory head lamented that regulators were not “kinder and gentler” promptly ushered in the Enron-era fraud epidemic.  President Bush made Harvey Pitt his Securities and Exchange Commission (SEC) Chair in August 2001 and, in one of his early major addresses, he spoke on October 22, 2001 to a group of accounting leaders.

Pitt, as a private counsel, represented all the top tier audit firms, and they had successfully pushed Bush to appoint him to run the SEC.  The second sentence of Pitt’s speech bemoaned the fact that the SEC had not been “a kinder and gentler place for accountants.”  He concluded his first paragraph with the statement that the SEC and the auditors needed to work “in partnership.”  He soon reiterated that point:  “we view the accounting profession as our partner” and amped it up by calling accountants the SEC’s “critical partner.”

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Douthat’s Mendacious Meritocracy Myth

William K. Black
December 8, 2018      Bloomington, MN

The funeral services for President George HW Bush triggered Ross Douthat’s nostalgia for the “aristocratic virtues of the old WASP establishment, and a disappointment with the meritocracy that has risen in its place.”  This column ignores his nostalgia and alleged virtues and discusses briefly his bizarre assumption that a “meritocracy” runs America.  Given the 2008 Great Financial Crisis (GFC) and President Trump, I thought that the meritocracy fantasy was dead.  We are far closer to anti-meritocracy (a kakistocracy).    Continue reading

Bank Whistleblowers United Told DOJ to use 4506-T as Kryptonite v Banksters

Steven Krystofiak Warned the Fed 12 Years Ago

By William K. Black
August 6, 2018     Bloomington, MN

Steven Krystofiak formed the Mortgage Brokers Association for Responsible Lending, a professional association dedicated to fighting mortgage fraud and predation.  On August 1, 2006.  He tried to save our Nation by issuing one of the most prescient warnings about the epidemic of mortgage fraud and predation and the crisis it would so cause.

The context was Congress’ effort to empower and convince the Federal Reserve to take action against what the mortgage lending industry called, behind closed doors, “liar’s” loans.  A liar’s loan is a loan in which the lender does not verify (at least) the borrower’s actual income.  The industry knew that the failure to verify inherently led to endemic fraud.  George Akerlof and Paul Romer’s 1993 article on “Looting” by financial CEOs explicitly cited the failure to verify the borrower’s income as an example of a lending practice that only fraudulent lenders would use on a widespread basis.

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How Democratic Party Mendacity about Deficits and Banksters Lifted Trump

By William K. Black
August 2, 2018     Bloomington, MN

Peter Suderman, the managing editor at Reason.com (hard right) has published an op ed in the New York Times entitled “How Republican Hypocrisy Lifts Social Democrats.”  His subtitle is “By its astoundingly cynical approach to deficits and debt, the G.O.P. has opened the door to an expansive left.”  What is actually astounding is that Suderman never mentions, much less discusses; the situations in which a Nation with a sovereign currency should run deficits.

Stephanie Kelton and I have been trying hard to keep Democrats from, again, rushing into the trap of denouncing Republicans for running federal deficits.  Yes, Republicans are hypocrites about debt and deficits.  That does not mean that Democrats should repeat Clinton and Obama’s embrace of the Republican’s economically illiterate, harmful, and fake hysteria about debt and deficits.  Suderman makes an acute observation about why Republicans pretend to embrace deficit hysteria.

Through their actions, [Republicans] have proven that they cared about the deficit primarily for its usefulness as a political cudgel, an easy way to curtail Democratic policy goals.

My ‘friendly amendment’ would remove the word “primarily” from that sentence.

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Mankiw Whiffs on “Learning the Right Lessons from the Financial Crisis”

By William K. Black
July 31, 2018     Bloomington, MN

I am writing a major article on myths about the causes of the financial crisis, so I read with special interest N. Gregory Mankiw’s column “Learning the Right Lessons From the Financial Crisis.”  (HT: DCJ.)  The context of Mankiw’s article, as he appropriately discloses, is to do a favor for a friend by plugging the friend’s new book in Mankiw’s column in the New York Times.  I have no criticism of that purpose and applaud him for alerting readers to it.  The problem is substance, both the book’s and his column.

Mankiw is the leading author of economic textbooks in the world, so his views and his ideology are enormously influential.  The first sentence of his book review asks the right question:  “What caused the financial crisis of 2008?”  The remarkable thing is that he never attempts to answer the question and does not explain how the book he is reviewing attempts to do so.

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Trump is the World’s Most “Expensive Lobbyist” for Google’s “Huge Antitrust” Problem

By William K. Black
July 22, 2018     Bloomington, MN

Trump’s language problems do not end with his double negatives and his endless contradictions of what he has just said or tweeted about Putin’s assault on our democracy.  Trump lies about everything, all the time.  His lies, however, frequently reveal the greater truth – he lives to betray America, his responsibilities as President, and his base.  One classic example is the illegal abuse of monopoly power used against Americans and people globally.  Trump has managed to embrace, contemporaneously, polar views on monopoly power – and both views are wrong.  That takes some doing.  One would think that taking opposite views would help you be right half the time.

Under United States law, the intentional abuse of monopoly power is both illegal and criminal.  Our Department of Justice (DOJ) and Federal Trade Commission (FTC) can bring civil suits to stop the abuse and penalize it – including treble damages and orders to reduce greatly the monopoly power.  DOJ can also bring a criminal prosecution.  In the European Union (EU), such monopoly power abuses are generally only subject to civil sanctions and orders to reduce monopoly power.  (Some EU nations criminalize “hardcore” cartel actions.)  DOJ can prosecute either, or both, the firm and the officers involved in abusing the monopoly power.  EU nations often do not permit prosecutions of the firm even for cartels.

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