Category Archives: William K. Black

Irish-Style Banking Inquiry into the 2008 Financial Crisis

NEP’s Bill Black on The Real News Network discussing his recent testimony in Ireland for a banking inquiry and the challenges the country faces in acknowledging its financial crisis. Video is below. For the transcript, click here.

Iceland’s Supreme Court Upholds Jail Sentences of Four Banking Executives

Edition of the Bill Black Report at The Real News discussing the good news that Iceland’s Supreme Court upheld the jail sentences that were handed down to four banking executives in that country. The video is below. If you would like the transcript, it is available here

Remember When Carmen Segarra Exposed the NY Fed’s Refusal to Stop Goldman Sachs and Banco Santander’s Scam to Inflate Santander’s Capital? How’d that Work Out?

By William K. Black

On September 30, 2014 I wrote an article to explain the true significance (and horrific analysis by the NY Fed and much of the media) of Carmen Segarra’s key disclosure. My title was “A ‘Perfectly Legal’ Scam is Perfectly Unacceptable to Real Bank Supervisors.” Segarra was the NY Fed examiner who was fired for her criticisms of Goldman Sachs. Segarra was part of the group of new examiners hired as a result of the NY Fed’s admission that it had failed utterly under Timothy Geithner and that the failure had helped make possible the financial crisis. Segarra was part of the new crew that was supposed to radically vitalize the NY Fed’s broken supervisory arm. (Notice that I did not say “revitalize” – the NY Fed has always been Wall Street’s Fed bank, not America’s. It has never been an effective supervisor.)

The point I made was how similar the scam that Goldman crafted to reduce Banco Santander’s capital requirement was to the scam that Lehman used to reduce its capital requirement and pretend that it was healthy when it was deeply insolvent. The key thing that Segarra disclosed was that Mike Silva, her NY Fed boss, claimed that Lehman’s failure caused a “Road to Damascus” conversion that transformed him from a regulatory weakling into the big banks’ worst nightmare – a tough bank supervisor. I showed that, in reality, he did nothing when he learned of Goldman’s scam. The pathetic scope of his conversion is that he now understood that what Goldman and Santander were doing was unethical and endangered the global financial system, but remained unwilling to stop, try to stop, or even criticize Goldman and Santander’s scam.

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HSBC CEO: My Pay Was so Outrageous I Had to Use Tax Havens to Hide it from My Peers

By William K. Black
Quito, Ecuador: January 23, 2015

Greetings from Quito, where I will be spending four months teaching at IAEN about effective regulation and building ties with UMKC.

The latest twists on the latest HSBC tax evasion and tax avoidance scandal is that it has come out that Stuart Gulliver, HSBC’s head, put his money where his mouth wasn’t. He personally used double tax havens – Panama plus Switzerland – to hide his income and wealth from view because his pay was so outrageous that even other HSBC executives would have been outraged by it. The New York Times’ account of this tale demonstrates that Gulliver needs to fire Gulliver as his spokesperson.

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The Worst Article Title by an Economist about the Crisis

By William K. Black
Bloomington, MN: February 19, 2015

This column discusses the most embarrassing title of an economic study of the U.S. financial crisis. It rivals the most embarrassing title of an economic study of the Icelandic crisis.

“The 2010 Academy Award-winning documentary Inside Job tells how [Frederic] Mishkin changed the name of the study from ‘Financial Stability in Iceland’ to ‘Financial Instability in Iceland’ on his curriculum vitae.”

Geetesh Bhardwaj of AIG Financial Products and Rajdeep Sengupta, a St. Louis Fed economist, entitled their September/October 2008 article: “Where’s the Smoking Gun? A Study of Underwriting Standards for US Subprime Mortgages.”

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The HSBC Scandal: A Red Flag for U.S. Regulators?

NEP’s Bill Black appears on Knowledge@Wharton discussing the HSBC scandal with Jennifer Blouin. You can see the story and hear the podcast here.

 

The Study that Foreshadowed the Three Fraud Epidemics that Drove the Crisis

By William K. Black
Bloomington, MN: February 15, 2015

I will be writing a series of articles concerning the three mortgage fraud epidemics that hyper-inflated the bubble and drove the financial crisis prompted by four recent economic studies of mortgage fraud. My goal is to integrate the results of those studies with the work of criminologists, investigators, and data from other sources such as Clayton.

In economics and white-collar criminology, we teach our students the very useful concept of “revealed preferences.” We take what potential perpetrators say they would do and why they claim they took an action with cartons of salt. Their actions generally speak far louder and more candidly than do their words. I will show in this series how valuable revealed preferences are in analyzing the data and testing rival research hypotheses. (I will explain why I feel the recurrent failure to state these hypotheses expressly leads to serious error.)

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The BBC Dismisses a Real Greek Economist as a Sexy “Ideologue”

By William K. Black
Bloomington, MN: Valentine’s Day 2015

In its web version, the BBC “News” has you click on a tease titled “Yanis Varoufakis, charismatic ideologue” to access a story dated February 13, 2015 entitled “Profile: Yanis Varoufakis, Greek bailout foe.” Neither the tease nor the title make any sense. Varoufakis is the Greek finance minister. Except, of course, we’re reading this in the BBC, so the description actually reads “Greece’s left-wing Finance Minister Yanis Varoufakis.” Funny, the BBC never describes the head of the ECB as “the ultra-right-wing” economist Mario Draghi or Jeroen Dijsselloem, the Dutch Finance Minister and troika hit man as the “ultra-ultra-right-wing” non-economist.

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Bank Leaders Condemn Themselves

By William K. Black
Bloomington, MN: Valentine’s Day 2015

If you inhabit the reality-based universe you know that finance has become a parasite that is a leading threat to our economies and democracies. A series of financial regulators – each of them infamous for their slavish apologias for bankers and banking – now admit that our most elite banks and bankers have created corrupt cultures that have turned the world’s largest banks into the world’s largest criminal enterprises.

How have top bank leaders reacted to this corruption? There is a new report out that asked bank leaders that question.

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Implicit Assumptions and Biases about Liar’s Loans Lead Journalists into Error

By William K. Black
Bloomington, MN: February 13, 2015

The website “538” has one claim to fame – interpreting data.  In the mortgage fraud context it got this horribly wrong in a way that should be an object lesson to the dangers of implicit assumptions that implicitly exclude alternative theories of causation.  This typically happens because of an unrecognized bias.  Ben Casselman and Andrew Flowers provided the object lesson in their discussion of a new study (behind a pay wall) by Atif Mian and Amir Sufi entitled “Fraudulent Income Overstatement on Mortgage Applications during the Credit Expansion of 2002 to 2005”

“What they found: Mortgage lending surged in low-income, less creditworthy areas of the U.S. between 2002 and 2005. But systemic differences between incomes reported on mortgage applications and incomes reported to the IRS indicate that much of this “subprime” lending was reliant on borrowers fraudulently overstating their income.

Why it matters: Between 2002 and 2005, there was a tsunami of money for prospective U.S. homebuyers. This surge of mortgage credit was strongest in less creditworthy, low-income areas. But some economists have argued that incomes of homebuyers were increasing in these areas. After all, by looking at income as reported on mortgage applications, the areas with lower credit scores seem to have robust growth of homebuyers’ income. But new research from Sufi and Mian — the authors of “House of Debt” who have written for FiveThirtyEight — confirms that, no, economic improvement wasn’t behind these improving income numbers. It was fraud. Specifically, the fraud of homebuyers overstating income.”

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