Category Archives: William K. Black

We Now Know what Form of Bank Fraud at JPMorgan it Takes to Alarm President Obama

By William K. Black

President Obama called no emergency meeting when he learned that JPMorgan and 15 other of the world’s largest banks had rigged LIBOR for years – distorting the prices on over $300 trillion in transactions.  He called no emergency meeting when he learned that JPMorgan and over 20 other huge lenders fraudulently sold Fannie and Freddie hundreds of billions of dollars in toxic mortgages.  Same non-result when JPMorgan and a dozen huge banks rigged bids on the issuance of municipal debt to rip off hundreds of government entities.  Same non-result when the big banks filed hundreds of thousands of fraudulent affidavits in order to foreclose on homeowners illegally.  Same nothing when he learned that over 20 huge lenders made the Office of the Comptroller of the Currency’s (OCC) list as the “worst of the worst” lenders and that Attorney General Eric Holder refused to prosecute any of their senior bank officers who led the frauds.  Same nothing when he learned that our home mortgage lenders had created “an open invitation to fraud” through making millions of fraudulent liar’s loans.  Another big nothing when Obama learned that the same banks controlled by fraudulent officers had deliberately created a “Gresham’s” dynamic by blacklisting honest appraisers who refused to inflate appraisals.

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Capital “Can’t be Gamed” – Except Whenever the Bank CEO Wants To

By William K. Black

On October 6, 2014, the Wall Street Journal, only three days ago, published an editorial claiming that regulatory capture was “inevitab[le]” and that we should give up on regulation and rely instead on “simple laws that can’t be gamed” such as an increased capital requirement for banks.  I wrote a two piece response to the editorial.  What I just discovered (though it bears an October 7, 2014 date on the WSJ website) is that one day after the editorial claimed that asset and liability values (the inputs that define “capital”) “can’t be gamed” they presented data indicating that corporations frequently game asset values and that private auditors frequently fail to follow former audit procedures to detect and prevent the overstatement of asset values.  The title of the article is “Audit Deficiencies Surge” and the first two sentences contain the key data.

“Auditors at the largest U.S. accounting firms failed to follow proper procedures in more than four in 10 audits, according to the latest inspections by the U.S. government’s audit watchdog. That was more than double the rate four years earlier.”

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EU Austerity Bites the Austerians

By William K. Black

You know the austerians are panicking when the temple devoted to the worship of austerity, the Wall Street Journal, runs a story with the subtitle:  “Eurozone’s Largest Economy Has Its Worries, but Isn’t on Brink of Collapse.”  We can all sleep well at night because while Germany has screwed up its economy and the eurozone economy with self-destructive austerity it “isn’t on brink of collapse.”

“August’s shocking 4% decline in German industrial production versus July doesn’t signal an economy falling off a cliff. But the outlook for Germany—and by extension for the eurozone—is far from bright.

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Germany’s second-quarter gross domestic product was disappointing, registering a contraction of 0.2% on the quarter. August’s data put in question the modest rebound many economists are expecting in the third quarter. Surveys of economic sentiment have been declining: Markit’s manufacturing purchasing managers index for September entered contraction territory, at 49.9. Weaker global demand and concerns about the tensions between Russia and Ukraine are to blame. If this unpleasant mix persists, then growth seems unlikely to pick up.”

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If this is “Regulatory Capture” May the Lord Smite Us with It – And May We Never Recover!

By William K. Black

In Fiddler on the Roof, Perchik and Teyve have this exchange:

Perchik: Money is the world’s curse.

Tevye: May the Lord smite me with it! And may I never recover!

I was reminded of this when reading the Wall Street Journal editorial claiming that “regulatory capture” was “inevitab[le]” and that we should therefore replace financial regulation with “simple rules” that “can’t be gamed.”

In my first installment I showed that the WSJ’s “simple rules” not only can be gamed – they are invariably gamed massively in the epidemics of accounting control fraud that cause our recurrent, intensifying financial crises.  This installment refutes the “inevitability” of “regulatory capture.”  As I promised to explain, I can personally attest that regulatory capture is not “inevitab[le]” even in circumstances that are ripe for capture.  Further, “regulatory capture” has no definition and economists use it and the term “rent-seeking” as sloppy swear words to describe regulatory actions that are the opposite of regulatory capture.  I conclude by showing that we know how to avoid harmful “regulatory capture,” but the ideologues that oppose effective regulation deliberately chose anti-regulatory leaders who create a self-fulfilling prophecy of regulatory failure.  The WSJ editors and neo-classical economists are the jockeys who insure that their horse loses – and then blame the horse.

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The Wall Street Journal’s Incredible Claim that Banks Can’t “Game” Asset Values

By William K. Black

The Wall Street Journal has published a disingenuous editorial that claims that it is we should not worry about anti-regulatory leaders who produce a self-fulfilling prophecy of regulatory failure because they are chosen on the basis of their ideological opposition to effective regulation.  The WSJ’s position is that George Stigler supposedly proved that “regulatory capture” is “inevitab[le]” and that any need for financial regulation and supervision can be supplied by “simple laws that can’t be gamed” such as a 15% capital requirement.

“Once one understands the inevitability of regulatory capture, the logical policy response is to enact simple laws that can’t be gamed by the biggest firms and their captive bureaucrats. This means repealing most of Dodd-Frank and the so-called Basel rules and replacing them with a simple requirement for more bank capital—an equity-to-asset ratio of perhaps 15%. It means bringing back bankruptcy for giant firms instead of resolution at the discretion of political appointees. And it means considering economist Charles Calomiris’s plan to automatically convert a portion of a bank’s debt into equity if the bank’s market value falls below a healthy level.”

No person did more to try to make financial regulation ineffective than did George Stigler, though Peter Wallison, Alan Greenspan, and Charles Calomiris were all in the running for that title.  No media organ tries so hard to destroy effective financial regulation as the WSJ.  Calomiris also ran his bank into the ground and was denounced by his brother as incompetent, so the suggestion that we take advice from him is a fine example of unintentional self-parody.

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Germany Demands Greater Austerity Because Three Recessions in Six Years are not Enough

By William K. Black

Things are going badly in the eurozone – as they have for six years due to Germany’s demand that “there is no alternative” (TINA) to austerity as the response to the Great Recession.  Austerity caused a gratuitous second Great Recession throughout the eurozone and threw nations with one-third of the eurozone’s total population into Great Depression levels of unemployment.  Austerity has now forced Italy into a third recession in six years and produced overall stagnation in the eurozone.  Germany, whose budget surplus has produced economic stagnation, has found a solution to the latest crisis caused by self-destructive austerity – greater austerity.  Better yet, as a Reuters column relates, Germany’s leaders are enraged that anyone would dare to question why it makes sense to reduce further already inadequate demand through austerity.

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NEP’s Bill Black appears on Bill Moyers Show

Bill Black appeared on Moyers & Company on October 3, 2014. The topic of discussion was a topic near and dear to Bill: Too Big to Jail?

EU Austerity as Frat House Hazing

By William K. Black

The European Union (EU) is stagnating because of austerity.  Austerity in response to the Great Recession has already, gratuitously, forced the eurozone into recession and roughly one-third of its population live in nations with Great Depression levels of unemployment.  Austerity has now thrown Italy into its third recession in six years and may well do so in France.  One might think that even the troika would respond to this track record of failure and anguish by deciding to stop smashing the eurozone’s economy with the hammer of austerity.

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The New York Times Admits that “Many Economists” Criticize EU Austerity

By William K. Black

Under the principle that one should bestow a special welcome on the tentative steps that the prodigal daughter takes to return to economic reality I write to praise Liz Alerman’s column entitled “France Produces a “No Austerity’ Budget, Defying E.U. Rules.”  The column contains a sentence that represents a breakthrough in the New York Times’ horrific (non) coverage of Eurozone austerity, its abject failure, its self-destructive nature, and its victims.

“But many economists believe that crimping spending during a downturn has impeded economic growth, which in turn has made it harder for those countries to reduce their deficits and debts.”

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The New York Times’ Thinks the EU Can “Afford” Mass Unemployment but Not “More Government Spending”

By William K. Black

Regular readers understand the three dynamics that drive economists crazy about the New York Times’ coverage of the troika’s infliction of austerity on the Eurozone.  The troika consists of the European Central Bank (ECB), the International Monetary Fund (IMF), and the European Commission (EC).

  1. NYT reporters treat austerity as a response to the eurozone’s Great Recession as obviously the only possible response – they rarely discuss alternative policies or views
  2. The NYT refuses to inform its readers that economists overwhelmingly consider this malpractice and that it has caused catastrophic and gratuitous harm
  3. All of this is particularly bizarre given the NYT’s economist, the Nobel Laureate Paul Krugman, who writes regularly in the paper to explain why austerity is a disastrous response to the Great Recession.  The NYT eurozone writers routinely ignore Krugman (and anyone else who makes the same point).

The massive, wholly avoidable harm caused by “bleeding the patient” to make him well (austerity in response to a recession) for the people of the eurozone is stark, but typically minimized or wholly ignored by the NYT reporters.  Roughly one-third of the population of the eurozone lives in nations with Great Depression levels of unemployment.

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