Tag Archives: accounting control fraud

It Would be Well if Economics Were Modest for it has Much to be Modest About

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

One of the many quips ascribed to Winston Churchill is that it was well that Clement Atlee were modest for he had much to be modest about. This article comments on a remarkable article dated September 19, 2009 by the French economist Gilles Saint-Paul that embodies why economics is the only field that purports to be a science that has gotten worse for decades, which actively makes the world worse in its supposed area of expertise, and that is proud of it. I learned of the article through the worthy blog site Unlearning Economics. That site has a special category for theoclasscial sermons, including Saint-Paul’s, that exemplify our family rule that it is impossible to compete with unintentional self-parody.

Saint-Paul’s title is “A ‘modest’ intellectual discipline.” Saint-Paul is one of the economists who was an architect of the ongoing disaster, so one could hope that writing in 2009 would have led him to conduct a thorough re-examination of his field’s catastrophic failures. He should have begun with a personal and professional mea culpa and a series of frank admissions as to what caused him and his discipline to fail yet again and cause such great harm to the world. That’s what a representative of a “modest” field that has so very much to be modest about would do.

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The WSJ Is Outraged That Someone Would “Loot a Company”

By William K. Black
Washington, DC: January 4, 2015

George Akerlof and Paul Romer’s famous 1993 article “Looting: The Economic Underworld of Bankruptcy for Profit” introduced what criminologists call “accounting control fraud” to the economics literature. The people who control the firm (typically the CEOs) use its seeming legitimacy as a “weapon” to loot shareholders, creditors, and, if the resultant losses are large enough, the U.S. Treasury. Their article discussed several examples of such fraud epidemics, including the savings and loan debacle. Criminologists, the S&L regulators, and over 1,000 successful felony prosecutions of the S&L looters confirmed Akerlof & Romer’s insights.

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Holder and Obama Never Miss an Opportunity to Miss an Opportunity v the Banksters

By William K. Black
Bloomington, MN: December 18, 2014

Holiday greetings! Today’s semi-sermon considers verses from tracts many consider sacred.

John 3:20 (KJV) For every one that doeth evil hateth the light, neither cometh to the light, lest his deeds should be reproved.

Talmud: Here I will simply summarize the Miracle of the Lights. When the temple was restored to Jewish control its sanctified olive oil for the lamps had been profaned. Only one portion, enough to last one night was still pure. That portion, however, miraculously continued to light the temple for over a week until new sanctified oil could arrive.

The common theme, of course, is the blessings that light brings in making it much easier for good to prevail over evil. In the financial world we use a related concept – transparency. In finance, we implicitly assume that transparency also involves providing light. (Anyone who has walked into a glass door on a very dark night knows that transparency without light is no great protection.) John 3:20 is also about accountability – the desire of the evil to use darkness to avoid having their evil “deeds” “reproved.” A related verse, from our semi-sacred secular texts, was doubtless influenced by these religious themes – Supreme Court Justice Louis Brandeis’ famous phrase was that “Sunlight is the best disinfectant.”

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UK Determined to Win the Race to the Bottom and Remain the Global Financial Cesspool

By William K. Black
Bloomington, MN: December 16, 2014

On June 20, 2012 the UK Commercial Secretary to the Treasury, Lord Sassoon of Ashley Park gave a speech to the British Bankers Association – the group the U.S. government (i.e., the FDIC) found to have helped organize the world’s largest price rigging cartel and fraud in the form of rigging Libor. The financial crisis occurred under the “new” neo-liberal Labour when its championing of the three “de’s” – financial deregulation, desupervision, and de facto decriminalization – combined with modern executive and professional compensation and the effective elimination of “joint and several liability” to make the City of London the most criminogenic environment in the world for financial “control frauds.” Naturally, the Tories have decided that the answer to this disaster is to double-down on Labour’s embrace of the three “de’s.” Indeed, the first words in Lord Sassoon’s prepared speech were “Thank you Philip [Hampton].”

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New York City: Aggressive “Broken Windows” Policing but Carte Blanche for Banksters

By William K. Black
Kansas City, MO: December 6, 2014

New York City exemplifies two perverse criminal justice policies that drive many criminologists to distraction. It is the home of the most destructive epidemics of elite financial frauds in history. Those fraud epidemics hyper-inflated the housing bubble and drove the financial crisis and the Great Recession. The best estimate is that the U.S. GDP loss will be $21 trillion and that 10 million Americans lost their jobs. Both numbers are far larger in Europe. The elite “C Suite” leaders of these fraud epidemics were made wealthy by those frauds through bonuses that measured in the billions of dollars annually.

The most extraordinary facts about the catastrophic fraud epidemics, however, is New York City’s reaction to the fraud epidemics. Not a single Wall Street bankster who led the fraud epidemics has been prosecuted or had their fraud proceeds “clawed back.” Not a single Wall Street bankster who led the fraud epidemics is treated as a pariah by his peers or New York City elites. New York City’s elected leaders have made occasional criticisms of the banksters, but Mayor Bloomberg was famous for his sycophancy for the Wall Street banksters that made him wealthy. In 2011, Mayor Bloomberg attacked the “Occupy Wall Street” movement for daring to protest the banksters.

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Jeffrey Sachs Channeled His Inner Bill Black – and Obama and Holder Ignored Him Too

By William K. Black
Kansas City, MO: December 4, 2014

“Yves Smith,” the nom de guerre (and plume) of the finance expert who created and runs the invaluable blog Naked Capitalism, wrote an introduction to a piece roughly 18 months ago that mentions me. The points she made in that introduction, including the reason she invoked my name, are important but the lapse of time since she wrote it teaches us another important lesson. Here is the introduction.

“One of the things that Matt Stoller has stressed that the possibility of reform is remote until breaks within the elites take place.

Jeffrey Sachs, Columbia professor and director of the Earth Institute at Columbia, is a controversial figure for his neoliberal stance on macroeconomics and his role in promoting the use of ‘shock therapy’ in emerging economies. But it is also important to recognize that criticism from a connected, respected insider has more significance than that of someone like Bill Black, who has made a career of taking on bank fraud but has never reached a top policy-making level.”

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The Wall Street Journal Still Refuses to Grasp Accounting Control Fraud via Appraisal Fraud

By William K. Black
Kansas City, MO: December 2, 2014

The Financial Crisis Inquiry Commission (FCIC) report described one of three epidemics of accounting control fraud that drove the financial crisis in these terms.

“Some real estate appraisers had also been expressing concerns for years. From 2000 to 2007, a coalition of appraisal organizations circulated and ultimately delivered to Washington officials a public petition; signed by 11,000 appraisers and including the name and address of each, it charged that lenders were pressuring appraisers to place artificially high prices on properties. According to the petition, lenders were ‘blacklisting honest appraisers’ and instead assigning business only to appraisers who would hit the desired price targets” [FCIC 2011: 18].

The FCIC Report then documents scale of this epidemic of loan origination fraud.

“One 2003 survey found that 55% of the appraisers had felt pressed to inflate the value of homes; by 2006, this had climbed to 90%. The pressure came most frequently from the mortgage brokers, but appraisers reported it from real estate agents, lenders, and in many cases borrowers themselves. Most often, refusal to raise the appraisal meant losing the client” [FCIC 2011: 91].

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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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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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NET 2 Black

INETeconomics’ Marshall Auerback interviews NEP’s Bill Black. Topic of discussion is the “f” word – fraud.