Tag Archives: accounting control fraud

How the Rocket Scientists Aided the Senior Fraudulent Bank Officers

By William K. Black

In my first column in this two-part series I explained how the Department of Justice’s (DOJ) non-prosecutorial effort against the banksters’ frauds that caused the financial crisis had ended with a pathetic whimper uttered by Deputy Attorney General James Cole during his ritual exit interview with Bloomberg. Cole’s explanation for DOJ’s failure to prosecute a single senior banker for leading the three fraud epidemics that drove the financial crisis was that DOJ was “dealing with financial rocket science.” My first column made the point, which escaped DOJ and Bloomberg that if this were true it would presumably have been modestly important for DOJ to do something about the ability of “rocket scientists” to grow wealthy by leading the frauds that cost the U.S. $21 trillion in lost GDP and 10 million jobs. In my second column I explained why no rocket science was required to prosecute the senior bank officers that led the three most destructive epidemics of financial fraud. In light of a reader’s comment I promised to write this third piece on “rocket science” in the financial context.

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Liar’s Loans Ain’t “Rocket Science”

By William K. Black

In my first column in this two-part series I explained how the Department of Justice’s (DOJ) non-prosecutorial effort against the banksters’ frauds that caused the financial crisis had ended with a pathetic whimper uttered by Deputy Attorney General James Cole during his ritual exit interview with Bloomberg. Cole’s explanation for DOJ’s failure to prosecute a single senior banker for leading the three fraud epidemics that drove the financial crisis was that DOJ was “dealing with financial rocket science.” My first column made the point, which escaped DOJ and Bloomberg that if this were true it would presumably have been modestly important for DOJ to do something about the ability of “rocket scientists” to grow wealthy by leading the frauds that cost the U.S. $21 trillion in lost GDP and 10 million jobs. I also promised this column explaining why it was not true. In light of a reader’s comment I’ll add a third piece on “rocket science” in the financial context.

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Hold Your Wallet When the Swedish Central Bank Prize Rewards “Clever”

By William K. Black

The Swedish Central Bank’s (the “Bank”) prize in economics has gone to Jean Tirole.  It is always good to test such an award by looking at the writings of the recipient in an area in which the reader has particular expertise.  In my case, that would include the Savings and Loan debacle, financial regulation, and control fraud.  Tirole’s book: The Theory of Corporate Finance was published on January 1, 2006 during the heart of the three raging epidemics of accounting control fraud that were hyper-inflating the world’s largest financial bubble and about to create the financial crisis and the Great Recession.

As I have long emphasized and will be explaining at greater length in a book about the failures of economics and economists as exemplified by far too many of the recipients of the Bank’s Prize, economics is the only discipline in which the understanding of the field’s subject of study has gone backwards.  In particular, the praxis recommended by economists has proven highly criminogenic and is the primary explanation for why we suffer recurrent, intensifying crises, the rise of crony capitalism that cripples democracy and ethics, and spiraling inequality and low growth in the regions that suffer the greatest predation by our parasitical financial centers.  Tirole wrote at the ideal time to judge his understanding of corporate finance as it was actively causing these catastrophes.

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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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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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The WSJ Rages that Bank of America Was Sued for “Only” Committing a $9 Billion Fraud

By William K. Black

The Wall Street Journal is deeply upset that almost none of the banks and none of the banksters that became wealthy by leading the three epidemics of mortgage fraud that drove the financial crisis are being subjected even to prosecution-lite cases.  The WSJ wants us all to know that “almost none” and “prosecution-lite” are both excessive.  The WSJ rant demands that we bestow the thanks of a grateful nation to the banks and banksters that committed the frauds.  This financial crisis is the first Virgin Crisis – conceived without sin in the C-Suites.  This second column in my series on the WSJ rant responds to the WSJ’s claim that mortgage frauds that are “only” $9 billion in magnitude do not warrant even civil sanctions.

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The Wall Street Journal’s Choleric Rant about Cholera and Bank Fraud Epidemics

By William K. Black

I wrote this column in Bogota, Colombia where I was presenting five talks at the Universidad Central’s economics conference, so I was struck by the title of a choleric rant by the Wall Street Journal entitled “Banking in a Time of Cholera.”

The WSJ’s title is a play on words on the title of a novel, “Love in the Time of Cholera,” by Colombia’s greatest writer, Gabriel García Márquez (“Gabo”).  The novel is set in a city that appears to be based on Cartagena, the city famous for being looted repeatedly by pirates.  In this first of several columns responding to the WSJ rant I discuss its failed literary allusions and tie these failures to some of the WSJ’s analytical and factual errors that render their rant risible.

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Europe’s Lousy Bank Loans Expose the “Recovery” Myth

By William K. Black

One of the great lies of the financial industry is that it is the engine of Main Street’s growth.  Giving the finance industry an enormous share of total business profits was supposed to super charge Main Street’s growth.  It has never delivered on this promise.  The truth is the opposite.  The efficiency condition for a middleman like finance is that its size and profits should be minimized.  Finance’s fraud epidemics blew up the world economy and devastated Main Street.  Finance is a parasite that saps Main Street.  The latest example of this comes in a New York Times article about European bank’s bad loans.

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UPDATE: Bank of America Fined Another $16 Billion for Fraud

By L. Randall Wray

Bank of America just agreed to pay another $16 Billion fine for one of its frauds—selling trashy securities to its investors. Another day, another fraud exposed. No surprises there. This is so routine it barely deserves a headline.

According to Bloomberg, that raises the total it has agreed to pay for its mortgage lending frauds to $70 billion. Most of this is related to its purchase of Countrywide, where Mairone oversaw much of the fraud. See here.

BofA rewarded Mairone for creating Countrywide’s “Hustle” fraud by hiring her. So far that woman’s criminal expertise contributed toward mounting costs to BofA of $70 billion. Quite an accomplishment!

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