Tag Archives: accounting control fraud

How the “Super Crunchers” Became the “Super Torturers” of Finance Data

By William K. Black

Some books have spectacularly bad timing, like Moral Markets: The Critical Role of Values in the Economy, which was published in 2008 as a celebration of market and their nourishment of high ethical values.  The book has many interesting chapters and I recommend it, but even lifelong market apologists now refer to the “corrupt culture of banking.”  Ian Ayres, a brilliant professor of law and economics at Yale, published his book Super Crunchers: Why Thinking-By-Numbers is the New Way To Be Smart to critical acclaim on August 28, 2007.  Ayres’ book is an ode to how much better decision-making becomes when it is made empirically on the basis of very large data rather than through human judgment.  There is a great deal of support in the literature for that thesis, and the result is one of the reasons why behavioral economics has become increasingly dominant.  The general idea is that humans bring significant, unexamined biases to our decisions and that systems that rigorously examine the data are superior because they avoid these biases.  That general idea continues to have considerable support and I have no personal problem with the general idea.

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Capitalism’s Defender Unknowingly Indicts the Banksters

By William K. Black
Quito: April 13, 2015

Johan Norberg, of Cato, wrote a book in 2009 entitled Financial Fiasco.  Norberg is an Austrian School economist and the author of In Defense of Global Capitalism (2001).  As his 2009 book demonstrates, however, the quintessential global capitalists were preparing to blow up the global capitalist system in an orgy of “accounting control fraud” at the time he wrote his “Defense.”

He agrees that Fannie and Freddie were used by their controlling officers as accounting control frauds in order to enrich themselves through lush executive compensation.  He aptly explains President Bush’s hypocrisy about Fannie and Freddie.

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William Black Tells the Ugly Truth!

Crossposted from www.richardmbowen.com

William K. Black, author of The Best Way to Rob a Bank Is to Own One: How Corporate Executives and Politicians Looted the S&L Industry, is a lawyer, academic, and a former bank regulator. He was formerly the litigation director of the Federal Home Loan Bank Board, deputy director of the Federal Savings and Loan Insurance Corporation (FSLIC), senior vice president and general counsel of the Federal Home Loan Bank of San Francisco, and senior deputy chief counsel of the Office of Thrift Supervision. Black was also deputy director of the National Commission on Financial Institution Reform, Recovery and Enforcement.

Black was a central figure in exposing Congressional corruption during the Savings and Loan Crisis. He took the notes during the Keating Five meeting that were later published in the press, and brought the event to national attention and a congressional investigation. Looks as if he had a hit put out on him for his pains!

According to Bill Moyers, “The former Director of the Institute for Fraud Prevention now teaches Economics and Law at the University of Missouri, Kansas City. During the savings and loan crisis, it was Black who accused then-house speaker Jim Wright and five US Senators, including John Glenn and John McCain, of doing favors for the S&L’s in exchange for contributions and other perks. The senators got off with a slap on the wrist, but so enraged was one of those bankers, Charles Keating — after whom the senate’s so-called “Keating Five” were named — he sent a memo that read, in part, ‘get Black — kill him dead.’ Metaphorically, of course. Of course.” Continue reading

HSBC Violates its Sweetheart Deal and Lynch Praises It

By William K. Black
Quito: April Fools’ Day 2015

HSBC got a sweetheart deal from the Obama administration.  It laundered vast amounts of money for Mexico’s murderous Sinaloa cartel, helped bust sanctions for terrorists and mass murderers, and did not cooperate with the investigation.  The U.S. Attorney in charge of the case, Loretta Lynch, refused to prosecute any of the HSBC bankers or even sue them individually.  Instead, there was a pathetic non-prosecution agreement limited to HSBC.  Lynch is accused of not contacting either of the primary whistleblowers in the case.  The failure to contact one of the whistleblowers has already blown up in Lynch’s face as it became public a few months ago that the governments of the U.S. and Europe were provided many years ago with data on HSBC’s Swiss affiliate that show it was helping terrorists, genocidal leaders, the most violent drug gangs, and tens of thousands of wealthy people evade taxes.  Lynch failed to bring that case or use any of the invaluable data provided by the whistleblower who copied the files from the Swiss bank.

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We Send Teachers to Prison for Rigging the Numbers, Why Not Bankers?

By William K. Black
Quito: April Fools’ Day 2015

The New York Times ran the story on April Fools’ Day of a jury convicting educators of gaming the test numbers and lying about their actions to investigators.

“ATLANTA — In a dramatic conclusion to what has been described as the largest cheating scandal in the nation’s history, a jury here on Wednesday convicted 11 educators for their roles in a standardized test cheating scandal that tarnished a major school district’s reputation and raised broader questions about the role of high-stakes testing in American schools.

On their eighth day of deliberations, the jurors convicted 11 of the 12 defendants of racketeering, a felony that carries up to 20 years in prison. Many of the defendants — a mixture of Atlanta public school teachers, testing coordinators and administrators — were also convicted of other charges, such as making false statements, that could add years to their sentences.”

This was complicated trial that took six months to present and required eight days of jury deliberations.  It was a major commitment of investigative and prosecutorial resources.  But it was not investigated and prosecuted by the FBI and AUSAs, but by state and local officials.  In addition to the trial success, the prosecutors secured 21 guilty pleas.

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DealBook’s Willful Blindness Exemplified in the Whistleblowing Article’s First Sentence

By William K. Black
Quito: April Fools’ Day 2015

The odious New York Times “brand” (DealBook) managed in its lead sentence to show that how complete its pro-CEO banker bias is and how that bias prevents it from getting even the most basic aspects of our recurrent crises correct.  The April Fools’ Day article is entitled “S.E.C. Fires Warning Shot About Confidentiality Agreements.”

“A sound that delights regulators and strikes fear in corporations — employees’ blowing the whistle on wrongdoing — is poised to become louder.”

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Why are Top Tier Audit Failures so Common?

By William K. Black
Quito: March 10, 2015

The Wall Street Journal recently provided one of those stories that are invaluable and frustrating.  In fairness, it was a brief blog entry entitled “Almost Half of Global Audits Have Problems” and was based on the release of a study by the International Forum of Independent Audit Regulators.  The blog also noted that the rate of deficient audits was nearly as high for top tier firms’ audits conducted in the U.S.

“The study follows one released late last year by the U.S. audit regulator, the Public Company Accounting Oversight Board, which found nearly 40% of studied 2013 audits performed by the four largest U.S. firms weren’t up to snuff.”

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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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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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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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