Tag Archives: bank fraud

James M. Cirona: In Memoriam

By William K. Black
(Cross posted and Benzinga.com) 

The death of a successful banker and regulator

James M. Cirona died January 4, 2014.  I doubt that many readers know of Jim’s work even if they follow finance.  That is a shame for Jim was one of the most important reasons the savings and loan debacle did not cause a financial crisis and a Great Recession.  The reason Jim was so effective was that he understood that the factor driving the debacle was a surging epidemic of accounting control fraud and he had the leadership abilities and the courage to expand and focus the resources of the Federal Home Loan Bank of San Francisco (FHLBSF) to stop that epidemic.

Continue reading

Kudos for William Black’s Performance on CNBC

Columbia Journalism Review (CJR) has a post giving kudos to William Black for his performance on CNBC’s Closing Bell. The episode’s topic was whether or not Goldman Sachs should or could be prosecuted on fraud charges for their part in the financial crisis.

 

Krugman Now Sees the Perversity of Economics’ “Culture of Fraud”

By William K. Black

Paul Krugman has written an article entitled “Culture of Fraud” about the Romney economics team.

Continue reading

W. Black’s 8/10 Appearance on CNBC’s Closing Bell

By William K. Black

My August 10th appearance on CNBC’s Closing Bell opposite Bethany McLean. The debate topic was the failure to prosecute Goldman Sachs for any role in the financial crisis.

 

 

L. R. Wray’s Appearance on “Beneath the Surface” with Suzi Weissman

By L. Randall Wray

Podcast of my August 3rd appearance on Suzi Weismann’s Beneath the Surface on KPFK. Further discussion of “Why We’re Screwed”.

Continue reading

Prof. Bill Black and #OWS: “This is Not a Red State / Blue State Issue”

The Divine Right of Bank Profits: A Reading from the Book of B of A

By William K. Black

Bank of America’s (B of A’s) customers are furious at B of A’s $5 monthlyfee on debit cards.  The normal business’mantra is: “the customer is always right.” B of A, however, is a Systemically Dangerous Institution (SDI), so it ison a heavenly plane transcending the normal rules of business, markets, ormorality.  For B of A, the customer isalways slight(ed).  “I have aninherent duty as a CEO of a publicly owned company to get a return for myshareholders,” Brian Moynihan said.


BofA chief: We have a ‘right to make aprofit’

Moynihan’s statement demonstrates two of the verities of the ongoingfinancial crisis.  First, the CEOs of ourSDIs are terrible bankers, but they are superb at standup.  Second, much of the business press is sobrain dead or sycophantic that it now plays the role of the Washington Generalsas the hapless faux opponents of theHarlem Globetrotters (the SDIs’ CEOs). None of the reporters asked Moynihan the obvious questions:

·     Is that “return for my shareholders” supposed tobe positive?
·     Given that you and your predecessor (Ken Lewis)combined to cause your shareholders a 90% loss on their investments – nearlyone-half trillion dollars, when can we expect your resignation and return ofyour compensation in accordance with your “inherent duty” to thoseshareholders?

I found myself davening in awe atMoynihan’s chutzpah.  Only a handful of CEOs in history haveravaged “my” shareholders worse than the Lewis/Moynihan tandem.  How he had the nerve to sing a hymn ofself-praise to his devotion to those shareholders – and how the business presslet him get away with his sanctimonious chorus – is beyond my Midwesternsensibilities.

Bankof America once stood for the “little fellows”

Today, “Bank of America” is only a name appropriated by anacquirer for its marketing value.  In1904, Mr. Giannini founded the Bank of Italy in San Francisco, California.  The Bank of Italy was a radical departurefrom traditional commercial banking.  Itspecialized in making loans to the Italian-American entrepreneurs that ran manysmall businesses in California and in serving working class customers, many ofthe recent immigrants. Giannini eventually changed its name to Bank of America.
The real B of A was acquired in 1998 by NationsBank, aCharlotte, North Carolina bank founded by Southern elites to cater to Southernelites.  NationsBank changed its name toBank of America because of marketing considerations, but its managers – basedin Charlotte – control B of A.  The B ofA that Giannini proudly boasted was created to serve “the little fellows” wastransformed by the Charlotte-based CEOs into a typical SDI. 

 Lewis and Moynihan’s “One-Two” Knockout Punchagainst B of A’s Shareholders

Moynihan is a lawyer. His annual base salary is around $2 million.  He is CEO because his predecessor exercisedhis “inherent duty … to get a return for my shareholders” by producing aspectacularly negative return.  Moynihanwas named B of A’s CEO on December 16, 2009, replacing Ken Lewis, whose 2007compensation was roughly $20 million. Lewis was the man of massive ego and minimal talent and ethics whodecided that what would ensure B of A’s winning the race to the moral bottomamong the SDIs was acquiring the most notorious lender in the world –Countrywide – in 2008 for $4.1 billion. Banking has such an exceptional sense of irony that he was named “Bankerof the Year” in 2008.  If he had admittedto being a pedophile, would they have named him Banker of the Decade?     

B of A’s latest closing share price was $5.90 (10/7/11) v.the closing price of $15.10 on December 16, 2008 when Moynihan was namedCEO.  Endemic criminal conduct by B of Ain the mortgage foreclosure process, combined with the massive accounting fraudinherent in Countrywide’s operations combined to cause a loss of slightly over60% to the B of A shareholders. Moynihan’s claim that B of A’s losses were caused by the Dodd-Frank Actare false and pathetic.  If a juniorteller refused to accept responsibility for her $50 cash error and offered sucha lame excuse blaming others Moynihan would fire her on the spot. 

On September 4, 2004, the FBI testified in open session before Congressabout an “epidemic” of mortgage fraud and predicted that it would cause afinancial “crisis” if it were not stopped. Countrywide because the epicenter of this epidemic, which was allowed torage and cause the ongoing U.S. financial crisis and the Great Recession.  On the first trading day (September 6, 2004)after the FBI’s testimony gave B of A’s managers (particularly Lewis andMoynihan) ample notice of the risk of endemic mortgage fraud, the closing pricefor B of A shares was $43.61.  From thatdate, B of A stock lost slightly over 85% of its value because of Lewis andMoynihan’s leadership. On May 24, 2006, the Mortgage Bankers Association (MBA)got around to sending to each of its members the 8th Periodic Report(dated April 2006) of its anti-fraud specialist contractor (MARI).  MARI reported that stated income loans were“an open invitation to fraudsters,” had a fraud incidence of “90 percent,” andthat “the stated income loan deserves the nickname used by many in theindustry, the ‘liar’s loan.’”  On the daythe MBA warned each of its members of this endemic fraud B of A’s stock priceclosed at $48.48.  The current stockprice represents nearly an 88% loss from May 24, 2006. 

These stock prices and percentage losses come from B of A’s site.  B of A, according to its most recent financial report, has 10.13 billionshares outstanding.  Using that figure,the loss to B of A’s shareholders from the three dates I have discussed (the2004 FBI warning, the 2006 MBA/MARI warning, and the date on which Moynihan wasappointed CEO) to the most recent close was, respectively, over $426 billion,$480 billion, and  $103 billion.  (See this source for shares outstanding.)


In plainer English, B of A’s CEOs have led the bank in amanner that has wiped out around 90% of the shareholders value – a loss ofnearly a half trillion dollars.  Lewisleft B of A as a wealthy man despite destroying shareholder wealth at aprodigious rate.  Moynihan is being madeever wealthier despite continuing that destruction of shareholder value. 

Worse, the destruction was avoidable.  It was ego, incompetence, and moral blindnessthat caused Lewis to acquire Countrywide and Merrill Lynch.  Both were notorious – before B of A acquiredthem – for their suicidal lending and investing.  It was Moynihan’s incompetence and moralblindness that allowed B of A to commit tens of thousands of felonies in thecourse of foreclosing through perjury on those who were often the victims ofCountrywide’s underlying fraudulent mortgages. Moynihan and Lewis are fitting leaders of the 1% (actually the top0.0001%). 

Don’tforget about Hans-Olaf Henkel – B of A’s Racist Adviser for Germany

On February 6, 2010 I sent“AnOpen Letter to Dr. Walter E. Massey Chairman,Bank of America President, emeritus, Morehouse College” regarding “Hans-OlafHenkel, Bank of America’s Senior Advisor in Germany.”  I have never received a response to thisletter, though Randy Wray and I did receive a response from a B of Arepresentative to another article we did on B of A’s foreclosure fraud.  I am not aware of any U.S. reporter followingup on the points I made in that letter. My web search indicates that Herr Henkel is still B of A’s senior Germanadviser.  Few Americans know HerrHenkel.  He is the most prominentbusiness elite in Germany and perhaps all of Europe.  His racist views, which I note below, arewell known to B of A’s senior officials throughout Europe.

Here are the two takeawayson B of A’s choice of senior advisers. He blames the U.S. economic crisis on the end of “redlining” – making itillegal to discriminate against blacks in housing finance.  Henkel’s open racism and embrace of fantasyabout the causes of the U.S. crisis instead of facts demonstrates the kind ofadvice B of A is receiving. 

Henkel also explicitlyembraced (using a German phrase meaning “without any quibble”), the followingbigoted rants Dr. Sarrazin (then a member of Germany’s central bank):    

DrThilo Sarrazin, a member of the executive board and head of the bank’s riskcontrol operations, told Europe’s culture magazine Lettre International thatTurks with low IQs and poor child-rearing practices were “conqueringGermany” by breeding two or three times as fast.

A large number of Arabs andTurks in this city, whose number has grown through bad policies, have noproductive function other than as fruit and vegetable vendors.
 Forty per cent of all birthsoccur in the underclasses. Our educated population is becoming stupider fromgeneration to generation. What’s more, they cultivate an aggressive andatavistic mentality. It’s a scandal that Turkish boys won’t listen to femaleteachers because that is what their culture tells them. 

I’drather have East European Jews with an IQ that is 15pc higher than the Germanpopulation. 

It is an obscenity that abank that was formed to loan money to small, immigrant entrepreneurs of anoften hated religion (Catholicism), particularly Italian “fruit and vegetablevendors” is now choosing as its “senior adviser” in Germany a man who embracesthe vilest hates and lies that caused so much world misery.  Of course, this is modern German racismvariant in which Turks are so bad that even Jews (G-D forbid!) are preferable.

Here is how I ended my openletter:

Mr.Henkel is not simply a bigot.  Hissubstantive policy advice – deregulation and far higher executive compensation– makes him one of the principal German architects of the crisis.  He gave Bank of America awful advice. 

ButMr. Henkel’s saddest trait is hypocrisy. He is a serial hypocrite because his bigotry trumps the things hepurports to stand for.  His speakerbureau bio (self) describes him as “courageous.”  (He applauds Mr. Sarrazin’s screed asexemplifying courage.)  In the policycontext, courage is speaking truth to power when power does not want to hearthose truths.  Mr. Henkel flatters powerthrough the gospel of Social Darwinism. Mr. Henkel claims to be the champion of the “entrepreneur” – but treats“fruit and vegetable” entrepreneurs with contempt.  Mr. Henkel denounces “smears” against the“market system” but launches, and cheers, the vilest smears that have producedthe most monstrous crimes against humanity in world history.

Bankof America must not simply announce some face saving retirement (particularlyone thanking him for his service and paying him severance).  Bank of America needs to make a clearstatement about what it stands for.  DoesMr. Giannini or Mr. Henkel represent Bank of America?

Ioffer the following recommendations for your board’s consideration.  Mr. Henkel should be terminated for cause.  Immediately. Bank of America should review all policy advice it has received from himand his team and seek outside guidance from experts that (1) foresaw thecrisis, and (2) are not bigots.  Bank ofAmerica should review why its senior managers in Europe and the United Statestook no action while its “senior advisor” spread his hate for months.  Bank of America should announce a new $10million scholarship program for college and graduate students of limited financialmeans.  I suggest naming the program theGiannini awards. 

Given B of A’s failure totake any timely action even after my open letter made clear the urgent need toget rid of Henkel, I now urge B of A to fund the Giannini awards at a level of$100 million annually.  (That’s abouthalf the aggregate compensation B of A paid Ken Lewis for destroying hundredsof billions of dollars in shareholder value and ruining the lives of millionsof defrauded home borrowers.)

I urge the protestorsoccupying Wall Street and other financial centers to demand that B of A fireits racist-in-chief adviser, help the homeowners it defrauded, and stop allforeclosure fraud.  I ask businessreporters to rediscover their canines. Get a good grip, don’t let go, and tear into the real “mobs” that areattacking the American economy – the accounting control frauds likeCountrywide. 

Bill Black is an Associate Professor of Economics and Law atthe University of Missouri-Kansas City. He is a white-collar criminologist, a former financial regulator, andthe author of The Best Way to Rob a Bankis to Own One.  He can now befollowed on Twitter:  @WilliamKBlack