Tag Archives: criminogenic environment

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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Hensarling: Regulations (and Condoms) Don’t Work if You Don’t Use Them

By William K. Black
Bloomington, MN: February 8, 2015

I am writing a series of columns about the Republican fantasy team of apologists for the elite banksters. Jeb Hensarling (R, TX), chair of the House banking committee that is taking the lead in trying to further deregulate banking and Peter Wallison, one of the chief architects of the most recent banking crisis, are teaming up to flog Wallison’s book. The book attempts to convince its readers that Wallison’s leadership of the effort to push the three “de’s” – deregulation, desupervision, and de facto decriminalization – played no role in creating the criminogenic environment that produced the three most destructive epidemics of financial fraud in history. Hensarling is hosting Wallison’s book unveiling.

They are the perfect fantasy team because they inhabit a fantasy world of their own construction that rests on a foundation of non-facts with appalling logical leaps. This first column begins with a brief introduction to how crazy Hensarling is – and recall that he is the Republican Party’s leader on financial issues. George Akerlof and Paul Romer, in their classic 1993 article “Looting: The Economic Underworld of Bankruptcy for Profit,” explained that the 1982 federal deregulation law was “bound to produce looting.”

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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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Floyd Norris’ Apologia for Citi’s Frauds

By William K. Black

I have just written a column about the New York Times’ financial journalist, Floyd Norris’ August 20, 2014 column decrying attacks on those who detect and seek to sanction elite frauds.  Norris’ focus was on the Chinese government attacks on whistleblowers who “detect” elite frauds.  Norris bemoaned that those who detect elite fraud suffer far more than those that commit it.

My column pointed out that the practice of elite frauds, in league with their protectors in government and the media, attack those that detect and seek to sanction elite frauds in every country.  Indeed, I showed that Norris had aided and abetted the SEC’s leadership’s smears of Gary Aguirre, the SEC whistleblower who detected evidence of what he (and his superiors) considered likely fraud by elites.  His SEC superiors, however, blocked the investigation when they discovered it would lead to John Mack, the soon-to-be CEO of Morgan Stanley, one of the world’s largest investment banks.

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John Cochrane’s Witch Hunt for Witch Hunters

By William K. Black

John Cochrane is an economist at the University of Chicago.  The Wall Street Journal has just featured his op ed piece entitled “The Failure of Macroeconomics.”

I’ll focus on his foray into criminology as a component of economic growth. Cochrane’s column ignores the paramount role that the three epidemics of “accounting control fraud” played in hyper-inflating the bubble and causing the financial crisis – which cost over 10 million American jobs and a projected $21 trillion loss of production.  Instead, he claims that the economic recovery is weak because “Who wants to hire, lend or invest when the next stroke of the presidential pen or Justice Department witch hunt can undo all the hard work?”

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Survey of Bankers Unintentionally Documents their Depravity

By William K. Black

Makovsky is a PR group that specializes in representing banks.  Because of that dual specialization they should be the most skilled shills for fraudulent bankers that money can buy.  This fact makes their annual “reputation” survey delectable.  Each year, the survey unintentionally documents how depraved senior bankers are as a group.  They come to praise Caesar, but end up burying him in a garbage dump.

Here are key findings of their 2014 survey:

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Implicitly Assuming that the CEO is Not a Crook Misses the Problem

By William K. Black

Gretchen Morgenson has brought a revealing study to the attention of the public in her article entitled “The CEO is My Friend, So Back Off.”  Here’s the bad news – the situation is vastly worse than the authors of the study conclude and the policy advice that experts offered Morgenson in response to the findings would fail where they were most needed.

Morgenson begins her article by describing a recent speech by the head of the SEC to an audience containing many board directors.

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The Criminology of the “Sure Thing” Portrayed as “Risk”

By William K. Black

John Coates, a former derivatives trader at Goldman Sachs is now a researcher. He wrote a column in the New York Times entitled “The Biology of Risk” that I hope will be widely read.

In this column I explain why his most important conclusions cannot follow logically from his own description of his research finding. While he relies on blood tests, his account of trading when it goes horribly wrong is curiously bloodless and disingenuous. As a Goldman and Deutsche Bank refugee he knows better, but he presents a sanitized version of the crisis portraying the controlling officers and traders at the largest banks as helpless victims of raging hormones rather than fraud perpetrators and facilitators.

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Wall Street Crime and Misdeeds

NEP’s Bill Black appeared at the Unstoppable Right/Left Convergence event in Washington D.C. on May 27, 2014. He talked about Wall Street Crime and Misdeeds.

Madness Posing as Hyper-Rationality: OMB’s Assault on Effective Regulation

By William K. Black

In a rational world the Office of Management and Budget (OMB), under Presidents Bush and Obama, would have responded to the financial crisis by demanding an emergency effort as a top national priority to develop superb regulatory capacity in the financial sphere and in many other fields. Regular readers will recall the questions I emphasize we must answer – why do we suffer recurrent, intensifying financial crises? That may sound like one question, but it asks multiple questions. The two most critical are:

  • What is causing our financial crises?
  • Why are we failing to learn the correct lessons from the crises and instead making finance ever more criminogenic?

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