An Open Letter to Dr. Walter E. Massey Chairman, Bank of America President, emeritus, Morehouse College

Associate Professor of Economics and Law
University of Missouri – Kansas City

Re: Hans-Olaf Henkel, Bank of America’s Senior Advisor in Germany

Dear Dr. Massey,

I am writing in my individual capacity. It came to my attention yesterday that Bank of America’s “senior advisor” in Germany is Hans-Olaf Henkel. I believe that Bank of America should consider the context in which I became aware of this fact very disturbing. Mr. Henkel has just written the following:

Mr. Galbraith should familiarize himself Jimmy Carter’s “Housing and Community Development Act” where in Section VIII Banks were prohibited the practice of “red lining” which until then enabled them to distinguish “better living quarters” and “slums.”

The full context of Dr. Galbraith’s interview, and Mr. Henkel’s written reply to Dr. Galbraith can be found at the following links to my response to Mr. Henkel (see here, here and here).

Bank of America’s “senior advisor” in Germany – the leader of a team of advisors that help set the bank’s policies – is bemoaning the end of redlining and claiming that American bank loans to black “slums” caused the global financial crisis. I know that you understand exactly what redlining means – the deliberate exclusion of minority borrowers from credit on the basis of ethnicity. I also know that you understand that Mr. Henkel’s effort to blame the global crisis on black Americans has no basis in fact and is the product of the vilest bigotry.

Americans, of course, are not unique in being susceptible to the bigotry. Consider the policy advice that Mr. Henkel gives in the German context.

Dr Thilo Sarrazin, a member of the executive board and head of the bank’s risk control operations, told Europe’s culture magazine Lettre International that Turks with low IQs and poor child-rearing practices were “conquering Germany” by breeding two or three times as fast.

“A large number of Arabs and Turks in this city, whose number has grown through bad policies, have no productive function other than as fruit and vegetable vendors,” he said.

“Forty per cent of all births occur in the underclasses. Our educated population is becoming stupider from generation to generation. What’s more, they cultivate an aggressive and atavistic mentality. It’s a scandal that Turkish boys won’t listen to female teachers because that is what their culture tells them”, he said.

“I’d rather have East European Jews with an IQ that is 15pc higher than the German population,” he said

Yes, he actually said that things had gotten so bad that he’d prefer to have Jews, rather than Arabs and Turks, move to Germany. (Because, as we all know, Jews are 15 percent smarter.) How did Bank of America’s senior advisor respond to this delusional hate speech (made public in early October 2009)? He began an immediate media crusade in support of Mr. Sarrazin’s bigotry. He gave video interviews and sent (and published widely on the web) an open letter to “Lieber Herr Sarrazin” to express his unqualified support for Mr. Sarrazin’s statements (without any “if” or “but” as he put it).

Bank of America chose Mr. Henkel as its senior advisor in 2006. He has been assembling the bank’s team of policy advisors since that date. Given the fact-free, virulent bigotry that lies at the core of Mr. Henkel’s view of minorities it is certain that his bigotry determines his policy recommendations. Moreover, the individuals he has recruited to serve as the bank’s policy advisors under his overall direction, at a minimum, are willing to stomach his bigotry without protest.

Bank of America is enormous. You may have never heard of Mr. Henkel. That is not true of your senior officers in Germany. There, he is famous. Every one of the bank’s senior officials in Germany (and probably throughout Europe) knows his reputation. Both the Sarrazin screed and Henkel’s embrace of that bigotry were major news events in Germany. If the bank’s senior German and European officials have not brought this disgrace to the attention of the bank’s board of directors, then the rot extends to the pinncacle of the bank’s European operations. If they have brought Mr. Henkel’s hate speech to your board’s attention, why was he not immediately discharged for cause?

Our family, my spouse is June Carbone, lived in Northern California for 20 years before moving to Kansas City. Like you, we are steeped in the proud history of the origins of the Bank of America. Mr. Giannini’s Bank of Italy was proud to lend to “fruit and vegetable owners.” Many of these small entrepreneurs were recent immigrants from Italy. Like the “fruit and vegetable” entrepreneurs that Mr. Sarrazin and Mr. Henkel despise, they often faced deep suspicion because of their accents, their national origins, and their religion (Catholicism). This was the era of “scientific racism” and educated people “knew” that immigrants from Southern Europe were inferior. As you know well, the resurgance of the Klan during Mr. Giannini’s era was largely anti-immigrant and anti-Catholic.

Mr. Henkel is not simply a bigot. His substantive 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.

But Mr. Henkel’s saddest trait is hypocrisy. He is a serial hypocrite because his bigotry trumps the things he purports to stand for. His speaker bureau bio (self) describes him as “courageous.” (He applauds Mr. Sarrazin’s screed as exemplifying courage.) In the policy context, courage is speaking truth to power when power does not want to hear those truths. Mr. Henkel flatters power through 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 produced the most monstrous crimes against humanity in world history.

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

I offer 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 him and his team and seek outside guidance from experts that (1) foresaw the crisis, and (2) are not bigots. Bank of America should review why its senior managers in Europe and the United States took no action while its “senior advisor” spread his hate for months. Bank of America should announce a new $10 million scholarship program for college and graduate students of limited financial means. I suggest naming the program the Giannini awards.

Very truly yours,

William K. Black

9 responses to “An Open Letter to Dr. Walter E. Massey Chairman, Bank of America President, emeritus, Morehouse College

  1. Blaming the subprime crisis on those living in poorer parts of US cities is indeed prety nasty if one knows the 'marketing' approaches chosen by subprime lenders. However, the not so poor Alt-A and even 'prime' (but non-conforming) borrowers should be ashamed of themselves. They did play a clear role, as did the Fed, the mortgage brokers and the investment banks and the idiots (I hope they didn't see the disaster coming!) at the monolines and AIG.But: mr Black should spend some time in the poorer parts of Berlin and Brussel and other parts of Northern Europe before expressing a view on the effects of migration in Germany (or Belgium, Holland, Norway etc) as compared to the much more favourable experiences in the United States. The welfare state has a clear effect on the migration experience and religious & cultural differences also seem to have an influence. Just compare the experiences of Hindu and Muslim 'Asians' in Britain. One group (may we still refer to groups?) showing up on the positive side of most averages / distributions of social statistics, the other clearly not.

  2. I believe that the ethnic issues in Europe cannot be solved by identifying the bigots. How would you solve the problem of people who show no interest in "melting in?" Especially, if you ran a small, cramped country that is the norm in Europe.I can't say that the "bigots" are right, but can you really say that they are wrong?

  3. Bill:Thank you for bringing attention to this serious matter.Wasim Zaman

  4. Execelent Bill, it's a shame that history is so repetitive when we don't learn titantic lessons and take the appropriate actions. steve, sorry we missed you at x-mass!

  5. A response from Bill Black:The comments fall into four general categories. One group is supportive. The second is openly and solely racist (we don't print racist screeds). The third questions whether poor U.S. borrowers caused the crisis. The fourth argues that if I knew Arabs and Turks and Europe better I would not criticize Mr. Henkel. I thank the fourth group for their support. There is nothing to be gained from trying to engage the second group. The third argues that (or asks whether) poor U.S. borrowers caused the Great Recession. Accounting "control fraud" was the primary driver of the Great Recession (as it was the primary driver of the second phase of the S&L debacle and the Enron/Worldcom wave of frauds — and many other crises). "Control fraud" is a criminology concept that refers to situations in which the person(s) that controls a seemingly legitimate entity use it as a "weapon." Accounting is the weapon of choice for financial control frauds. Accounting control frauds optimize through a four-step recipe. 1) Grow extremely rapidly, 2) make bad loans (the first two ingredients are related), 3) extreme leverage (extreme debt-to-equity ratio), and 4) grossly inadequate loss reserves. Lenders that follow these four steps are mathematically guaranteed to report extraordinary profits — maximizing the executive bonuses. The first two ingredients are related because a lender in a mature, competitive industry (and U.S. residential lending epitomized such an industry) cannot simply decide to grow rapidly by making good quality loans. The only way to grow rapidly is to buy market share by charging a materially lower interest rate. But competitors would match the lower rate and the result would be a materially lower yield with minimal growth. The way to grow rapidly and simultaneously charge a higher yield is to loan to people that can not afford to repay the loans. In order to make enormous numbers of bad loans a lender must gut its underwriting and internal and external controls. Borrowers must be encouraged to inflate their incomes and net worth, appraisers and rating agencies must be encouraged to inflate valuations and ratings, and when all else fails the lender personnel staged "arts & crafts" weekends in which they doctored loan applications without the borrowers' knowledge. When a lender guts its underwriting and controls it also maximizes "adverse selection" and permits additional frauds that it may not have known about. See next post for rest of reply …. – William K. Black

  6. Rest of reply from Bill Black ….In these circumstances, both principals to the transaction (the borrower and the lender institution) are likely to suffer losses. The unfaithful agents (the officers, appraisers, rating agencies, auditors, and attorneys) gain. Lenders engaged in accounting control fraud make capital markets intensely inefficient and reduce wealth. If they cluster, the optimization dynamic produces and hyper-inflates financial bubbles — producing financial crises. The FBI states that 80% of mortgage fraud losses occur when lender personnel are involved in the fraud. The other 20% would have been almost entirely impossible but for the control frauds gutting their underwriting standards and controls. (Historically, prudent underwriting and controls hold mortgage fraud losses under one-half of one percent.) So, loans to poorer people are a large part of the problem, but working class Americans are the greatest victims — not beneficiaries — of the Great Recession. Working class people never had the power to produce the crisis. The moving parties, the group that held the power and caused the Great Recession, were the fraudulent lenders and their agents and the entities that purchased their mortgages and financial derivatives where the "underlying" was their mortgages. It is essential to understand that those entities were also engaged in accounting and securities fraud for those mortgages were massively overvalued (and loss reserves were trivial). An "epidemic" of mortgage fraud (FBI: September 2004) must produce an epidemic of accounting and securities fraud. The fourth group of commenters is sure that if I only knew Europe — and Turks and Arabs (i.e., Muslims) — better I would not criticize Mr. Henkel's endorsement of Dr. Sarrazin's comments about Turks, Arabs (and Jews). I grew up in Dearborn, Michigan, a suburb of Detroit. Dearborn, when I was growing up, was known for being the home of Ford Motors, lily-white, being governed by one of the rare openly segregationist mayors in the North (in power for decades), and for having a very large population of Arab-Americans. I know what it is to live, go to school with, and work with people of Arab descent. I know what it is to live, go to school with, and work with bigots (and Arab-Americans were in no way immune from bigotry). I have traveled in Germany, France, Austria, the Netherlands, and Switzerland and seen poorer areas in each nation, often populated largely by ethnic minorities. I understand ethnic hostility. My uncles fought in the war and my father was on a troop ship when WW II ended. I know how murderous prejudice and hate are. I know that it can make us depraved. The more I learn, the more I know how vital it is to speak out against the Henkel's and Sarrazin's of the world and their odes to bigotry and hate. For those of you that share their views, but come from the working class, I ask you to reflect on their contempt for small merchants that sell fruits and vegetables. The Henkels and Sarrazins of the world see white working class Europeans as a useful tool, not as equals deserving of respect. -William K. Black

  7. Mr Black, the ethnic hostility you so much fear is much more prevalent among many immigrants in Europe than in the host society that spent many tens of billions over the last decades to make a home for the immigrants. Most Northern European countries have done all they can to make people feel at home and successful. The statistics show that this has been a failure that has resulted in the rise of a discontented underclass which increasingly sees the rest of society as the enemy. This makes many in the host society a bit desperate and cynical, however it is way to early to see a rerun of the 1920´s and 30´s. The current generation have been told too often about how that ends. Interestingly in current classes the Holocaust proves to be a difficult subject because many children of immigrant descent have been told it is a lie…. Viewing satellite televesion may have fostered it.

  8. There is a difference between redlining or the prohibition of it and loan sharking. My experience with black people is that many of them don't handle money well,but neither do white people. This can be traced to the fact that maybe their parents had little or no experience with credit. I highly doubt that people were pigeonholed by race in any matter that had to do with this crisis, but instead Wall Street and others purposely securitized mortgages that should have never been made in the ghetto or in the silk stocking district. If there was an order to overlook prudent lending practices to make loans to people, then I can buy some of this. The point being that most of these losses aren't in the poor districts, but the best I can tell are in new construction areas in California and other areas. Once Wall Street made the acquisition of real estate by non-creditworthy people a business, we had a problem. When Greenspan was giving away money and repos could achieve a 5% spread between subprime and t-bill or greater, the game was on. No money down for wall Street, 8% on all they could lend. Plus, they could lay off the trash on AIG and a few fool pension funds.