Next week: a budget stance to promote growth.
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Next week: a budget stance to promote growth.
Don’t miss William K. Black on today’s Firedoglake book salon. Professor Black will be chatting with Dylan Ratigan about his new book, Greedy Bastards: How We Can Stop Corporate Communists, Banksters, and Other Vampires from Sucking America Dry. The chat begins at 5:00 p.m. (EST). Click here to watch the chat.
In the meantime, you can read Professor Black’s review of Dylan’s book below.
Ratigan shows that theself-described “productive class” is actually a group dominated by “greedybastards” who win by cheating. As GeorgeAkerlof and Paul Romer said in their famous 1993 article (“Looting: theEconomic Underworld of Bankruptcy for Profit”), accounting fraud is a “surething.” Ratigan shows that while lootingbegins with accounting fraud it ends with tax fraud, political domination andscandal by the wealthy frauds, and crony capitalism. Indeed, Ratigan shows how far we have fallensince 1993. Fraudulent CEOs who controlsystemically dangerous institutions (SDIs) can now become wealthy by looting,cause the SDI to become insolvent, get bailed out by their political lackeys,resume looting, pay virtually no federal income tax, and do so with nearlycomplete immunity from prosecution. Heshows that rather than being “productive”, the greedy bastards are destroyingAmerica’s middle and working classes, hollowing out our economy, and destroyingwealth and employment.
Marshall Auerback discusses the Euro on the Lang and O’Leary Exchange. Watch it here.
By John Henry
“The principles governing business behavior are an essential support to voluntary exchange, the defining characteristic of free markets. Voluntary exchange, in turn, implies trust in the word of those with whom we do business.
Trust as the necessary condition for commerce was particularly evident in freewheeling nineteenth-century America, where reputation became a valued asset. Throughout much of that century, laissez-faire reigned in the United States as elsewhere, and caveat emptor was the prevailing prescription for guarding against wide-open trading practices. In such an environment, a reputation for honest dealing, which many feared was in short supply, was particularly valued. Even those inclined to be less than scrupulous in their personal dealings had to adhere to a more ethical standard in their market transactions, or they risked being driven out of business.
To be sure, the history of world business, then and now, is strewn with Fisks, Goulds, Ponzis and numerous others treading on, or over, the edge of legality. But, despite their prominence, they were a distinct minority. If the situation had been otherwise, late nineteenth- and early twentieth-century America would never have realized so high a standard of living.
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Over the past half-century, societies have chosen to embrace the protections of myriad government financial regulations and implied certifications of integrity as a supplement to, if not a substitute for, business reputation. Most observers believe that the world is better off as a consequence of these governmental protections. Accordingly, the market value of trust, so prominent in the 1800s, seemed by the 1990s to have become less necessary. But recent corporate scandals in the United States and elsewhere have clearly shown that the plethora of laws and regulations of the past century have not eliminated the less-savory side of human behavior. We should not be surprised then to see a re-emergence of the value placed by markets on trust and personal reputation in business practice. After the revelations of recent corporate malfeasance, the market punished the stock and bond prices of those corporations whose behaviors had cast doubt on the reliability of their reputations. There may be no better antidote for business and financial transgression. But in the wake of the scandals, the Congress clearly signaled that more was needed.
The Sarbanes-Oxley Act of 2002 appropriately places the explicit responsibility for certification of the soundness of accounting and disclosure procedures on the chief executive officer, who holds most of the decisionmaking power in the modern corporation. Merely certifying that generally accepted accounting principles were being followed is no longer enough. Even full adherence to those principles, given some of the imaginative accounting of recent years, has proved inadequate. I am surprised that the Sarbanes-Oxley Act, so rapidly developed and enacted, has functioned as well as it has. It will doubtless be fine-tuned as experience with the act’s details points the way.
It seems clear that, if the CEO chooses, he or she can, by example and through oversight, induce corporate colleagues and outside auditors to behave ethically. Companies run by people with high ethical standards arguably do not need detailed rules on how to act in the long-run interest of shareholders and, presumably, themselves. But, regrettably, human beings come as we are–some with enviable standards, and others who continually seek to cut corners.
I do not deny that many appear to have succeeded in a material way by cutting corners and manipulating associates, both in their professional and in their personal lives. But material success is possible in this world, and far more satisfying, when it comes without exploiting others. The true measure of a career is to be able to be content, even proud, that you succeeded through your own endeavors without leaving a trail of casualties in your wake.
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Our system works fundamentally on trust and individual fair dealing. We need only look around today’s world to realize how valuable these traits are and the consequences of their absence. While we have achieved much as a nation in this regard, more remains to be done.”
In an article I wrote in 2003 during the unfolding Enron-era frauds I calledsimilar claims by prominent Texas politicians that Enron’s failure representeda triumph of capitalism “Texas triumphs.”
I distinguished Texas triumphs from Pyrrhic victories. The origin of that phrase comes from King Pyrrhus’ (of Epirus in Greece) victory over theRomans in 279 BC at the battle of Asculum in Apulia (on the Eastern side of theItalian peninsula). The Roman legionswere elite and outnumbered Pyrrhus’ forces (which had many mercenaries). Nevertheless, he twice defeated the Romanforces, inflicting significantly greater casualties on their forces. After the battle of Asculum he responded tocongratulations by remarking that one more such victory would undo him. He was a great commander who defeated highlycompetent opponents defending their own lands.
Only theoclassical economists could call thefailure of our most elite firms that were looted by their CEOs a triumph ofcapitalism. I wrote:
Our family’s rule that it isimpossible to compete with unintentional self-parody remains intact. Adiscipline (economics) that counts massive looting by the CEOs of elite controlfrauds as its greatest triumphs desperately needs an intervention. None of these control fraud failures (andthat includes Fannie and Freddie) involves valiant efforts by economists toprevent the looting. The theoclassicalfailures to prevent control fraud did not occur because the economists stroveto prevent the looting but were defeated by impossible odds. Theoclassical economists were theanti-regulatory architects of the criminogenic environments that produce ourepidemics of control fraud. They are theelite frauds’ most valuable allies.
Bill Black is the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. He spent years working on regulatory policy and fraud prevention as Executive Director of the Institute for Fraud Prevention, Litigation Director of the Federal Home Loan Bank Board and Deputy Director of the National Commission on Financial Institution Reform, Recovery and Enforcement, among other positions.
Bill writes a column for Benzinga every Monday. His other academic articles, congressional testimony, and musings about the financial crisis can be found at his Social Science Research Network author page and at the blog New Economic Perspectives.
The New YorkTimes published a column by its leading financial experts, GretchenMorgenson and Louise Story, on November 22, 2011 which contains a spectacularcharge against the Obama administration’s financial regulatory leaders. I have waited for the rebuttal, but it is nowclear that the administration does not contest the charge.
The specific example that prompted the NYT article (“Financial Finger-PointingTurns to Regulators”) was a civil action against a former executive ofIndyMac. IndyMac was supposed to beregulated by the Office of Thrift Supervision (OTS). OTS was the worst of the federal financialregulators – which is a large statement. It was so bad that the Dodd-Frank Act killed it. I used to work for OTS. One of the things Idid to make myself unemployable during the S&L debacle was to testifybefore Congress against the head of our agency, Danny Wall, and our head ofsupervision, Darrell Dochow. Wall resignedin disgrace and Dochow was demoted and sent back to run the obscure office hehad once run in Seattle.
Next week, we’ll show that some Kansas City airmight have drifted northeast to the bastion of free market economics: theUniversity of Chicago