Category Archives: William K. Black

Why Does Refusing to Put Fraudulent Banks into Receivership Help the Economy?

Posted on April 30, 2014 by William Black | 8 comments

Conservative economists love “creative destruction.” They can’t wait to “get their Schumpeter on” when a business fails and thousands of workers lose their jobs. There is no more “creative destruction” conceivable than when we put a bank that has become a fraudulent enterprise into receivership, remove the controlling officers leading the fraud, and sell the bank through an FDIC-assisted acquisition. Indeed, the pinnacle of creative destruction would be doing this with a systemically dangerous institution (SDI) through a process that split the supposedly “too big to fail” bank into smaller components that (1) were no longer large enough to pose a systemic risk, (2) were more efficient than the bloated SDI, (3) no longer extorted a large (implicit) government subsidy that made real competition impossible, and (4) no longer had dominant political power via crony capitalism. Unlike the situation in which an SDI collapses suddenly in the midst of causing a global crisis when its frauds cause a liquidity crisis, it is vastly easier to put fraudulent SDIs in receivership in today’s circumstances. Unlike Arthur Anderson, the receivership power allows us to keep the enterprise alive and create more competitors rather than fewer.

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Posted in William K. Black

Tagged accounting control fraud, Control Fraud, creative destruction, Deal Book, fraudulent banks

It’s Good – no – Great to be the CEO Running a Huge Criminal Bank

Posted on April 29, 2014 by Devin Smith | 2 comments

By William K. Black

Every day brings multiple new scandals. At least they used to be scandals. Now they’re simply news items strained of ethical content by business journalists who see no evil, hear no evil, and speak not about evil. The Wall Street Journal, our principal U.S. financial journal ran two such stories today. The first story deals with tax evasion, and begins with this cheery (and tellingly inaccurate) headline: “U.S. Banks to Help Authorities With Tax Evasion Probe.” Here’s an alternative headline, drawn from the facts of the article: “Senior Officers of Goldman Sachs and Morgan Stanley Aided and Abetted Tax Fraud by Wealthiest Americans, Failed to Make Required Criminal Referrals, and Demanded Immunity from Prosecution for Themselves and the Banks before Complying with the U.S. Subpoenas: U.S. Department of Justice Caves in to Banker’s Demands Continuing its Practice of Effectively Immunizing Fraud by Most Financial Elites.”

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Tagged accounting control fraud, banks, Control Fraud, criminogenic environment

The New Book on Regulation I Just Decided to Write: Blame it on Monaco

Posted on April 28, 2014 by William Black | 7 comments

By William K. Black

This is the third article in a series of columns devoted to financial regulation prompted by the comments of a Swiss academic at the XII^th Annual CIFA Forum in Monaco. (See first here and second here.)

Having spent 20 years as a non-academic professional, I still find it odd the directions in which a single speaker or writer can start an academic on a convoluted path of research that spans multiple disciplines and eras and produces a series of “light bulb” analytical moments. And that prompts a digression into a symptom of the problem illuminated by that series of moments that has led me to decide to write a book on regulation.

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Tagged accounting control fraud, Control Fraud, david brooks, financial regulation, Hans Geiger

Why Did George Kaufman, the Father of “Prompt Corrective Action” (PCA), Hate Ed Gray so Much that He Opposed Gray’s Embrace of PCA?

Posted on April 28, 2014 by William Black | Comments Off

By William K. Black

This is the second installment of a series arising from my recent participation in CIFA’s XII^th Annual International Forum in Monaco. The series was prompted by Dr. Hans Geiger’s rage at financial regulation in Europe – not at its pathetic weakness that produced the criminogenic environments through much of the Eurozone, but at the proposal that Swiss banks be required to make criminal referrals when they found evidence of likely criminality by their customers. This inspired me to wonder why a requirement that has existed in the U.S. for over 30 years would lead to such raw animus against “bureaucrats” serving “big brother” (i.e., the democratically elected Swiss government).

Geiger is a member of the European Shadow Financial Regulation Commission, which I will call the “EU Shadow” for the sake of brevity. I am familiar with the US Shadow. There are interesting (if you are a fellow wonk) articles by members of the EU Shadow about its creation and its conception of what it intends to achieve and how it will do so. I will refer to the 2004 article by the EU Shadow’s chairman, Harald A. Benink.

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Posted in William K. Black

Tagged accounting control fraud, charles keating, Control Fraud, ed gray, george kaufman, Hans Geiger, PCA. prompt corrective action

Corporate CEOs Demand that they be Tipped Off When a Whistleblower Reports their Crimes

Posted on April 26, 2014 by William Black | 3 comments

By William K. Black

I’m writing on the flight returning from the XII^th International CIFA Forum in Monaco. CIFA is an NGO. It is a confederation of independent financial advisor organizations that works with the UN in promoting the protection of investors. This means that their clients are often very wealthy and that many of the participants are speakers are very conservative or libertarians (or an admixture). One of the speakers, Dr. Hans Geiger, gave an impassioned denunciation of “bureaucrats” (which turned out to mean anyone who worked for the government) and the imposition of a duty on bankers to file criminal referrals when they had a “reasonable suspicion” that their clients had committed certain crimes. The official U.S. jargon for a criminal referral is “Suspicious Activity Reports” (SARS). Geiger was particularly distressed that the banker would not be allowed to inform his client that he was making the criminal referral (which FATF terms “Suspicious Transaction Reports” (STRs)) under the standard 21 proposed by the Financial Action Task Force in 2012.

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Tagged accounting control fraud, Control Fraud, dodd-frank, Financial Action Task Force, whistleblowers

CEO Pay is Perverse and Must be Fixed to Avoid Recurrent Crises

Posted on April 21, 2014 by William Black | 11 comments

By William K. Black

Slate has published a piece by Zachary Karabell entitled “Stop Obsessing Over exorbitant CEO Pay” in which the author appears unaware that he has reported, and then ignored, evidence that scholars he cites favorably are “resoundingly convinced” proves the opposite. Karabell’s author’s page shows that he has recently joined Slate and promotes theoclassical dogmas about economics. He is a Wall Streeter of the kind that thinks it is an honor to be a “regular” on CNBC. He also touts being a favorite of the Davos plutocrats. In roughly a month with Slate he has managed to be an apologist for high unemployment, inequality, and high frequency trading (HFT) scams.

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Tagged accounting control fraud, Control Fraud, criminogenic environment, executive compensation, Karabell, white collar crime

Zachary Karabell and our Flawed “Society of Apologists for Plutocrats (SAPs)”

Posted on April 21, 2014 by William Black | 5 comments

By William K. Black

Slate has replaced one minor member of the Society of Apologists for Plutocrats (SAPs), Matt Yglesias, with another, Zachary Karabell. The transition has been seamless. As I noted in my prior column, Karabell’s initial columns served up apologias for extraordinary executive compensation and extreme inequality, high youth unemployment, and high frequency trading (HFT) scams. Karabell is the type of Wall Streeter who thinks it reflects well on him that he has been a “regular” on CNBC, rather than an admission of grave defects of character and intellect. Similarly, he thinks it is an honor that he was dubbed a bright young thing (a decade ago) by the denizens of Davos, the club for selfless plutocrats eager to “take up the white man’s burden.”

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Posted in William K. Black

Tagged accounting control fraud, Control Fraud, Great Financial Crisis, insider trading, Karabell, plutocracy, plutocrats, Slate

What Banks Should Expect in the Future

Posted on April 19, 2014 by William Black | Comments Off

By William K. Black

Bill talks with CCTV America about the future expectations for Banks.

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Posted in William K. Black

Tagged accounting control fraud, banking, banks, Control Fraud, Great Financial Crisis, regulation, white collar crime

The 11th Lesson We Need to Learn from Charles Keating’s Frauds: Bring back Glass-Steagall

Posted on April 15, 2014 by William Black | 5 comments

By William K. Black

On April 2, 2014, as news broke of the death of Charles Keating, the most infamous savings and loan fraud, I posted an article entitled “Ten Lessons We Must Learn from Charles Keating.” (The April 2 date was ironic, because it was the 27th anniversary of the meeting at which the senators who would become known as the “Keating Five” began to seek to intimidate the savings and loan regulators on Keating’s behalf.)

I failed to explain perhaps the most important lesson we should have learned from Keating and Lincoln Savings. One of the subtle aspects of the savings and loan debacle that is often overlooked is that we ran a real world test of the importance of the provisions of the 1933 Banking Act known as the Glass-Steagall Act. Glass-Steagall prohibited “commercial” banks that received federal deposit insurance (created by the same 1933 banking act) from owning equity positions in nearly all financial assets (“investment banking”). With very limited exceptions, a commercial bank could not own real estate, companies, or stock in companies. (Banking regulators, hostile to Glass-Steagall despite its immense success, would later add many exceptions.) The ideas behind Glass-Steagall’s separation of “banking” from “commerce” always made eminent sense from conservative and progressive perspectives. Commercial banks received a federal subsidy through deposit insurance, so it made no sense for them to be allowed to compete against regular businesses that lacked that subsidy. It would distort markets to allow such a subsidy.

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Posted in William K. Black

Tagged accounting control fraud, Control Fraud, glass-steagall, Keating

Slate’s Civil War about Bigotry and Markets

Posted on April 7, 2014 by William Black | 6 comments

By William K. Black

Slate is having a healthy, but incomplete, debate about the uproar about Brendan Eich’s resignation from Mozilla. Eich donated $1000 to the successful campaign to adopt “Proposition 8” in California in 2008. Prop 8, until it was struck down, banned marriage equality for gays. William Saletan published a satirical article suggesting that everyone be “purge[d]” who contributed to Prop 8.

Other columnists, such as Mark Stern, weighed in to remind readers about the cruelty of the often homophobic TV ad campaign used by Prop 8 supporters. Stern makes the point that much of the campaign was designed to picture gays as recruiting straight children. This column (eventually) discusses why Eich stepped down, but it begins by explaining why neoclassical economists have such a terrible track record in understanding discrimination and its remedies.

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