Tag Archives: accounting control fraud

We Now Know what Form of Bank Fraud at JPMorgan it Takes to Alarm President Obama

Posted on October 11, 2014 by | 3 comments

By William K. Black

President Obama called no emergency meeting when he learned that JPMorgan and 15 other of the world’s largest banks had rigged LIBOR for years – distorting the prices on over $300 trillion in transactions.  He called no emergency meeting when he learned that JPMorgan and over 20 other huge lenders fraudulently sold Fannie and Freddie hundreds of billions of dollars in toxic mortgages.  Same non-result when JPMorgan and a dozen huge banks rigged bids on the issuance of municipal debt to rip off hundreds of government entities.  Same non-result when the big banks filed hundreds of thousands of fraudulent affidavits in order to foreclose on homeowners illegally.  Same nothing when he learned that over 20 huge lenders made the Office of the Comptroller of the Currency’s (OCC) list as the “worst of the worst” lenders and that Attorney General Eric Holder refused to prosecute any of their senior bank officers who led the frauds.  Same nothing when he learned that our home mortgage lenders had created “an open invitation to fraud” through making millions of fraudulent liar’s loans.  Another big nothing when Obama learned that the same banks controlled by fraudulent officers had deliberately created a “Gresham’s” dynamic by blacklisting honest appraisers who refused to inflate appraisals.

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Capital “Can’t be Gamed” – Except Whenever the Bank CEO Wants To

Posted on October 9, 2014 by | 1 comment

By William K. Black

On October 6, 2014, the Wall Street Journal, only three days ago, published an editorial claiming that regulatory capture was “inevitab[le]” and that we should give up on regulation and rely instead on “simple laws that can’t be gamed” such as an increased capital requirement for banks.  I wrote a two piece response to the editorial.  What I just discovered (though it bears an October 7, 2014 date on the WSJ website) is that one day after the editorial claimed that asset and liability values (the inputs that define “capital”) “can’t be gamed” they presented data indicating that corporations frequently game asset values and that private auditors frequently fail to follow former audit procedures to detect and prevent the overstatement of asset values.  The title of the article is “Audit Deficiencies Surge” and the first two sentences contain the key data.

“Auditors at the largest U.S. accounting firms failed to follow proper procedures in more than four in 10 audits, according to the latest inspections by the U.S. government’s audit watchdog. That was more than double the rate four years earlier.”

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The Wall Street Journal’s Incredible Claim that Banks Can’t “Game” Asset Values

Posted on October 6, 2014 by | 3 comments

By William K. Black

The Wall Street Journal has published a disingenuous editorial that claims that it is we should not worry about anti-regulatory leaders who produce a self-fulfilling prophecy of regulatory failure because they are chosen on the basis of their ideological opposition to effective regulation.  The WSJ’s position is that George Stigler supposedly proved that “regulatory capture” is “inevitab[le]” and that any need for financial regulation and supervision can be supplied by “simple laws that can’t be gamed” such as a 15% capital requirement.

“Once one understands the inevitability of regulatory capture, the logical policy response is to enact simple laws that can’t be gamed by the biggest firms and their captive bureaucrats. This means repealing most of Dodd-Frank and the so-called Basel rules and replacing them with a simple requirement for more bank capital—an equity-to-asset ratio of perhaps 15%. It means bringing back bankruptcy for giant firms instead of resolution at the discretion of political appointees. And it means considering economist Charles Calomiris’s plan to automatically convert a portion of a bank’s debt into equity if the bank’s market value falls below a healthy level.”

No person did more to try to make financial regulation ineffective than did George Stigler, though Peter Wallison, Alan Greenspan, and Charles Calomiris were all in the running for that title.  No media organ tries so hard to destroy effective financial regulation as the WSJ.  Calomiris also ran his bank into the ground and was denounced by his brother as incompetent, so the suggestion that we take advice from him is a fine example of unintentional self-parody.

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The WSJ Rages that Bank of America Was Sued for “Only” Committing a $9 Billion Fraud

Posted on August 26, 2014 by | 3 comments

By William K. Black

The Wall Street Journal is deeply upset that almost none of the banks and none of the banksters that became wealthy by leading the three epidemics of mortgage fraud that drove the financial crisis are being subjected even to prosecution-lite cases.  The WSJ wants us all to know that “almost none” and “prosecution-lite” are both excessive.  The WSJ rant demands that we bestow the thanks of a grateful nation to the banks and banksters that committed the frauds.  This financial crisis is the first Virgin Crisis – conceived without sin in the C-Suites.  This second column in my series on the WSJ rant responds to the WSJ’s claim that mortgage frauds that are “only” $9 billion in magnitude do not warrant even civil sanctions.

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The Wall Street Journal’s Choleric Rant about Cholera and Bank Fraud Epidemics

Posted on August 25, 2014 by | 2 comments

By William K. Black

I wrote this column in Bogota, Colombia where I was presenting five talks at the Universidad Central’s economics conference, so I was struck by the title of a choleric rant by the Wall Street Journal entitled “Banking in a Time of Cholera.”

The WSJ’s title is a play on words on the title of a novel, “Love in the Time of Cholera,” by Colombia’s greatest writer, Gabriel García Márquez (“Gabo”).  The novel is set in a city that appears to be based on Cartagena, the city famous for being looted repeatedly by pirates.  In this first of several columns responding to the WSJ rant I discuss its failed literary allusions and tie these failures to some of the WSJ’s analytical and factual errors that render their rant risible.

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Europe’s Lousy Bank Loans Expose the “Recovery” Myth

Posted on August 22, 2014 by | 3 comments

By William K. Black

One of the great lies of the financial industry is that it is the engine of Main Street’s growth.  Giving the finance industry an enormous share of total business profits was supposed to super charge Main Street’s growth.  It has never delivered on this promise.  The truth is the opposite.  The efficiency condition for a middleman like finance is that its size and profits should be minimized.  Finance’s fraud epidemics blew up the world economy and devastated Main Street.  Finance is a parasite that saps Main Street.  The latest example of this comes in a New York Times article about European bank’s bad loans.

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UPDATE: Bank of America Fined Another $16 Billion for Fraud

Posted on August 7, 2014 by | 9 comments

By L. Randall Wray

Bank of America just agreed to pay another $16 Billion fine for one of its frauds—selling trashy securities to its investors. Another day, another fraud exposed. No surprises there. This is so routine it barely deserves a headline.

According to Bloomberg, that raises the total it has agreed to pay for its mortgage lending frauds to $70 billion. Most of this is related to its purchase of Countrywide, where Mairone oversaw much of the fraud. See here.

BofA rewarded Mairone for creating Countrywide’s “Hustle” fraud by hiring her. So far that woman’s criminal expertise contributed toward mounting costs to BofA of $70 billion. Quite an accomplishment!

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DOJ Trains AUSAs to Chase Mice While Lions Roam the Campsite

Posted on July 21, 2014 by | 7 comments

By William K. Black

In researching my series of articles on the critical omissions in Attorney General Eric Holder’s press release about the settlement with Citi I realized that I need to write multiple articles about the destructive role played by Benjamin Wagner. Holder made Wagner DOJ’s leader on mortgage fraud because Wagner was so willing to propagate the single most absurd, destructive, but so very useful (to the administration and the banksters) lie about mortgage fraud.

“Benjamin Wagner, a U.S. Attorney who is actively prosecuting mortgage fraud cases in Sacramento, Calif., points out that banks lose money when a loan turns out to be fraudulent. ‘It doesn’t make any sense to me that they would be deliberately defrauding themselves,’ Wagner said.”

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AG Holder: “The U.S. Announces the Indictment of Citigroup’s Senior Officers for Fraud”

Posted on July 18, 2014 by | 4 comments

By William K. Black

The third omission from Attorney General Eric Holder’s press conference announcing the settlement with Citigroup of civil charges was the words “criminal” and “indictment.”  The
Department of Justice (DOJ) press conference had a scripted press release.

According to DOJ’s Statements there should have been Numerous Indictments

The DOJ press release contains the following statements that logically should have led to an indictment of a large number of Citi’s officers.  Holder states: “The bank’s activities contributed mightily to the financial crisis that devastated our economy in 2008.”  Citi “made serious misrepresentations to the public – including the investing public – about the mortgage loans it securitized in RMBS.”  Holder’s press release called them “toxic mortgages.”  Holder emphasized the “strength of the evidence of the wrongdoing committed by Citi….”  Holder stated that Citi’s officers knowingly made false “reps and warranties.”

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AG Holder: “Thank you Fed and OCC”

Posted on July 17, 2014 by | 3 comments

By William K. Black

The second omission in Attorney General Eric Holder’s press conference about the settlement with Citi was “Thank you Fed and OCC.” The Federal Reserve (Fed) and the Office of the Comptroller of the Currency (OCC) are Citi’s financial regulators. In my first installment in this series I explained Holder’s shameful failure at the press conference to thank Richard M. Bowen, III – the whistleblower who handed DOJ on a platinum platter what should have been its criminal case against a vast swath of Citi’s most senior leadership.

Holder’s Failure to Thank the Regulators

Holder also failed to thank the Fed and the OCC at the same press conference. He should have thanked them for their criminal referrals on Citi’s senior managers and their provision of irreplaceable expertise throughout the investigation. In particular, he should have praised examiners A, B & C, who the Fed and OCC detailed to the FBI so that they could serve as its in-house experts. By detailing examiners to work for the FBI they are able to receive “6 (e)” grand jury testimony and documents and explain their significance to the FBI and the prosecutors.

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