Tag Archives: accounting control fraud

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

Posted on May 27, 2014 by | 6 comments

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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Sutherland Explained in 1939 Why GM Killing Customers Isn’t Treated as “Real Crime”

Posted on May 18, 2014 by | 5 comments

By William K. Black

The New York Times headline was dominated by a seemingly strong word:  “G.M. Is Fined Over Safety and Called a Lawbreaker.”

As I will explain, however, the seeming strength of the label “lawbreaker” is undercut by the rest of the title, the text of the article, and the reality of the Justice Department’s refusal to apply the rule of law to powerful domestic corporations and their controlling officers.

The first discordant note is the word “safety.” The article reports that GM, for the purposes of avoiding the expense of repairing a design defect that endangered the lives of its customers, covered up the defect and caused the death and injury of a number of those customers. The article does not report the (minor) cost of GM fixing its design defect. The article does not report on the number of people who were injured and killed because GM designed a defective ignition system, knowingly hid the defect from its customers and the government, and once it knew that its defective design was injuring and killing its customers GM deliberately covered up the existence of the defect and the cause of the easily avoidable injuries and deaths. The article states that GM was finally required to recall 2.6 million vehicles due to the defective design of the ignition switches.

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Geithner’s Other Ad Hominem Attacks on Barofsky

Posted on May 12, 2014 by | 7 comments

By William K. Black

In my first article on Timothy Geithner’s book entitled “Stress Test” I exposed the revealing and disgusting nature of his bizarre ad hominem attack on Neil Barofsky, the Special Inspector General for the Troubled Assets Relief Program (SIGTARP) for the great sin of providing his law enforcement officers (LEOs) with side arms and protective vests – an action any responsible leader of SIGTARP would make a priority.  In this second article I discuss very briefly his other two ad hominem attacks on Barofsky and his staff.

Geithner Damns Barofsky for Lack of Expertise

This attack constitutes further proof of our family rule that it is impossible to compete with unintentional self-parody.  Geithner complains:

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Geithner’s Single Most Revealing Sentence

Posted on May 12, 2014 by | 18 comments

By William K. Black

Timothy Geithner has a great deal of competition for the title of worst Treasury Secretary of the United States, but he has swept the field as worst President of Federal Reserve Bank of New York (NY Fed).  Geithner is a target rich environment for critics and he has a gift for saying things that are obviously depraved, but which he thinks are worthy of a public servant.

He did vastly more harm to the Nation as the President of the New York Fed than he did as Treasury Secretary.  He was supposed to regulate most of the largest (and most criminal) bank holding companies – and failed so completely that he testified to Congress that he had never been a regulator and that the problem in banking leading up to the crisis was excessive regulation.  His statement that he was never a regulator was truthful – but you’re not supposed to admit it, and you’re certainly not supposed to be proud of it.  Geithner, Greenspan, and Bernanke are the three Fed leaders who could have prevented the entire crisis by being even modestly effective regulators.

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

Posted on April 30, 2014 by | 8 comments

By William K. Black

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

Posted on April 29, 2014 by | 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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The New Book on Regulation I Just Decided to Write: Blame it on Monaco

Posted on April 28, 2014 by | 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 XIIth 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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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 | Comments Off on Why Did George Kaufman, the Father of “Prompt Corrective Action” (PCA), Hate Ed Gray so Much that He Opposed Gray’s Embrace of PCA?

By William K. Black

This is the second installment of a series arising from my recent participation in CIFA’s XIIth 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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Corporate CEOs Demand that they be Tipped Off When a Whistleblower Reports their Crimes

Posted on April 26, 2014 by | 3 comments

By William K. Black

I’m writing on the flight returning from the XIIth 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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CEO Pay is Perverse and Must be Fixed to Avoid Recurrent Crises

Posted on April 21, 2014 by | 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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