Tag Archives: banksters

Liar’s Loans Ain’t “Rocket Science”

Posted on October 22, 2014 by | 2 comments

By William K. Black

In my first column in this two-part series I explained how the Department of Justice’s (DOJ) non-prosecutorial effort against the banksters’ frauds that caused the financial crisis had ended with a pathetic whimper uttered by Deputy Attorney General James Cole during his ritual exit interview with Bloomberg. Cole’s explanation for DOJ’s failure to prosecute a single senior banker for leading the three fraud epidemics that drove the financial crisis was that DOJ was “dealing with financial rocket science.” My first column made the point, which escaped DOJ and Bloomberg that if this were true it would presumably have been modestly important for DOJ to do something about the ability of “rocket scientists” to grow wealthy by leading the frauds that cost the U.S. $21 trillion in lost GDP and 10 million jobs. I also promised this column explaining why it was not true. In light of a reader’s comment I’ll add a third piece on “rocket science” in the financial context.

Continue reading →

2 Comments

Posted in William K. Black

Tagged , , ,

Not with a Bang but a Whimper: DOJ Says it Cannot Prosecute “Rocket Science” Frauds

Posted on October 18, 2014 by | 6 comments

By William K. Black

This is the way the Department of Justice’s (DOJ) greatest strategic prosecutorial failure ends, not with a bang but a whimper that it is too hard to prosecute “rocket science” frauds.  The context is the ritual Bloomberg exit interview with the senior DOJ official going off to make his new fortune.  The lucky fellow this week is Deputy Attorney General James Cole.  This genre of interview is designed to allow the man in the revolving door to announce his great accomplishments as a prosecutor, or in this case, non-prosecutor.  Cole gamely claims that zero prosecutions constitutes a brilliant success because DOJ’s civil cases “have resulted in banks paying huge fines and altering their behavior.”

“Holder today praised Cole as his ‘indispensable partner’ since taking the deputy’s job in January 2011. ‘Jim’s leadership and ingenuity have been critical in attaining historic results on behalf of the American people,’ Holder said in a statement.”

Continue reading →

6 Comments

Posted in William K. Black

Tagged , ,

Krugman’s Bashes Progressives for Criticizing Obama on Grounds that He Criticizes Obama

Posted on October 18, 2014 by | 17 comments

By William K. Black

Paul Krugman’s admirers would never list modesty as one of his characteristics. He has written a column “In Defense of Obama” that begins by explaining that his criticisms of President Obama were correct, but that unidentified others’ criticisms of Obama constitute “trash talk.”

Specifically, Obama “came perilously close to doing terrible things to the U.S. safety net in pursuit of a budget Grand Bargain.” Obama sought to produce a self-inflicted disaster by desperately trying to reach a “Grand Bargain” with Republicans that would have inflicted austerity on our Nation in 2012, “slash[ed] Social Security and [raised] the Medicare [eligibility] age.” As even Krugman admits, we were saved from this catastrophe “only by Republican greed, the GOP’s unwillingness to make even token concessions” to achieve the Grand Bargain. What Krugman omits in the tale is that it was also a revolt by Democratic progressives against the Grand Bargain that saved Obama and the Nation.

Continue reading →

17 Comments

Posted in William K. Black

Tagged , , ,

Deal Book Says Citi “Cannot Afford” to Run an Honest Bank in Mexico

Posted on October 15, 2014 by | 4 comments

By William K. Black

Deal Book, Andrew Ross Sorkin’s ethics-free paean to painless elite bank frauds – all the wealth and none of the accountability – has plumbed new depths in its coverage of Citi’s latest frauds.  It has literally written that Citi “cannot afford” to run an honest bank in Mexico.

I’ll put aside for another day the obvious point that Citi does not run an honest bank in the U.S. so the authors’ implicit assumption that Citi’s problems arise from a corrupt Mexican culture is false and bigoted.  For purposes of analysis only, I will discuss the logical implications of the Deal Book’s “Blame it on Mexico” thesis. That thesis does not lead the NYT authors to ask Citi’s leaders to discuss which of three options it chose given that it cannot afford to run an honest bank in Mexico.

  • To run an honest bank in Mexico anyway, or
  • To lead a movement to clean up banking and politics in Mexico, or
  • To stop banking in Mexico

Continue reading →

4 Comments

Posted in William K. Black

Tagged , ,

Hold Your Wallet When the Swedish Central Bank Prize Rewards “Clever”

Posted on October 13, 2014 by | 2 comments

By William K. Black

The Swedish Central Bank’s (the “Bank”) prize in economics has gone to Jean Tirole.  It is always good to test such an award by looking at the writings of the recipient in an area in which the reader has particular expertise.  In my case, that would include the Savings and Loan debacle, financial regulation, and control fraud.  Tirole’s book: The Theory of Corporate Finance was published on January 1, 2006 during the heart of the three raging epidemics of accounting control fraud that were hyper-inflating the world’s largest financial bubble and about to create the financial crisis and the Great Recession.

As I have long emphasized and will be explaining at greater length in a book about the failures of economics and economists as exemplified by far too many of the recipients of the Bank’s Prize, economics is the only discipline in which the understanding of the field’s subject of study has gone backwards.  In particular, the praxis recommended by economists has proven highly criminogenic and is the primary explanation for why we suffer recurrent, intensifying crises, the rise of crony capitalism that cripples democracy and ethics, and spiraling inequality and low growth in the regions that suffer the greatest predation by our parasitical financial centers.  Tirole wrote at the ideal time to judge his understanding of corporate finance as it was actively causing these catastrophes.

Continue reading →

2 Comments

Posted in William K. Black

Tagged , ,

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.

Continue reading →

3 Comments

Posted in William K. Black

Tagged , ,

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.”

Continue reading →

1 Comment

Posted in William K. Black

Tagged , ,

If this is “Regulatory Capture” May the Lord Smite Us with It – And May We Never Recover!

Posted on October 8, 2014 by | 4 comments

By William K. Black

In Fiddler on the Roof, Perchik and Teyve have this exchange:

Perchik: Money is the world’s curse.

Tevye: May the Lord smite me with it! And may I never recover!

I was reminded of this when reading the Wall Street Journal editorial claiming that “regulatory capture” was “inevitab[le]” and that we should therefore replace financial regulation with “simple rules” that “can’t be gamed.”

In my first installment I showed that the WSJ’s “simple rules” not only can be gamed – they are invariably gamed massively in the epidemics of accounting control fraud that cause our recurrent, intensifying financial crises.  This installment refutes the “inevitability” of “regulatory capture.”  As I promised to explain, I can personally attest that regulatory capture is not “inevitab[le]” even in circumstances that are ripe for capture.  Further, “regulatory capture” has no definition and economists use it and the term “rent-seeking” as sloppy swear words to describe regulatory actions that are the opposite of regulatory capture.  I conclude by showing that we know how to avoid harmful “regulatory capture,” but the ideologues that oppose effective regulation deliberately chose anti-regulatory leaders who create a self-fulfilling prophecy of regulatory failure.  The WSJ editors and neo-classical economists are the jockeys who insure that their horse loses – and then blame the horse.

Continue reading →

4 Comments

Posted in William K. Black

Tagged ,

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.

Continue reading →

3 Comments

Posted in William K. Black

Tagged , ,

A “Perfectly Legal” Scam is Perfectly Unacceptable to Real Bank Supervisors

Posted on September 30, 2014 by | 6 comments

By William K. Black

Whatever else comes out of the release of the audio tapes by Carmen Segarra, they have harmed the reputation of Mike Silva, the long-term senior supervisor at the Federal Reserve Bank of New York (FRBNY). The (lengthy) excerpts below are taken from the This American Life program and are necessary to understand the context.

Mike Silva I have to tell you that night that the reserve fund broke the buck and we got that word…

Jake Bernstein It was a moment when it looked like the financial system was going to come crashing down. Big firms were frantically calling the Fed, terrified that economic

Armageddon had arrived. When this happened, Silva was chief of staff for Tim Geithner who, at the time, was president of the New York Fed.

Mike Silva And when I realized that nobody had any idea how to respond to that, I went into the bathroom and threw up. Because I realized this is it, it’s just this small group of people, and right now at this moment we have no clue. I never want to get close to that moment again.

Continue reading →

6 Comments

Posted in William K. Black

Tagged ,