The Money party

And William K. Black - the senior regulator during the S&L crisis, and an Associate Professor of both Economics and Law at the University of Missouri - says that the Prompt Corrective Action Law (PCA), 12 U.S.C. § 1831o, not only authorizes the government to seize insolvent banks, it mandates it, and that the Bush and Obama administrations broke the law by refusing to close insolvent banks.

Why Wall Street Reforms Have Stalled by William K. Black, New York Times, Sept 11, 2009

It promised that these policies would bring us unparalleled wealth while reducing risk. The purported gains were fool’s gold. The administration and industry do not want the public to know that the financial system brought us to the brink of a Great Depression and that Treasury and the Fed only delayed that catastrophe by adopting policies that (1) increased “moral hazard”, which makes future crises more likely, and (2) combine the worst elements of “crony capitalism” and the “socialized losses.”

“The nonperforming ratio, in and of itself, should be a great concern,” said Barth, a professor of finance at Auburn University in Alabama and senior finance fellow at the Milken Institute in Santa Monica, California. “It becomes even more troublesome when it goes above 3 percent and the equity-to-asset ratio is quite low.”

While 5 percent can be “fatal” for home lenders, commercial real estate lenders may be able to withstand higher rates, said William K. Black, former lawyer at the Federal Home Loan Bank of San Francisco and the OTS. Commercial loans carry higher interest rates because they’re riskier, he said.

“At the 5 percent range, you’re probably hurting,” said Black, an associate professor of economics and law at the University of Missouri-Kansas City. “Once it gets around 10 percent, you’re likely toast.”

The original Pecora investigation documented the causes of the economic collapse that led to the Great Depression. It was named after Ferdinand Pecora, lead counsel for the Senate Banking and Currency Committee investigation, whose inquiries established that conflicts of interest and fraud were common among elite finance and government officials.

The Pecora investigations provided the factual basis that produced a consensus that the financial system

and political allies were corrupt. They did not divide the nation or divert its response to the economic crisis. The investigations discredited the elites that benefited from that system and were blocking reform. By identifying the most acute problems, Pecora provided the basis for Congress to draft specific legislation that restored public confidence in the financial markets and helped honest bankers. This staved off future crises in the U.S. for 45 years until the protections were removed by deregulation and de-supervision.

Readers skimming the ads on page D-2 of the Sunday, July 12 San Francisco Chronicle might have been surprised to see an extraordinary investment opportunity in a quarter-page advertisement running a couple columns below Scott Adams' Dilbert cartoon.

"You can now earn: 1 year -- 11.00 percent," the advertisement announces, urging readers to go to a Web site describing "investment notes" offered by a company called Advanta Corp., which owns a bank specializing in handling savings deposits and credit cards for small businesses. The investment offer seemed unbelievable, given that bank savings account interest rates nowadays top out at about 2 percent. Indeed, First Republic bank advertised that modest savings-account rate in a quarter-page ad also on the July 12 business section's page D-2.

"The only way you can do this is like a Ponzi, and grow extremely rapidly. Even using these kinds of ads, and seeking out people who they perceive as the ultimate suckers in the marketplace, you're not going to be able to grow rapidly enough to stay alive all that long," said William K. Black, associate professor of economics and law at the University of Missouri, and author of the book The Best Way To Rob a Bank is To Own One.

Ponzi scheme "Is a title that applies here," said Black, after comparing the Chronicle ad with the details of Advanta's offer.

Bank of America Corp. is reportedly under an informal regulatory sanction that is forcing it to shake up its board and address concerns about risk.

Regulators have placed Bank of America under a memorandum of understanding since early May, The Wall Street Journal reported Thursday, citing people familiar with the situation. Such orders are issued when regulators want a bank to change anything they perceive as problems, which could be related to capital levels, management oversight or other issues.

The sanction would be the most serious regulatory action taken against Bank of America in the current crisis. It's also another sign of just how tight the government's grip on the Charlotte bank has gotten.

William K. Black, a former bank regulator who now teaches law and economics at the University of Missouri-Kansas City, said banks should report MOUs in securities filings.

“We always took the position, as S&L regulators, that if we were taking enforcement action, that assuredly was something material,” Black said. “Otherwise, we wouldn't be doing it.”

First thing Black would do?

Implant at every financial regulator an office of the chief criminologist.

“If you look at the largest single area of losses in banks – it has been control fraud,” Black told Corporate Crime Reporter last week. “But of course, institutionally, none of these financial regulatory agencies are set up well to even spot or stop these kinds of fraud. They don’t have the training, they don’t have the background, they don’t have institutional structures that focus on the criminality.”

“So, you would institutionalize. You put in place someone who knows about fraud, the literature about crime and criminology. They need to think, before they deregulate, whether they are producing what we refer to as a criminogenic environment – an environment that is going to produce widespread crime.”

There are currently nineteen banks that the government says are too big to fail. Black would reduce that number to zero – by shrinking their size.

The fact that the thief will very likely die in prison means little to the people whose lives and livelihoods he destroyed. They're still missing their money and any prospect of getting it back. Snip

Black is telling anyone who will listen - darn few people in power, unfortunately - that, unless the extent of the fraud is recognized and punished, the economy won't be truly fixed. President Obama's recently unveiled financial regulatory plan, which studiously avoids looking at past wrongdoing, isn't going to do it, he says.

IMAGINE IF, on Monday, U.S. District Judge Denny Chin had told Madoff that he wanted to "look forward" and focus on making sure that monstrous frauds like Madoff's don't happen again - and so would let him off with a stern lecture and no punishment. That's pretty much the Obama administration's message to Wall Street.

July 4. 3 p.m., Contemporary Issues Forum, William K. Black, "The Best Way to Rob a Bank Is to Own One." 6:30 p.m., theater, "Arcadia." 8 p.m., Chautauqua Symphony Orchestra pops concert, Stuart Chafetz guest conductor.

A state judge on Thursday ordered former HealthSouth CEO Richard Scrushy to pay nearly $2.9 billion to shareholders who sued over a massive accounting fraud that nearly sent the rehabilitation chain into bankruptcy.

Because the current incentive for high-level corporate people is to commit fraud. Even if they are caught and go to jail, they’ll be rich when they get out. Snip

As William K. Black – the senior regulator during the S&L crisis, and an Associate Professor of Economics and Law at the University of Missouri said:

Failing bankers ha[ve] perverse incentives to “live large” and cause larger losses to the FDIC and taxpayers.

Bank Plan Leaves Out Prosecution And Compensation 2009-06-17 15:59:27

"The administration has made some general comments about the importance of prosecutions, but has not taken the concrete steps essential to addressing the 'epidemic' of mortgage fraud that the FBI publicly identified in its Congressional testimony in September 2004. [The administration's] strongest comments have stressed its opposition to reviewing and exposing the crimes and blunders that caused the global financial crises," Black said in an email to Truthout, adding, "We need an honest diagnosis about what caused the epidemic and how our systems designed to prevent fraud failed coupled with a top priority effort to investigate and prosecute the senior officers, for example, the officers at the top of the largest non-prime loan specialists, that led the most destructive losses."

Black discussed the fraud underlying the financial crisis in an interview with Bill Moyers, which you can read here: www.pbs.org/moyers/journal/04032009/watch.html .

Both Galbraith and Black stressed that putting the Federal Reserve in charge of regulating financial institutions, the failures of which could destabilize the whole financial system, would be a mistake.

"[The Federal Reserve] has a huge conflict of interest, since it will always justify a bailout by the necessity of saving the system," Galbraith said, adding, "Putting it in charge is like putting a travel agency in charge of investigating airline crashes."

Frauds, Old and New Forex Hound June 15, 2009

Newfound transparency in the wake of the unfolding financial crisis will expose a scale of prior fraud, corruption, and self-dealing that many will find almost impossible to comprehend. Day in and day out, reports will surface about hidden losses, false accounting, inflated appraisals, sizable off-balance-sheet obligations, valuation discrepancies, unregulated offshore entities, phantom profits, insider trading, and businesses bled dry to enrich a few individuals at the expense of employees, investors, bankers, and bondholders. Other revelations will reinforce the idea that companies, governments, and individuals are in far worse shape than people had assumed only a few years earlier.
-- Financial Armageddon Michael J. Panzer, 2006

But Black said the same trends that pumped up the Ponzi industry and then tore it apart will eventually lead to new opportunities for scam artists who manage to escape the law and financial carnage. The crooks know that potential investors, some desperate for a quick return, will not always be so wary.

And what might those "new opportunities" be? I think you'll find at least one answer in the following MarketWatch report, "Fraudsters Eye Huge Stimulus Pie, Consultant Says":

As U.S. Overhauls the Banking System, 2 Top Regulators Feud Jun 13, 2009

WASHINGTON — Two of the nation’s most powerful bank regulators were once again at each other’s throats.

At a public meeting three weeks ago, John C. Dugan, the comptroller of the currency, blasted a proposal to impose stiff new insurance fees on banks as unfair to the largest banks, which he regulates. The financial crisis stemmed in part from problems at small banks, he insisted.

Sheila C. Bair, chairwoman of the Federal Deposit Insurance Corporation and the regulator for many smaller, community banks, could barely hide her contempt. The large banks, she said, had wreaked havoc on the system, only to be bailed out by “hundreds of billions, if not trillions, in government assistance.” She added, “Fairness is always an issue.” Snip

“What’s most important is who the leaders are,” said William K. Black, a former senior lawyer for the agency that became the Office of Thrift Supervision, and who brought cases against many savings and loans in the 1990s.

That's a problem, according to criminologist, University of Missouri law professor and veteran of the Savings and Loan crisis, Professor William K. Black.

Michael Collins: The Binary Fallacy and the End of Both Parties, June 7, 2009

Wash., DC) The results of eight years of Bush-Cheney at the helm make the demise of the Republican Party an easy call. Our financial system is on life support. The (most of the) major banks are insolvent, according to banking and legal authority William K. Black. If they're not, they're in intensive care. No matter how many trillions of dollars worth of infusions they receive, they're not making loans. The economy is in a free fall with growth down 6% a quarter and job losses running at nearly 600,000 a month. We're stuck in two catastrophic wars. Despite President Obama's election, we're viewed with suspicion and disregard throughout the world.

Regulators Feuding as Banking System Faces Overhaul MSNBC, June 14, 2009

Two of the nation’s most powerful bank regulators were once again at each other’s throats.

At a public meeting three weeks ago , John C. Dugan, the comptroller of the currency, blasted a proposal to impose stiff new insurance fees on banks as unfair to the largest banks, which he regulates. The financial crisis stemmed in part from problems at small banks, he insisted.

Sheila C. Bair , chairwoman of the Federal Deposit Insurance Corporation and the regulator for many smaller, community banks, could barely hide her contempt. The large banks, she said, had wreaked havoc on the system, only to be bailed out by “hundreds of billions, if not trillions, in government assistance.” She added, “Fairness is always an issue.”

What’s most important is who the leaders are,” said William K. Black, a former senior lawyer for the agency that became the Office of Thrift Supervision, and who brought cases against many savings and loans in the 1990s.

We Can't Break Up the Financial Giants . . . Or Can We? OpEdNews.Com,
George Washington, June 1, 2009

The second main argument against breaking up the "too big to fails" is that the government doesn't have the legal authority to do so.

For example, Vice President Biden's chief economic policy adviser said today:

I think there is a lot to be said for the argument made by the Treasury Secretary and, for that matter, the chairman of the Federal Reserve that the authority to unwind an AIG simply doesn't exist."

But William K. Black - the senior regulator during the S&L crisis, and an Associate Professor of Economics and Law at the University of Missouri - says that the Prompt Corrective Action Law (PCA) - 12 U.S.C. § 1831o - not only authorizes the government to seize insolvent banks, it mandates it, and that the Bush and Obama administrations broke the law By refusing to close insolvent banks.

Loretta Keller: Melting down an economic iceberg Pasadena Star-News, May 22, 2009

Moyers' guest was William K. Black, the former director of the Institute for Fraud Prevention. He currently teaches economics and law at the University of Missouri, Kansas City, and is author of "The Best Way to Rob a Bank is to Own One."

Black asserted with conviction and without rancor that the "liar loans" were illegal frauds and that the AAA ratings they received were part of a cover up. The rating agencies were able to get away with it, he said, because during the Bush administration, "nobody was looking." He added that we now know they "never looked at a single loan file." But after the market collapsed, when the financial world was drowning in toxic loans, they did look, and "they found the appearance of fraud in nearly every file they examined."

Black proposed some plausible remedies that may help us over time. But first, what I want is to have my confidence restored for reasons I know are valid. Is that pie in the sky?

The Crimes of Wall Street: The Scam and Sleaze at the Top GlobalResearch.ca, Danny Schechter, May 20, 1009

But maybe all those homeowners weren’t stupid. Maybe a lot of them were scammed.

Former Savings and Loan regulator William K. Black, who now teaches economics and law at the University of Missouri, told PBS’s Bill Moyers, “… a year ago, we started to have a congressional investigation of some of these rating agencies, and it’s scandalous what came out. What we know now is that the rating agencies (which are supposed to test the value of assets) never looked at a single loan file. When they finally did look, after the markets had completely collapsed, they found, and I’m quoting Fitch, the smallest of the rating agencies, ‘the results were disconcerting, in that there was the appearance of fraud in nearly every file we examined.’’’

Attorney says AIG case gaining significance
Action seeks damages for company's collapse, bailout

The company faced severe criticism earlier this year when it handed out $165 million in bonuses while depending on taxpayers to bankroll its functions.

The complaint by Freedom Watch alleges Geithner, Paulson and others violated the constitutional rights of the shareholders by denying them the right to their property, the shares themselves.

"The inspiration for this amendment was information disclosed by University of Missouri professor William K. Black on the Bill Moyers' PBS television show ... where he implicated these government officials in a massive cover up of the banking scandal, mostly for the benefit of Goldman Sachs, the former employer of both Paulson and Geithner, in which they held a significant financial interest," Klayman reported to WND when the complaint was filed.

Mat Renner: In an interview with Bill Moyers, bank regulation expert William K. Black did not hedge in describing the Wall Street collapse as a result of massive fraud starting in the board rooms and CEO offices of Wall Street. What is your take on this? Has the American economy fallen victim to a group of confidence men?

John Kenneth Galbraith: Bill Black is a comprehensive expert on the subject of bank fraud. He is not prone to exaggeration or polemic. He is a lawyer and criminologist who uses words with considerable precision. One of the things that Bill has noted is that as far back as 2004, the FBI warned that there was an epidemic of mortgage fraud on the way. The [Bush] administration failed to do anything about it and did not give the FBI the direction and the resources required to make dealing with white-collar fraud a priority.

Bottom line: there were no real examinations. Banks continue to overstate asset quality. The bankers pressured Congress, which extorted the Financial Accounting Standards Board, which gutted the accounting rules on loss recognition. Because there were no real examinations, there were no real stress tests. So only one question is key: why does Treasury believe that anyone will believe its compound fiction?

SOME INTERESTING points were made regarding the banking scandal on a recent Bill Moyers' Journal by William K. Black, author of The Best Way to Rob a Bank Is to Own One.

He analogized the fraud involved in the sub-prime crisis to that of a huge Ponzi scheme. The fraud involved top CEOs deliberately implementing a scheme--and bank managers knowingly approving junk mortgages--all to increase the banks' papers assets and thus justifying obscene performance bonuses.

The ratings agencies, such as Standard & Poor's, were also complicit in the fraud by refusing to review the files of the loan packages they were rating. Had they done so, says Black, they would have discovered systemic fraud.

William K. Black was the chief fraud investigator in 1980's Savings and Loan fiasco. His comments on the current economic meltdown are highly instructive and they assign blame: :

Gold Seek (quoting DeepCaster LLC), May 1, 2009

“Black says that the government's entire strategy in dealing with the economic crisis is a massive cover-up: [They] don't want to change the bankers, because if we do, if we put honest people in, who didn't cause the problem, their first job would be to find the scope of the problem. And that would destroy the cover up....

And, of course, the entire strategy is to keep people from getting the facts...."You've got to keep the information away from the public or everything will collapse.’ " (emphasis added)

We've talked with former S&L regulator William K. Black about how fraud on the part of the bankers is what set in motion everything that followed. We've heard that there is no sentiment in Congress for reinstating the Glass/Steagall Act, which separated commercial banks from the high-risk business of investment banking, but was repealed late in the Clinton years with the enthusiastic support of then-Federal Reserve chairmen Alan Greenspan and Lawrence Summers.

The executives of every single large financial institution (as well as some medium-sized ones) engaged in shareholder and securities fraud. And due to the response from Washington, one could argue that our political leaders are guilty of taxpayer fraud. Snip

Black has some mainstream exposure, I want to salute his honesty because he is the ONLY expert who has not been censored for speaking the truth.

What price will Black pay for his honesty? In America, you are promoted to high positions for doing the wrong thing, as long as it is the right thing for the company. The same is true for Washington. Our politicians get elected because they are funded by lobbyist groups representing corporations.

The question I have is how long before Black receives backlash from Washington and others.

Let me be clear. Black and Cuomo are in grave danger because they are doing the right thing. They are going after the biggest criminals in the world. The financial industry executives have committed crimes that are worthy of placing them on the FBI's Most Wanted list. Yet, people do not realize this because the media dictates what people deem as real issues. Hopefully by now you understand how dangerous America's media industry has become. It is controlled by a small handful of powerful individuals who are tightly linked with Washington and Wall Street.

(Los Angeles, Ca., April 8, 2009). Freedom Watch, the government watchdog that protects individual liberties over government and corporate illegalities, today amended its $200 billion dollar class action derivative shareholders suit today against AIG and its directors to include two successive Secretaries of the Treasury, Henry Paulson and Timothy Geithner, as well as former SEC Chairman Christopher Cox, as defendants in the lawsuit. The suit is pending in Los Angeles federal court.

The inspiration for this amendment was information disclosed by University of Missouri professor, William K. Black, on the Bill Moyers' PBS television show last Friday,

While the interview is both disturbing and arguably inflammatory, it's hard to argue with the man's logic. My suggestion is to either read the transcript and/or watch the video and decide for yourself.

By William K. Black

Britt Towery: No one minded the store, GoSanAntonio.com, Apr 23, 2009

President Obama has a difficult time getting a handle on it. He will not get it done with banks, CEOs and congressional culprits still hanging around "studying how to solve it." That would be as bad a cover-up as Watergate.

A fundamental lack of integrity got us where we are. Only men and women of integrity will get us through it.

By electing Mr. Obama, America thought it was finally on the right path. The war in Iraq would be over in 16 months. The Patriot Act would be repealed. NAFTA and GATT would be renegotiated in such a way as to level the playing field for Americas working class. It all sounded so good. A breath of fresh air. Americans felt that we finally had a man we could trust firmly planted in The White House.

Shortly after his inauguration, President Obama began the process of naming those he wanted to serve in the new administration. As the names started showing up on nightly news casts, and in newspapers across America, optimism was quickly replaced by serious concern.

To paraphrase, Black believes a conspiracy of the banks and other financial institutions have formed a system of “liar loans.” He accused these toxic assets which we’ve heard so much about of receiving triple A ratings, along with complete lack of oversight.

That’s why the bankers have to stay in place. To remove them, would be telling, as William K. Black said recently:

Barron's: Just how serious is this credit crisis? What is at stake here for the American taxpayer?

Black: Mopping up the savings-and-loan crisis cost $150 billion; this current crisis will probably cost a multiple of that. The scale of fraud is immense. This whole bank scandal makes Teapot Dome [of the 1920s] look like some kid's doll set. Unless the current administration changes course pretty drastically, the scandal will destroy Barack Obama's presidency. The Bush administration was even worse. But they are out of town. This will destroy Obama's administration, both economically and in terms of integrity.

William K. Black: Geithner will destroy Obama Dallas News, Apr 13, 2009

Former top S&L crisis clean-up man William K. Black says that major banks are insolvent, and that Obama's failure to deal with that inconvenient truth -- and instead to rely on the Democratic Party Wall Streeters who are advising him -- will destroy his presidency. Excerpt:

Barron's: Just how serious is this credit crisis? What is at stake here for the American taxpayer?

Black: Mopping up the savings-and-loan crisis cost $150 billion; this current crisis will probably cost a multiple of that. The scale of fraud is immense. This whole bank scandal makes Teapot Dome [of the 1920s] look like some kid's doll set. Unless the current administration changes course pretty drastically, the scandal will destroy Barack Obama's presidency. The Bush administration was even worse. But they are out of town. This will destroy Obama's administration, both economically and in terms of integrity.

The best way to rob us is to own a bank RGE Monitor, Apr 10, 2009‎

Legacy of Lies: The Great Economic Cover Up Mother Jones, Apr 9, 2009

Another point of view came from William K. Black, who was the chief federal regulator during the S&L crisis, in a long interview with Bill Moyers on Friday. ...

Same Old, Same Old Gold Seek, Apr 8, 2009‎

Bill Moyers recently interviewed William K. Black, who was a top regulator during the S&L crisis of the 1980s. Since then, Mr. Black has held a number of senior regulatory roles. He offers some rather stunning insights, from a regulator's perspective, into the government's reaction to the financial meltdown.

DOWN THE RABBIT HOLE: Discover the True Scope of Financial Madness JANVO, Apr 8, 2009

The American replica of public television, the Public Broadcast Service (PBS) last week aired a ‘dialogue’ that stood out and which revealed all the mischief that threw the United States and then the entire world into a depressive, or as the IMF likes to call it, ‘global recession’. The main star of the show was William K. Black …

PARALLEL UNIVERSE: Bill Black: Madoff Was a Piker HNN Huntingtonnews.net - ‎Apr 7, 2009‎

William K. Black undoubtedly said "The Best Way to Rob a Bank Is to Own One," the title of a book he wrote in 2005 and published by the University of Texas ...

William K. Black: [Describing Geithner's reasoning] If we just lie to the people enough and if we can get them believe our lies, then they will become confident and then we'll get through the recession at next to no cost ... and the banks will all be fine.

Black says that massive fraud is what caused the economic crisis. As one example, he explains that everyone involved knew that the CDOs which packaged subprime loans were not AAA credit-worthy (which means that they are completely risk-free). He also said that the exotic instruments (CDOs, CDS, etc.) which spun the mortgages into more and more abstract investments were intentionally created to defraud investors.

A former federal litigator who investigated the savings and loan scandal of the 1980s has accused Secretary of the Treasury Timothy Geithner of being a part of cover-up attempts by banking executives to conceal large-scale fraud that has left many banks virtually insolvent. Snip

Black also accused Geithner of helping keep the truth of this fraud from being revealed. Asked by Moyers if Geithner and others were trying to conceal the truth, Black replied, “Absolutely, because they are scared to death” to admit the truth that “many of the large banks are insolvent.”

Bill Moyers interviews William K. Black, a former bank regulator who helped save our asses during the savings and loan mess. Black argues that the financial collapse should be regarded as the result of systematic fraud, i.e., that the results of the profligate lending practices of the housing bubble were so profitable at the outset and so unsustainable as to constitute fraud, criminal betrayal of trust for financial gain.

I contacted Bill Black this weekend in the midst of the flame up over his statements on Bill Moyers Journal that the Obama administration, just like the Bush administration before, is violating the law by not placing failed banks into receivership.

I told professor Black that he was under attack, being accused of lying no less, and that I wanted him to clarify specifically what section of the law the Obama admin was violating and how (which Black does in some detail showing that the criticism was incorrect).

(ChattahBox)— What only can be described as explosive revelations regarding our financial crisis

, on a recent episode of PBS’ Bill Moyers Journal, is sending shock waves throughout Washington. William K. Black, an Economics and Law professor at the University of Missouri and a former regulator during the 1980s Savings and Loan scandal, accused the Bush administration, former Treasury Secretary Paulson, current Treasury Secretary Giethner and the Obama administration, of covering up the massive “Ponzi scheme” type fraud committed by banks and the dismal, near insolvent state they are in, for fear of frightening the public.

Geithner's statements that he didn't have the power to close down the big banks is false. Moreover, Geithner and Paulson actually broke the law which requires the government to close down insolvent banks, no matter how big.

The Prompt Corrective Action Law (PCA) - 12 U.S.C. § 1831o - not only authorizes the government to seize insolvent banks, it mandates it.

As William K. Black - the senior regulator during the S&L crisis, and an Associate Professor of Economics and Law at the University of Missouri - told Bill Moyers in their recent interview:

The this is the Alpha point in comment on Black's historic interview with Bill Moyers. Black quote from blog: "Let [Geithner and Summers] explain the hidden and not-so-hidden risks to the American taxpayer .... Let them explain why they are so intent on saving the banks' bondholders,... Let them work with their critics to fashion a less risky and less costly plan. So far Geithner and Summers tell us that their plan is the only option, but without a word of further explanation as to why."

BILL MOYERS: Yeah. Are you saying that Timothy Geithner, the Secretary of the Treasury, and others in the administration, with the banks, are engaged in a cover up to keep us from knowing what went wrong?

WILLIAM K. BLACK: Absolutely, because they are scared to death. All right? They're scared to death of a collapse. They're afraid that if they admit the truth, that many of the large banks are insolvent. They think Americans are a bunch of cowards, and that we'll run screaming to the exits. And we won't rely on deposit insurance. And, by the way, you can rely on deposit insurance. And it's foolishness. All right? Now, it may be worse than that. You can impute more cynical motives. But I think they are sincerely just panicked about, "We just can't let the big banks fail." That's wrong.

My comments in the Bill Moyers Journal interview about the “Prompt Corrective Action” (PCA) law (adopted in 1991) have sparked considerable comment in the blogsphere. Here is the portion of the interview transcript that discusses the PCA law.

WILLIAM K. BLACK: Well, certainly in the financial sphere, I am. I think, first, the policies are substantively bad. Second, I think they completely lack integrity. Third, they violate the rule of law. This is being done just like Secretary Paulson did it. In violation of the law. We adopted a law after the Savings and Loan crisis, called the Prompt Corrective Action Law. And it requires them to close these institutions. And they're refusing to obey the law..

We are being played for chumps. The Bush and Obama plans could only have been designed by failed bankers -- for their principal beneficiaries are failed bankers. We already know enough to confirm that the Bush administration made us the "fool" in the market by massively overpaying for assets. The Obama administration is about to compound that scandal with a "guarantee" program. The bankers that caused the crisis designed both programs. The senior officers at big bank aren't very good lenders, but they are expert in maximizing their compensation.

Adam Smith Was Right about Corporate CEOs’ Incentives absent Effective Regulation William K. Black, Dec, 4, 2008

What went wrong is that modern compensation systems did not “align” interests, but rather created perverse incentives to engage in accounting “control fraud,” where the CEO uses an apparently legitimate firm as a “weapon” to defraud creditors and shareholders. [1] No regulation forced any lender to make a bad loan.

Chairman Greenspan, despite the urgings and warnings of his colleague Dr. Gramlich, refused to have the Federal Reserve exercise its unique jurisdictional authority over mortgage bankers and brokers and refused even to have Federal Reserve examiners target subprime lending by affiliates of holding companies that they are supposed to regulate.

3) A fraud clause. Securities purchased should be reviewed and those found to be based on fraudulent appraisals, inadequate documentation, predatory and other abusive practice should be kicked back to the lenders at a penalty rate.

Representative Jim Wright of Texas, the House Speaker, intervened in a recent Federal enforcement case to help a major Democratic fund-raiser and long-time supporter who ran a savings and loan institution in Texas, Government regulators say.

Black's book on the Savings and Loan crisis in the 1980's an his warnings about the risks ahead.