The Money Party
William K Black
A Continuing Update on Articles & Videos
We Can’t Break Up the Giant Banks, Can We? Yes We Can!, George Washington Blog Monday, September 14, 2009
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.
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.”
CORPORATE CRIME REPORTER
First thing Black would do?
SO BERNIE MADOFF got the max: 150 years in prison. Whatever.
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.
Washington’s Blog Tuesday, Jun 23, 2009
Huffington Post notes:
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.
The judgment is very good for America. Why?
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.
"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."
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":
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.
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.
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.
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.
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.
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?
Criminologist William K Black, a former bank regulator and expert on crimes committed by the men at the top—so-called “control frauds” referencing the practices of CEOS in control at big corporations---studied these reports pointing out that by 2008, there were only 62,000 “criminal referrals” in this industry with only agencies reporting crimes “mandated” by law to do so. Only 1/3 of these illegal practices were even reported and, then, hardly any, in unregulated sectors which, in turn, dispensed 80% of them. These were the mortgages Wall Street bought, securitized, sliced and diced, borrowed against, and resold under false pretenses. Did they know? You bet they did.
He estimates there have been ½ million Fraudulent mortgage cases annually that should have been prosecuted but the FBI only has the capacity to handle 500 per annum because most of its white collar crime fighters were reassigned to the war on terror.
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.’’’
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 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: :
“We need some chairmen or chairwomen … in Congress, to hold the necessary hearings (on banking fraud) and we can blast this out. But if you leave the failed CEOs in place, it isn't just that they're terrible business people, though they are. It isn't just that they lack integrity, though they do. Because they were engaged in these frauds … they're not going to disclose the truth about the assets.” (Bill Moyers Journal, Apr 3, 2009)
Gold Seek (quoting DeepCaster LLC), May 1, 2009
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.
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.
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.
William K Black on The Young Turks
The Great Geithner Cover Up
Black and the Savings & Loan Crisis