Fraud

I’m watching video right now of Bill Moyers interviewing William K. Black, the senior regulator who investigated the 1980’s Savings and Loan scandal, on what we’re seeing now on Wall Street. Black, the former Director of the Institute for Fraud Prevention, now teaches Law and Economics at the University of Missouri, in Kansas City. Here’s a clip from the transcript:

BILL MOYERS: Is it possible that these complex instruments were deliberately created so swindlers could exploit them?

WILLIAM K. BLACK: Oh, absolutely. This stuff, the exotic stuff that you’re talking about was created out of things like liars’ loans, that were known to be extraordinarily bad. And now it was getting triple-A ratings. Now a triple-A rating is supposed to mean there is zero credit risk. So you take something that not only has significant, it has crushing risk. That’s why it’s toxic. And you create this fiction that it has zero risk. That itself, of course, is a fraudulent exercise. And again, there was nobody looking, during the Bush years. So finally, only 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 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.”

BILL MOYERS: So if your assumption is correct, your evidence is sound, the bank, the lending company, created a fraud. And the ratings agency that is supposed to test the value of these assets knowingly entered into the fraud. Both parties are committing fraud by intention.

WILLIAM K. BLACK: Right, and the investment banker that — we call it pooling — puts together these bad mortgages, these liars’ loans, and creates the toxic waste of these derivatives. All of them do that. And then they sell it to the world and the world just thinks because it has a triple-A rating it must actually be safe. Well, instead, there are 60 and 80 percent losses on these things, because of course they, in reality, are toxic waste.

BILL MOYERS: You’re describing what Bernie Madoff did to a limited number of people. But you’re saying it’s systemic, a systemic Ponzi scheme.

WILLIAM K. BLACK: Oh, Bernie was a piker. He doesn’t even get into the front ranks of a Ponzi scheme.

BILL MOYERS: But you’re saying our system became a Ponzi scheme.

WILLIAM K. BLACK: Our system.

BILL MOYERS: Our financial system.

WILLIAM K. BLACK: Became a Ponzi scheme. Everybody was buying a pig in the poke. But they were buying a pig in the poke with a pretty pink ribbon, and the pink ribbon said, “Triple-A”….

WILLIAM K. BLACK: In the Savings and Loan debacle, we developed excellent ways for dealing with the frauds, and for dealing with the failed institutions. And for 15 years after the Savings and Loan crisis, didn’t matter which party was in power, the U.S. Treasury Secretary would fly over to Tokyo and tell the Japanese, “You ought to do things the way we did in the Savings and Loan crisis, because it worked really well. Instead you’re covering up the bank losses, because you know, you say you need confidence. And so, we have to lie to the people to create confidence. And it doesn’t work. You will cause your recession to continue and continue.” And the Japanese call it the lost decade. That was the result. So, now we get in trouble, and what do we do? We adopt the Japanese approach of lying about the assets. And you know what? It’s working just as well as it did in Japan.

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.

BILL MOYERS: You are.

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….

If you have a few minutes, it’s worth watching.

Here’s part one.

This entry was posted in Economics, Media and tagged , , , , , , , , . Bookmark the permalink. Post a comment or leave a trackback: Trackback URL.

5 Comments

  1. kjc
    Posted April 6, 2009 at 7:00 am | Permalink

    Just watched that last night myself. The Ken Rogoff one is good too…

  2. kjc
    Posted April 6, 2009 at 8:48 am | Permalink

    Btw, I noticed on the Journal blog that Black got a lot of people talking with his mention of the Prompt Corrective Action law. In response, he referred people to this article he wrote previously:

    http://www.huffingtonpost.com/william-k-black/why-is-geithner-continuin_b_169234.html

  3. Posted April 6, 2009 at 9:03 pm | Permalink

    Thanks for the link, KJC. I’ll check it out.

  4. Robert
    Posted April 7, 2009 at 3:10 pm | Permalink

    I thought we had all agreed to pretend everything that happens in government and business all happens as a result of chance and incompetence.

  5. Meta
    Posted April 22, 2009 at 8:12 am | Permalink

    David Kellermann, 41, the acting chief financial officer of ailing mortgage company Freddie Mac committed suicide last night in Virginia. He’d had the job since September.

    No comment as yet from the guy in congress who suggested that people start taking their lives.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Connect

BUY LOCAL... or shop at Amazon through this link Banner Initiative Hischak2