By Kay B. Day
In an earlier column I covered testimony presented to Congress by Professor Bill Black, Associate Professor of Economics and Law at the University of Missouri—Kansas. Black appeared on Bill Moyers’ Journal program on PBS on April 23. Moyers described Black in a teaser announcing the program: “As a federal regulator many years ago Bill Black helped put in jail a lot of culprits involved in the costly savings and loan scandal of the 1980s.”
So far, Prof. Black is the only expert I've seen brave enough to use the 'F' word, 'Fraud.'
Because of Black—and because I wanted to know more about the causes of our financial meltdown—I began to look at the sweeping deregulation passed under President Bill Clinton.
I wrote to Professor Black a couple times and he generously answered my questions. Here’s the latest exchange:
Q. Did the deregulation in the 90s figure in the meltdown? I remember Larry Summers crediting himself with historic financial deregulation under President Clinton. I'm just trying to set up a timeline of sorts, beginning with how the Community Reinvestment Act prior to Clinton had a noble goal but basically got out of control.
A. Yes. Glass-Steagall was repealed and the Commodities Futures Modernization Act was adopted . CRA has nothing to do with it. Eighty percent of the nonprime loans were made by entities not even subject to the CRA. The CRA was reduced by the CFMA and further reduced by the banking regulatory agencies under Bush. The CEOs of these lenders caused them to make these kinds of loans to (A) grow faster and (B) achieve higher yield (which increased their bonuses).
PBS has published a transcript of Moyers’ interview with Black.
That interview has largely been ignored by high profile media.
But Black stands apart from every politician and economist in the nation in naming names and explaining why ‘liars’ loans’ are a major element in the economic meltdown. Those loans required no verification of income, assets, job history or employment. And financial firms like Washington Mutual, Citicorp, Lehman, and Goldman were complicit in benefiting from the vast potential for cheaters’ profits from those loans.
Black said, “Lehman was brought down primarily by selling liar's loans. It was the biggest seller of liar's loans in the world.”
So far only one junior player has been hung out to dry by the government—Fabrice Tourre at Goldman Sachs. Black said, “The complaint names only one person, Fabrice Tourre…”
Meanwhile the same regulators—Black calls them [President Geroge W.] Bush’s “wrecking crew”—are not only walking around free, they’re still in charge.
And Black doesn’t see that changing anytime soon. He noted that President Barack Obama couldn’t even bring himself to use the ‘F’ word—Fraud—in a speech about regulatory changes the same week
Black said of the president, “It's a good speech. He's a very good spokesman for his causes. I don't think substantively the measures are going to prevent a future crisis. And I was disappointed that he wasn't willing to be blunt.”
Black said financial houses operated in a “criminogenic” environment.
WHO ARE THE PLAYERS IN THE ‘CRIMINOGENIC’ ENVIRONMENT?
Moyers said Obama hasn’t “named names.”
Black responded, “No, and one of the most important things a president has is the bully pulpit. We have not heard speeches by the president demanding that the frauds go to prison. We have not heard speeches from the attorney general of the United States of America, Eric Holder. Indeed, we haven't heard anything. It's like Sherlock Holmes, the dog that didn't bark. And that's the dog that is supposed to be our guard dog. It must bark. And it must have teeth, not just bark.”
It’s useful to note the lack of attention to this from members of both political parties.
CEOs—THE ‘ENTITLEMENT GENERATION’
Black’s criticism of CEOs was even harsher. “We now have the entitlement generation as CEOs. They just plain feel entitled to being wealthy as Croesus with no responsibility, no accountability. They have become literal sociopaths.”
While there are many ethical CEOs in other sectors of the market, it's obvious the financial industry is in a class all its own.
Part of the reason for regulators getting a free pass so far can possibly be attributed to successfully purchasing cooperation legally, via politicial contributions. Moyers said, “TheHill.com website says Goldman Sachs is uniquely positioned to fight this case, that it spent $18 million over the last decade lobbying members of Congress, and put millions more in their campaigns.”
Black responded, “I would tell you, the Savings & Loan crisis, our phrase was, ‘The highest return on assets is always a political contribution.’"
As a taxpayer and a Main Streeter who knows many good people who lost money at the hands of cheaters although my immediate family didn’t suffer losses other than those brought on by the taxpayer bailouts of crooks, I’d say it’s time to invite Prof. Black to Washington if he’s willing.
Professor Bill Black is the only expert who isn’t afraid to use that very accurate ‘F’ word. Main Street, Congress and media should pay close attention when he speaks about a crisis that in the midst of so many global crises is being largely swept under the Washington rug.
The 'F' word should ring loud and clear and there should be consequences for the actors in the meltdown. Fraud is a costly, dastardly word.
[*The link to Bill Black's book is not an affiliate link; TUSR does not benefit if you purchase it; we included the link for your convenience only.]