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Bill Black: The High Price of Ignorance

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By Bill Black, an associate professor of economics and law at the University of Missouri-Kansas City, a white-collar criminologist, a former senior financial regulator, and the author of The Best Way to Rob a Bank is to Own One. Follow him on twitter @WilliamKBlack

I have just finished giving three talks, in three days, in three states during which I continued one of my common obsessions – doing research about financial crises. Among of the primary beliefs I’ve had reinforced over these 72 hours are my views about how incredibly harmful financial ignorance is, and how precious are the sources who combine sound information about finance with humanity. As a father, I do not play silly games about which kid I like best, so I will simply express my personal belief that Naked Capitalism is one of the preeminent sites for learning about finance, while always remembering people.

My first talk was in central Missouri to the Missouri Association for Social Welfare (MASW). MASW is made up of people who have worked, often for decades, to help those mode in need in our State. They have seen their efforts overwhelmed by the ongoing crisis and they are eager to learn why it occurred and how to prevent or reduce future crises. This is a group that combines policy wonks and boots on the ground caregivers. They are well read, but they do not find that regular media sources provide them with any comprehensive understanding of why we suffer recurrent, intensifying crises. A few of their members, however, read our blog (NewEconomicPerspectives – created and maintained by my UMKC economics colleague Stephanie Kelton) and Naked Capitalism. They learned from these sites about my work and reached out to me to keynote their conference because they have a thirst for learning about finance and the crisis.

Thursday I presented “in the belly of the beast” – the University of Chicago’s School of Law. The students on their law forum reached out to bring someone with views very different from their own faculty and the other speakers. They were not rejecting their faculty’s views ala the Harvard economics students who walked out of Professor Mankiw’s class to protest what they viewed as his unwillingness to discuss rival theories. The students simply wanted to have an opposing viewpoint expressed. They knew that I existed because of media appearances that were largely generated because many members of the financial media who read Naked Capitalism and NewEconomicPerspectives. Many of our readers learned of us and our research findings and theories by reading Naked Capitalism. Naked Capitalism is so important because it does not simply feature the views of an individual. It seeks out and gives visibility to diverse, thoughtful views from those who inhabit the reality-based world and support their theories with sound analytics and compelling data.

My reaction to the U. Chicago conference was that the students did well to reach out in this manner. On our panel (on private-sector fraud and corruption) the other panelists’ (all Chicago-school) principal concern was that we reduce the prosecution of elite white-collar criminals, reduce the incentives to blow the whistle on the CEO, and reduce the incentives to bring a qui tam civil fraud actions against corporations. We inhabit alternative universes. In our reality-based universe, the problem is elite fraud. In their faith-based theoclassical economics universe the problem is that the “mob” is seeking to murder innocent bank CEOs by bringing back the weapon of the French terror, the “guillotine.” These are the exact terms used by one of my co-panelists. We may never be able to convince the theoclassical Chicago-school faculty to cease their identification with and apologias for the one percent, but we are read by at least some of their students because of the visibility provided by Naked Capitalism.

My talk Saturday was in LA at the invitation of the “Occupy Wall Street” (OWS) participants as part of a “teach-in.” Again, the participants are eager to learn about why we suffer recurrent, intensifying financial crises. Some of the protesters are well versed on the nature of the ongoing crisis and its causes because they read Naked Capitalism and blogs such as NewEconomicPerspectives. Many of the protestors, however, are not well informed and have views about the crisis that are intense but not fact-based. They too have read articles on blogs, but those articles and blogs are the antithesis of Naked Capitalism. They are sensational, but contrary to the facts. Many of these myths are enormously harmful – they led the speakers to view it as impossible to succeed, that no one could be trusted, and that our government had never done anything successful. Collectively, their messages were the ideal toxic blend of views that would render any effort against the “control frauds” and “systemically dangerous institutions” useless. The opponents of OWS could not have designed a more self-defeating meme. Naked Capitalism understands how grim the situation is and how difficult our tasks are, but it does not give in to hopelessness and defeatism.

The research project that reinforced my view about the crushing costs of financial ignorance was reviewing Attorney General Holder’s testimony before the Financial Crisis Inquiry Commission (FCIC). It is apparent that neither Holder nor his senior staff read Naked Capitalism (at least in that era). Attorney General Holder made two extraordinary statements at that hearing demonstrating his utter ignorance. Chairman Angelides asked Holder to explain the actions the Department of Justice (DOJ) took in response to the FBI’s warning in September 2004 that mortgage fraud was “epidemic” and its prediction that if the fraud epidemic were not contained it would cause a financial “crisis.” Holder testified: “I’m not familiar myself with that [FBI] statement.”

For those of you who have never been involved in preparing an agency head to give a major piece of testimony (something I did fairly often), let me confirm that it is a very big deal. The staff briefs the head of the agency thoroughly on the key issues and how the agency responded to them. The DOJ’s (the FBI is part of DOJ) preeminent contribution with respect to this crisis was the 2004 warning to the nation (in open House testimony picked up by the national media). (Stop and think how widely known the warning would have become if Naked Capitalism was operating in 2004 and had input from white-collar criminologists.) For Holder not to know about the most important (and most praise-worthy) action by his department requires that none of his senior staffers knew about the FBI testimony.

For none of his senior staffers to know about the FBI testimony requires that they know nothing about the department’s most important and (potentially) useful act. That depth of ignorance could not exist if his senior aides cared the least about the financial crisis and made it even a minor priority to understand, investigate, and prosecute the frauds that drove the crisis. Because Holder was testifying in January 14, 2010, the failure of anyone from Holder on down to know about the FBI’s warnings also requires that all of them failed to read any of the relevant criminology literature or Naked Capitalism. We need to reach the point where the failure of senior officials who need to be financially literate (and that includes everyone at the senior levels of DOJ) to regularly read Naked Capitalism and NewEconomicPerspectives marks one as irredeemably unprofessional.

Holder’s prepared testimony is a further testament to the costs of ignorance. In addition to claiming that the DOJ’s response to the developing crisis under President Bush was superb, Holder implicitly took the position that (without any investigation or analysis) that fraud could not and did not pose any systemic economic risk. Implicitly, he claimed that only economists had the expertise to contribute to understanding the causes of the crisis. If you don’t investigate; you don’t find. If you don’t understand “accounting control fraud”; you cannot understand why we have recurrent, intensifying financial crises. If Holder thinks we should take our policy advice from Larry Summers and Bob Rubin, leading authors’ of the crisis, then he has never read Naked Capitalism.

Now let me state at the outset what role the Department plays and does not play in addressing these challenges” [record fraud in investment banking and securities].

“The Department of Justice investigates and prosecutes federal crimes.…

As a general matter we do not have the expertise nor is it part of our mission to opine on the systemic causes of the financial crisis. Rather the Justice Department’s resources are focused on investigating and prosecuting crime. It is within this context that I am pleased to offer my testimony and to contribute to your vital review.

Two aspects of Holder’s testimony were preposterous, dishonest, and dangerous.

I’m proud that we have put in place a law enforcement response to the financial crisis that is and will continue to be is aggressive, comprehensive, and well-coordinated.

DOJ has obtained ten convictions of senior insiders of mortgage lenders (all from one obscure mortgage bank) v. over 1000 felony convictions in the S&L debacle. DOJ has not conducted an investigation worthy of the name of any of the largest accounting control frauds. DOJ is actively opposing investigating the systemically dangerous institutions (SDIs).

Holder’s most disingenuous and dangerous sentence, however, was this one:

Our efforts to fight economic crime are a vital component of our broader strategy, a strategy that seeks to foster confidence in our financial system, integrity in our markets, and prosperity for the American people.

Yes, the “confidence fairy” ruled at DOJ. It is the rationale now for DOJ’s disgraceful efforts to achieve immunity for the SDIs’ endemic frauds. The confidence fairy trumped and traduced “integrity in our markets” and “prosperity for the American people.” Prosperity is reserved for the SDIs and their senior managers – the one percent. But then you know that because you read Naked Capitalism.

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99 comments

  1. Doug

    Thanks Bill — both for the heartfelt endorsement of NC and the succinct ‘reports from the field’. The ignorance referenced (whether Holder, DOJ or Chicago professors) is only matched by their arrogance.

    1. PL

      Thank you for showing us, not just telling us, why Eric Holder has been ineffective. Illustrating the argument with Holder’s own words is most illuminating.

      1. Jim

        Eric Holder is doing what he is told to do. Under orders, he constructs a rational, a hallucinated reality.

  2. aet

    Hmmm…I suppose I’m “for” less prosecution of white collar crime, for that would be the result, if all insider trading was made legal.

    And “insider trading’ ought to indeed be permitted – provided, of course, that the beneficial owners and participants in all trading whatsoever were also made public, in real-time. And also provided, of course, that corporations themselves be dis-allowed from holding shares – only natural person may be permitted as beneficial shareholders, corporations may only hold as trustees, with beneficiaries’ names disclosed.

    Without that full complete and immediate disclosure to the public of all share trading whatsoever, insider trading must remain forbidden….and that’s too bad for efficiency.
    Because insiders do know best, always.

    And also provided, of course, that taxes are levied on all types of personal financial gain, without regard to its nature as a “capital gain”, “dividend” or “income”. Tax every dollar of gain the same as every other dollar of gain.
    A buck is a buck is a buck, and the tax system ought to treat them so.

    1. Maximilien

      Good comment. No need to police insider-trading means more resources to catch the really big fish.

    2. Jim Elliot

      What’s wrong with full transparency in publically traded investing? Full disclosure of who bought what and when?
      I can understand that folks who are cheating might end up in jail. (If Obama and Holder and Geitner were gone).
      Proprietary “cheating methods” might be revealed and I can understand how that might be good for the cheaters to keep that secret. As a public policy, it would seem to support and encourage cheating. As far as I’m concerned, if a strategy is truly beneficial, it should be available to everyone. It’s the digital age, the information is easy to report and store and access.

    1. 99 Percenter

      ^that link^ = Karaoke hell – do not click.

      Bill, the people who shouted conspiracy theories at OWS are infiltrators who are trying to derail logical discussion. Your fight to prosecute the evildoers is not a good match for OWS.

      OWS can do different types of actions, like blocking financial people inside their Wall St buildings. They can shine light on these people who operate in the shadows. They can name names, and show faces. You share the same goal but you SHOULD use different tactics.

  3. MB

    Bill,

    You are one of my living heroes, among precious few. One way to counter the black hole of ignorance is to apply the effort of evangelizing via the six degrees of separation. One person at a time, but the most important people we can. I heard you on KUSP and on the Diane Rehm show the other day, and it practically kills me that I may not be one of the selected to offer a point that ties an entire hour of threads together.

    Coming from the media, I would like to alert everyone to a media dissemination mechanism, a company called Cision. Look it up on net. It’s expensive-ish, yet it is the media bullhorn with ability to target the right people of influence. All the corporate and political entities use these super-charged delivery systems. I worked for them before they acquired this name.

    Bill, this is so superficial, yet I have to offer a thought. I realize we as a society have adapted the trappings of comfort, yet it is counter productive for people to show up to anything (protest or speaking engagement) dressed for camping or untrimmed. This allows the public to dismiss the messenger, no matter how articulate or credible the message. Bill, please trim up that beard. I love a beard but I don’t want you to start looking like the Unabomber. You have more than earned the right of comfort, but just as the unfocussed hippie like interviewee malcontents that are profiled on the local OWS stories; it turns the public off. One reason the protests resonated last winter, was because these people were NOT college students or perceived as homeless, etc. A picture is worth a thousand words.

    Other than this ~ may I send you my copy of TREASURE ISLANDS by Nicholas Shaxson? (where to send?) This ties in comprehensively to your messaging, yet I fear it’s not getting enough traction in the narrative. I saw one article in NY Times over the weekend, but with the growing awareness of the global range of our problems, we need to factor in the motivations of offshore finance, which has crafted itself as untouchable. Best, with deep respect and admiration.

    1. Art Eclectic

      I have to agree also. I’m a big Bill Black fan but the unkempt beard makes you look like just another unwashed hippie, which discredits you and what you stand for. You are dealing with human beings here and human beings have a strong preference for “like me, good.” Get in the game.

    2. Elizabeth

      I concur on almost all of this. Except the part about “college students.” Heaven forbid, a group of young people might be perceived as “college students”! The last time I checked in with the junior generation, these were responsible young adults holding the equivalent of a mortgage on their first home as debt on said college educations, tech- and media-savvy, and tastefully refraining from wearing their Brooks Brothers interview suits to events protesting their enforced poverty. I’d say they got the image thing right for the cameras. Maybe it’s time we re-focused our image of them.

      And if they should be “spoiled” in any way, let’s take pride that our children are privileged to live in a country where we, our parents, and our grandparents worked hard to provide a foundation for their greater achievements and more comfortable lives. People who lament how spoiled they are imply that the next generation should start from scratch they way Grandpa did. This is America, we own it, we built it, and we get to live in it as such. These kids are marching in the streets with signs to tell us that, because that’s the whole point.

  4. Greg

    By Bills own definition Control Fraud is
    premeditated. So ignorance of any individual
    in a position of power is only a function of denability.

    The organized crime syndicate function for ecades
    with the blessings of the criminal justice system.

    This is no different. Jamie Dimon and Loyd Blnkfine
    testified before congress that they just
    didn’t see the real estate bubble
    coming is just fraud on its face and at
    least perjury

    1. Art Eclectic

      The only upheaval that will work is getting private money out of elections. As long as money buys elections, elections will be bought by those with money.

  5. Robert Asher

    We can be sure that Eric Holder and his staff read the Wall Street Journal regularly…Research shows that when authoritarian types are given information that explicitly contradicts their views the authoritarians IGNORE the information.

    1. sleeper

      Folks this is theatre.

      Eric and his buddies know, have known, and will continue to know about fraud by the bankers.

      Eric is deliberately avoiding any serious inveatigation and will continue to do so.

      Note that DOJ / FBI have deliberately ignored Mr Ensign’s violation of the Mann Act while happily pursuing Mr. Ewards and the ex attorney general of New York. Equal justice for all – I think not.

      Note that DOJ / FBI regularly throws cases i.e. Sen Stevens.

      Note that there is no prosecution of the big players in the mortgage fraud scheme. Oh DOJ / FBI will go after the bit and they have an official policy of not commenting on ongoing investigations – even if the investigations consist of nothing more than a phone interview or a Google search once in a while but details are often leaked if DOJ / FBI think it suits them.

      So what to expect – more denials, more delay, more excuses at the very least till the election is over but more likey forever.

      Folks face the facts DOJ / FBI are criminals in league with the 1%

      1. LucyLulu

        Eric and his buddies know, have known, and will continue to know about fraud by the bankers.

        Eric is deliberately avoiding any serious inveatigation and will continue to do so.

        Agreed. Holder suffers from “intentional ignorance”. He (and his overlords) must subscribe to the UChicago school of thought.

  6. JTFaraday

    In light of all that, and in light of Black’s interview with Bill Moyers below, in which Black mentions that Holder and Obama, Geither, Paulson etc, are in violation of the Prompt Corrective Action Law, can we IMPEACH Holder, and flip him to get the others?

    On the other thread, purported “progressive” Norman Solomon is looking for something to do. He could gather one or two of his friends and take it to Congress.

    Something like this is only way I see these D-Party “progressives” able to save themselves from eminent destruction by vandalizing anarchists. ie., they need to Occupy Congress.

    From Moyers interview:

    BILL MOYERS: To hear you say this is unusual because you supported Barack Obama, during the campaign. But you’re seeming disillusioned now.

    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.

    BILL MOYERS: In other words, they could have closed these banks without nationalizing them?

    WILLIAM K. BLACK: Well, you do a receivership. No one — Ronald Reagan did receiverships. Nobody called it nationalization.

    BILL MOYERS: And that’s a law?

    WILLIAM K. BLACK: That’s the law.

    BILL MOYERS: So, Paulson could have done this? Geithner could do this?

    WILLIAM K. BLACK: Not could. Was mandated–

    BILL MOYERS: By the law.

    WILLIAM K. BLACK: By the law.

    BILL MOYERS: This law, you’re talking about.

    WILLIAM K. BLACK: Yes.

    BILL MOYERS: What the reason they give for not doing it?

    WILLIAM K. BLACK: They ignore it. And nobody calls them on it.

    BILL MOYERS: Well, where’s Congress? Where’s the press? Where–

    WILLIAM K. BLACK: Well, where’s the Pecora investigation?

    BILL MOYERS: The what?

    WILLIAM K. BLACK: The Pecora investigation. The Great Depression, we said, “Hey, we have to learn the facts. What caused this disaster, so that we can take steps, like pass the Glass-Steagall law, that will prevent future disasters?” Where’s our investigation?…

    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…

    Now, going forward, get rid of the people that have caused the problems. That’s a pretty straightforward thing, as well. Why would we keep CEOs and CFOs and other senior officers, that caused the problems? That’s facially nuts. That’s our current system…

    http://www.pbs.org/moyers/journal/04032009/watch.html

    1. JTFaraday

      You would think “progressives” would know to Occupy Congress, but I guess something so crazy as showing up for work is only for Tea Nutters.

      I still haven’t forgotten the “progressives” despicable behavior during the health care fight, so carefully followed and reported on by Jane Hamsher and everyone at FDL.

        1. LucyLulu

          Yes. More harm is done on K Street than any other single place.

          As the headlines read on the cover of Time Magazine about a year ago, we have “The Best Laws that Money Can Buy”.

  7. Up the Ante

    Now we need details as to how the FBI became aware of the epidemic of mortgage fraud in 2004.

    Because if an epidemic was noted in 2004, then blackmail/extortion would be noted, too, right?
    And no warning about blackmail/extortion.
    And the architect’s figurehead was re-elected with ‘whose’ help?

    ‘Upright’, ‘stand-up guys’ need to do that.

    Otherwise, a ‘rolling warning’ is your pap for the day?

    ‘Forthright’.

  8. Gil Gamesh

    Mr. Black,

    Let me get this straight. You are no fan of Eric Holder. Holder is the moon to Obama’s sun. Obama, who crawled from the sewer of corrupt, dynastic politics in Chicago, was groomed for his command performance as fixer par excellence. Connected parties (somebody somebody sent) are exempt from legal consequences, unless, and only unless, they must be offered up as sacrifice to protect the Prince. The astonishing legacy of Obama’s failures to act, and enforce the laws, will provide endless fodder for historians. Indeed, it is in the realm of illegality, that Obama shows his mettle: no POTUS has more avidly conducted extra-judicial murder.

    1. PL

      It is interesting that a President who’s proactive in matters of international law is comparatively inert when it comes to domestic civil and criminal matters related to finance. I don’t think that Bill Black is making that argument but the point of comparison is valid. Perhaps the President doesn’t view the economic crisis as the result of domestic financial terrorism worthy of prosecution.

      1. Damian

        simpler explaination – he was put in place by Jamie Dimon et al – and will get his reward and $50 million when he takes over as chairman of the designated Hedge fund after his term

        he is the biggest snake to occupy the white house in history

  9. Mcmike

    Isn’t it simpler to assume Holder was lying about his ignorance? As you said, he was briefed… Seems like a strategic choice on how to cover for massive abdication: feign ignorance.

    The most shocking element of our broken system is the extent of lying done by officialdom.

    1. JTFaraday

      I doubt Holder was briefed to the extent that Black means if Obama never made fraud investigations a priority.

      Therefore, removing Holder (as per my suggestion above) to take the fall for Obama is insufficient.

      Impeach Obama. Call off the phony “election.” Time for a real regime change.

      1. Gil Gamesh

        Most people have integrity. That’s why they are poor, or just making it. The political process has no integrity. Indeed, it is a total inversion of democracy, accountability, and rule of law. None of us should lend any credibility or legitimacy to the electoral process, as our votes mean nothing. If you must vote, however, do vote for third party candidates. The “lesser of 2 evils” practice should be consigned to the dustbin.

        1. JTFaraday

          But what third party candidate?

          Fascist thug Bloomberg, who cops haul in citizens off the street to give them a permanent criminal record because they live in the wrong neighborhood? They keep floating his name.

          Third party candidates are still pre-approved.

          I think the great unwashed should agree on write in candidates who represent their “demands,” shut their ears to duopoly whining, and occupy the voting booth–creatively.

          Bill Black and Dylan Ratigan–”Get Money Out of Politics and return government to the public” (who just happens to have a major national TV show)”– could conceivably represent my demands.

          They won’t win, but we will send a shot across the bow of the sinking ship of state.

          But, if Norman Solomon and the “progressives” can impeach Obama and call off the election, then we won’t have to exercise our (growing) sense of humor.

          1. Gil Gamesh

            Well, I’m a Green myself, and they run a presidential candidate every cycle, and often Greens stand for local and state offices.

          2. CaitlinO

            I alternate between trying to decide whether Sheila Bair or Bill Black should be my write-in. For the first time in my life there is absolutely no way in purple hell I will vote for either of the main party candidates.

      2. Mcmike

        That Obama, Holder, Geithner et al should go is clear (replaced by who though…)

        As to this specific point; i have never been to DC, but i can say with total confidence that his briefers talked about what to do about the FBI memo he ignored, and decided to say he does not recal seeing it.

        Very much like the Bush approach post-9/11. “no one saw this coming” – a massive easily disproved lie that requires newspeak memory-holing of contadictory documentation.

  10. Lafayette

    BB: In their faith-based theoclassical economics universe the problem is that the “mob” is seeking to murder innocent bank CEOs by bringing back the weapon of the French terror, the “guillotine.” These are the exact terms used by one of my co-panelists.

    Then “off with his head”!

    The dichotomy expressed between the two is far too stark. We should all be somewhere in the middle, meaning this: Yes, the banksters are blamable for having abetted and profited from an immoral, predatory financial mechanism.

    But we, the sheeple, we’re also part and parcel in the gaming, by binging on cheap credit far beyond our means to pay for it. Caveat emptor … let the buyer beware of any transaction and therefore accept the consequences.

    So, we might feel relieved and even justified pointing the finger of blame at the banksters. They don’t really care – they’ve made their fortunes from the misery of many. But when looking to blame someone, shouldn’t we also be looking in the mirror?

    MY POINT

    We are politically blasé as a people as our voter turnout record indicates … except apparently when the house of credit comes tumbling down around our necks.

    It has become, by then, too late …

    1. Up the Ante

      “But when looking to blame someone, shouldn’t we also be looking in the mirror?

      .. It has become, by then, too late …”

      And there is your fatal error.
      Unless you are forever defining the future as “too late”.

      Perhaps you could divulge what looking in the mirror could mean for you.

      1. Lafayette

        Perhaps you could divulge what looking in the mirror could mean for you.

        It means understanding our part, as consumers, in the systemic failure of the banking system. We went binging on credit to spend way beyond our means.

        Next time I’ll write it in French … ?

        1. Up the Ante

          “Next time I’ll write it in French … ?”

          No need,, but there is a need to not equivocate the massive frauds taking the country down with a quick glance in your mirror that confirms the least is not the greatest.

          So in response to “It has become, by then, too late … “, you could only have meant someone who equates the least with the greatest is really expressing no intention to acknowledge the credit extension guilt that captured he/she in your mirror was from credit extended FRAUDULENTLY.

          Fraudulently extended credit does not gain legitimacy by someone accepting, “.. become, by then, too late …”.

          Your error was fatal, and you are now looping back to re-attempt a failed attempt.

        2. Foppe

          Not the most intellectually honest person, are you, dear Lafayette? “Asked and answered” mean anything to you?
          Anyway, go enforce orthodoxy on Konczal’s blog, or something.. I’m sure he’d love to have you.

          1. sidelarge

            Or Peter Schiff forum or something, if such thing exists, may be even better for him, actually.

    2. JTFaraday

      “But we, the sheeple, we’re also part and parcel in the gaming, by binging on cheap credit far beyond our means to pay for it”

      Speak for yourself.

      1. JTFaraday

        No, actually I have more to say about that.

        Do you have a right to try to rob me of MY right to live in a nation *guided by the rule of law* because some hypothesized “sheeple” was so pre-gutted by 30 years of bad economic and trade policy that it couldn’t afford to house itself?

        Is this a good excuse for anything goes “might makes right” governance? Because that’s really what we’re talking about here.

        We’re not talking about some kind of balance of “fairness” between near bankrupt people and a corrupt financial sector and government *that have no restraints.*

        There’s no way that the latter pair can point at the former and go “oh, your debt to income ratio is too high so now we don’t have to play by the rules any more.”

        What the h*ll are you thinking?

        1. Foppe

          Not thinking, moralizing. He’s been talking about the failings of “the people” for a while now, and he keeps making weird points that mostly seem to have something to do with projection…

          1. sidelarge

            Well, he also repeatedly comes in here for the rescue for Europeans, and his entire arguments are based on the fact that the EZ as a whole has less “debt,” as if that would negate the other central problems.

            You couldn’t get more typical as a mindless moralizer than he.

        2. Lafayette

          Is this a good excuse for anything goes “might makes right” governance? Because that’s really what we’re talking about here.

          Of course it isn’t and I don’t see where you read that in my post.

          But blaming just the banksters for our plight is not right either. It takes two-to-tango.

          The US contains consumers par excellence. In fact, we invented the game of consuming, which is studied around the world in MBA program case studies.

          The free-market system for consumer products/services has no secrets for us – we’ve been at it seriously since the end of WW2, when we played catch-up after 10 years of the Great Depression. More recently, we invented the Internet (with a little help from our friends) and now we innovated and implemented dot.com retailing and viral marketing 24/24×7/7.

          We have a Pavlovian reaction to market enticements, so ingrained is our propensity to consume. My point being: It is not necessarily a “positive attribute” because when it becomes excessive, the penalties become very important.

          Mind you, consumption also promotes employment – but our kind of frenzied consumption has been for goods manufactured abroad that were once manufactured in-house. Which does not help domestic unemployment in the least, neither our chronic trade deficit.

        3. Foppe

          Huh? Consumerism is comparable to systemic fraud these days?

          Anyway, JTFaraday said it before, and I’ll repeat it: please stop bloviating about what we are like, and stop offering sophomoric, deterministic analyses of the “We have a Pavlovian reaction to market enticements, so ingrained is our propensity to consume” variety. It is tiresome to read, as well as utterly uninteresting because of its banality, and the only reason you are offering it, is because you feel a misplaced need to spread the blame equally.

        1. Foppe

          I think what was implicit in the “speak for yourself” was that “do not pretend to speak for me” — in other words, learn humility.

        2. JTFaraday

          Let me put it to you this way. What you seem to fail to recognize is that your trolling in favor of *revoking the rule of law* by condemning those “sheeple” who “binged on credit” is NOT going to work with your target audience.

          Apparently you really can’t even think things through enough to be a good troll.

          Fat Cat!, Bankstein– fire this guy. You’re wasting your money.

        3. NL

          What is this anyway?

          I’m sick of this cheap little ‘blame the victim’ argument that makes no senses at all.

          Homeowners did not crash the economy or housing market. No one would lose their home if the market had not crashed — they could simply sell it.

          The reason so many are ‘beyond their means’ is the means have vanished, the housing market and economy are crashed by fraudulent thieves.

          The guilty bankers crashed the market and got bailed out. Homeowners got sold out.

    3. LucyLulu

      If you have read Bill Black, you would know the percentages of subprime loans that were “liar’s loans”, and that most of these loans were not fraudulently obtained by the borrower’s but by the lenders and their affiliates. Borrowers did not falsify their incomes nor did they obtain inflated appraisals. Borrowers did not provide cheap reserves or package and mortgages into CDO’s to sell to investors at inflated ratings, thus creating bubble prices and misleading borrowers that their homes were worth more than they were. Lenders were actively pushing borrowers to take on more debt than they could afford, I bought twice during the bubble, I know the size of loans they were trying to push me to take on, they were outrageous. Fortunately, I had previously owned homes before and knew better, otherwise I would have been liable to assume the lender were the experts and trusted their numbers.

      Those who bought more they can afford have already suffered the consequences, as evidenced by the millions who have lost their homes in foreclosure. They need not look in the mirror, they have paid the price for any foolish mistakes they might have made, as well as the mistakes and fraudulent acts those in the financial industry made. OTOH, not only have the banksters not paid any penalties for their crimes, they have been rewarded for their fraud with billions of dollars of compensations and bonuses as they drove their institutions to the brink of insolvency, requiring bailouts from the same people they defrauded.

      And “we” need to look in the mirror? Borrowers have cut back on their spending and are deleveraging. They have moved away from consumerism, albeit perhaps out of necessity. I think they’ve looked in the mirror quite enough. Meanwhile, the fraud continues. Jon Corzine resigns and will go unprosecuted. I suppose the clients of MF Global who are taking losses need to look in the mirror as well (for investing more than they could afford to lose)?

    4. sidelarge

      Frankly, your Calvinist pontification has no economic or even political relevance. Do that in your room instead of in public.

    5. CaitlinO

      “But we, the sheeple, we’re also part and parcel in the gaming, by binging on cheap credit far beyond our means to pay for it.”

      I get so tired of this blame the victim meme. First, gross generaliztions are never helpful because there are always far far too many individual exceptions. Second, it is not the job of the borrower to determine his credit worthiness. If creditors choose to lend to the indigent, the poor, the unreliable, the debt laden then they need to accept that they will lose a high percent of their capital. Greece, anyone?

    6. Jim Elliot

      It’s a mistake and a waste of time think of “we” the “Sheeple”. The “majority” is getting screwed. Some of “us” understand that, and most of “us” do not.
      The most powerful educating force in the world is what the majority see’s on TV. Vast sums are paid to create the persuasive illusions and even lies that convince “us”.
      Many if not most of “us” will buy the bullshit. That’s why advertising is done. Blaming the “dummies” and suggesting they should wake up is not going to change a thing.
      Educating and Leading them might..

  11. Susan the other

    Rock and a hard place. The Fed admits to a recognition of the magnitude of the financial crisis. It flushed the system with many trillions of dollars. But miraculously it then denies the fact that there was serious wrongdoing and fraud – so there is no reason to go look for any. It amounts to a statement that this extraordinary mess is just normal business. What the Fed, Treasury, Obama, Congress et. al. never say is that OMG! what if the fraud is disclosed and we won’t be able to infuse the system with money because the whole system is based on fraud. We can’t give the banks money if they are fraudsters. That would make us fraudsters…. There is so much pretend government going on it might as well be a childrens’ game.

    They should never deny the situation. It makes them look even worse. Plus it makes us all think they are taking us for fools. They should address it straight on. The work Beau Biden is doing is a step in the right direction. He has called the MERS mess a massive fraud, on MSM even! Ironically, this is really the best damage control for the entire system. Thank god for a few really good state AGs. And always for Prof. Black and NC because without them we would still be in the dark.

    1. F. Beard

      It amounts to a statement that this extraordinary mess is just normal business. Susan the other

      Banking is based on usury and theft of purchasing power amplified via government privilege. How can it NOT result in a mess?

  12. Lafayette

    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…

    From WikiP:

    In an interview on Bill Moyers Journal broadcast April 3, 2009, former bank regulator William K. Black asserted that federal officials were ignoring the PCA law requiring them to put insolvent banks into receivership.[2] The PCA law applies only to institutions insured by the FDIC and therefore would not affect, for better or worse, companies such as AIG.

    It appears, to me, that the law might not have pertained only to the commercial banking side. and not to the investment-bank that had made securitized debt into Toxic Waste.

    That part of a bank could be closed, or placed under Federal tutelage (as some were) but it would have had the same consequence. That is, what’s to be does with the Bad-Debt?

    And the answer to that question, I submit, is that it must be placed in a Bad-Bank and the originating banks reimbursed (at whatever value, market or otherwise) to become recapitalized so that they can continue lending (that is essential in our credit-economy to maintaining employment). Which is what Quantitative Easing was intended to do anyway.

    Which would have left the commercial side in tact and operational. It would have shrunk, however, private American banking significantly.

    I’m not sure that consequence is goodness. Punish the Bankster Management is one thing, but punishing banking in general is quite another. That is, the former is perhaps a matter of criminal negligence but the latter is almost certainly a question of the Public Good (in economic terms, i.e., maintaining consumer access to credit).

    How does one manage an orderly closure of banks in such a situation? When banks close precipitously, it triggers a rush on deposits and that leads to public panic. No – that’s going too far. People get hurt.

    Perhaps the commercial-bank side (with its deposits insured by the FDIC) should have been left to operate privately and the investment-bank be kept under Federal tutelage? Which would have required an act of Congress.

    And Obama would not have obtained that legislation.

    Methinks … just speculating …

      1. JTFaraday

        And it’s really weird that NOW you’re concerned with “we sheeple” having access to credit given your deep concern with “we sheeple” taking on too much debt (speak for yourself) and blowing out our debt to income ratios.

        Thereby making “we sheeple” the rationale for the just revocation of governance guided by the rule of law and the imposition of might makes right totalitarianism.

        You can’t even think anymore, can you?

          1. Foppe

            That roughly sums up the total value of your contributions, yes, were it not for the fact that you’re intentionally trying to inject debris into the comments here.

    1. readerOfTeaLeaves

      Ditto.
      For starters, the Seattle PI ran an op-ed about it way back in… 2004.

      I think the elections in 2012 are going to be mighty, mighty interesting.
      All the electeds and appointeds who can’t seem to say Wm Black’s ‘f-word’ (ie. FRAUD) are probably going to find themselves on the sour end of voter contempt.

      1. Ian Ollmann

        It won’t be interesting because none of the candidates have any interest in making hay over it. The republicans don’t want to alienate finance. Obama would be attacking his own record. The only one would could benefit would be a dark horse democratic challenger. That would be who?

  13. Hugh

    An important point to remember about Holder is that he was a corporate lawyer. So that he continues to protect and run interference for them is hardly surprising. Rather it shows the depths of Obama’s ties to and control by the 1%.

    If you review the Obama Administration, you will find that he included exactly zero progressives in it. There were only a handful of Estabnlishment liberals who made it in and all of them were pushed out early on or left to hang like Dawn Johnsen or Elizabeth Warren.

    In his Administration, Obama has expanded on the excesses of the Bush-Cheney Presidency, which was not just the worst Presidency up to that time in our history but the most viciously retro and conservative. What we need to remember is that Obama is even more conservative than Bush. Look at the last 3 years and both Obama and events make a lot more sense. Look at them as if Obama was some struggling “Democrat” and they make no sense at all.

    Obama smothers investigations into banksters the same way he torpedoes those on torture. The same way he continues and expands on the War on Terror, or just the wars. The same way he backs the expansion of the surveillance state and the shredding of the Constitution. The same way he attacks again and again Medicare, Medicaid, and Social Security. Because that is the agenda of the 1%, and Obama is their man to the core, if he had one, of his being.

    1. Lafayette

      What we need to remember is that Obama is even more conservative than Bush. Look at the last 3 years and both Obama and events make a lot more sense. Look at them as if Obama was some struggling “Democrat” and they make no sense at all.

      You’re shilling for the Republicans, right?

      Obama is about as Republican as Mao Tse Tung. He has had one of the cleanest administrations of any, including Bill Clinton. (So much for the Chicago Gang who think he’s a Daly protégé.)

      You may not like his policies, but he was handed – on a platter – the worst economic mess in 80 years. And you’re upset because, abracadabra, he showed that he could not walk-on-water and pull us out of the Deep Doodoo?

      He passed the first Health Care bill of any PotUS – a feat that Billy-boy and his wife could not even accomplish. And we think that its “creeping socialism”?

      Fifty-two percent of Americans were so piqued at his non-performance as a magician that they stayed away from the polls, thus allowing the T-Party (T for Troglodyte) to control the HofR – from which they have stonewalled any stimulus spending to spark the economy.

      And Obama is to blame? What planet do you live on?

      1. JTFaraday

        Oh boy, Fat Cat! and A Good Bankster assigned you to the wrroong blog. You’re going to be awfully busy here.

        As for me, I’m signing off. I have work to do.

      2. LucyLulu

        Lafayette wrote: He passed the first Health Care bill of any PotUS

        Might I remind you that his “health care bill” mandates everybody buy private health insurance, the biggest windfall private insurers could have ever dreamed of? Or that it failed to implement mass purchases of drugs for Medicare, a windfall of BigPharma?

        I’ve never been under any illusion that POTUS or Congress can deliver the country from a Depression-like economy. It doesn’t change the fact that Obama has been more destructive to the social safety net (he’s been the first to suggest cuts to SS and Medicare) and has expanded the war effort and done more to attack civil liberties than any Republic president could ever get away with.

        Tout ce qui brille n’est pas or.

      3. Up the Ante

        “You may not like his policies, but he was handed – on a platter – the worst economic mess in 80 years.”

        The conspiracy identified in 2004 has been entrusted to Lafayette to perpetuate into perpetuity?

        Absurd.

        As others are saying, you have been assigned to the wrong blog. Retire the personna.

        1. Lafayette

          The conspiracy identified in 2004 has been entrusted to Lafayette to perpetuate into perpetuity?

          Non sequitur. Explain further.

          1. Up the Ante

            He has done nothing to fix it, and now has Lafayette to apologize for him.

            Shilling for the Dems, or is it both.

            Couldn’t be either, must be both.

      4. Hugh

        I think we can tell who the real shill is here. The construction of the kleptocracy under which we live has been going on for 35 years. It has been built under Republican Presidents and Democratic ones, under Democratic Congresses and Republican ones. It hasn’t mattered if the White House was held by one party and the Congress by the other. Sure we get lots of kabuki fights between Democrats and Republicans, but policy? legislation? There is very little difference once you strip out the atmospherics. Or perhaps the appropriate metaphor is that the two parties represent a one-two punch or a tag team. One pushes wars, a corporatist agenda, looting, transfers of wealth away from the 99% to the rich, and the other party comes in a and legitimizes and expands upon these.

        Obama? We all know of the vast chasm, more accurately described as a betrayal, between his actions and his words. But in the larger picture he is just a bit player like Carter, Reagan, Bush I, Clinton, and Bush II were. They were just there to fill a role and make sure the looting kept going and growing.

        1. CaitlinO

          You’ve hit on the problem, precisely. Elections don’t matter in an oligarchy. The Democrats seem to permit the looting of wealth from the 99% at a slightly slower rate than the Republicans, but the direction of wealth transfer is identical under both parties.

      5. Damian

        that still leaves him supporting, aiding and abetting FRAUD and instructing the AG to do the same

        i have never seen FRAUD so blatantly condoned at his level in my lifetime – there have been crooked things for ever but when you rob every family in the USA and dont do one thing about it

        you are the worst President in History nothing less

    2. JTFaraday

      Obama can be impeached for those things too.

      By the time Norman Solomon and the progressives flip Holder to get to Obama– the House Tea Nutters are so excited they practice hitting their vote buttons like they’re going on Jeopardy– Glenn Greenwald will ready to brief them.

      If not, we’ll be laughing Obama and Cheney into rooms at the Hague.

  14. lynda scott

    fraud & predatory policies put into place at the highest levels of government & finance …. fraud via WALL ST. & the CITY of LONDON. The CITY of LONDON is the heart of the matter & no one talks about it. The ROTHSCHILDS sit at the top of the pyramid in the CITY of LONDON & actually dream up schemes to drain wealth & property from countries into their own coffers. It took 100 years … 100 years ago Americans walked around with gold & silver in their pockets, held property & were not subject to taxes on their labor or their property…..all roads lead to bank coffers with the ROTHSCHILDS name on them.

  15. Tim

    “MASW is made up of people who have worked, often for decades, to help those mode in need in our State.”

    I actually constructed an
    alternate meaning for it but then figured
    it was a typo.

    You sir are on of the blessed few who can make the
    complex understandable. Thank you for that.

    I propose that some graduate student at your school
    produce a series of comic books that would make
    the workings of our economy accessible to the young
    masses.

    “Money as Debt” is a great video but it’s too long.

    http://video.google.com/videoplay?docid=-2550156453790090544#

  16. steelhead23

    Dear Dr. Black, Excellent piece, but I believe far more needs to be said about financial ignorance. In brief, whether it is the general disdain for mathematics, or the Protestant ethic that holds that money is the root of evil, or the utter complexity of financial instruments, most Americans know very little about finance, including their own financial health. This disdain, ignorance, and complexity has led to a dependence on experts and as experts have become counterparties to their own customers, have sown the seeds of fraud and abuse. Thus, I believe we here on NC should push for financial education for American kids – make basic finance a requirement for a high school diploma.

    And we need to encourage support for the institutions that can uproot the fraud – that is, the rule of law and a recognition that while investigating and prosecuting fraud may be disruptive of markets, the obvious allowance of continued fraud absolutely destroys confidence in the markets. Thus, Holder’s reluctance to thoroughly investigate and prosecute financial frauds in order to protect confidence in the markets is doing the precise opposite. It is Holder’s/Obama’s failure to recognize this truth that requires their replacement.

  17. MS

    Is it me, or is it really weird that Bill Black mentions “Naked Capitalism” almost every other sentence? Almost like some sort of subliminal advertising……..Strange

    1. Lafayette

      Our once-great nation is enduring the death of a thousand cuts as we, our children and our grandchildren are marched blindly to austerity.

      They are not blind. They have every faculty in place.

      They have been conditioned by economic circumstance and manipulated by political malarkey. But not all is lost.

      We have ability to inform ourselves and vote responsibly – which a great many other countries do not allow their citizens. China comes to mind.

      Of course, neither will bitching-in-a-blog get us anywhere. The answer is in the ballot box, by electing credible/competent representatives into office.

      Which we have systematically failed to do and why we are in the Present Mess. One should not blame others when they are rightly responsible for their part in the error.

      It’s too damn easy. Besides, pointing the finger of blame never solved a problem.

      “We have met the enemy and he is us.” (Pogo, by Walt Kelly)

      1. Foppe

        The answer is in the ballot box, by electing credible/competent representatives into office.
        One should not blame others when they are rightly responsible for their part in the error.

        Ah, so that’s the problem. Culpable Voters, partly accidentally, partly out of stupidity, keep electing incompetent representatives. But luckily, Lafayette tells us, this can be fixed quite easily: all they have to do — nay, all they must do, as we wouldn’t want them to do a silly thing like join OWS — is elect competent representatives.
        This analysis was brought to you by Lafayette; his work courtesy of the Democratic Party.

  18. MS

    “In their faith-based theoclassical economics universe the problem is that the “mob” is seeking to murder innocent bank CEOs by bringing back the weapon of the French terror, the “guillotine.” These are the exact terms used by one of my co-panelists”

    With all their wealth and protection I’m surprised they would be that scared to imagine the terror happening here.

  19. 99 Percenter

    Hi, I am a huge Bill Black fan but I have to say a few words about his reaction to OWS. First off, there are doubtless tons of infiltrators there who will spout negative defeatist attitudes. Also there are stupid radicals who believe that they’ll take the whole system down by breaking some windows. Nonetheless, I don’t think that OWS is the venue to “prosecute control fraud”. Bill, you’ve done a great job bringing that story to the public, but that battle occurs in the courtroom.

    If you think about it, it actually makes sense for OWS to represent ALTERNATE FIXES for the current problems. Like, say, barricading the CEOs of these corporations inside their offices… That way prosecuting control fraud looks like a very appealing alternative. They might even call you begging for help doing exactly that by next year!

    1. Foppe

      Before the “battle can occur in the court room”, it is necessary to first exert pressure upon the “justice” system that forces it to do its job. Because if that pressure isn’t there — or, worse, if the pressure is actually aimed in the opposite direction (“we must look to the future”), nothing happens; so while I certainly agree that the court system is the preferable venue, you should not be under the illusion that the legal system is independent of the larger society.

  20. ECON

    As a citizen north of USA reading the comments esp Bill Black, it is clear that the dysfunctional pyramid the USA is will eventually crumble due to the contradictions that permeate every crack applying ever greater pressure to collapse into a military junta. It was T.H. White (American) in the 1950s wrote that empires fall apart and crumble from within as the contradictions become evident to the 99%. USA is not immune to the forces of history.

    1. aet

      Be careful not to be materially mislead by common abstractions.

      The “forces” of history are , in a real and non-trivial way, IDENTICAL with the “subjects” of history – that is, with the people whose actions and words you are contemplating whilst “using your historical sense”.

      I mean to say, that I often see people out and about and doing what they do: but I have yet to see any “forces of history” working on them. I’m simply not that much of an idealist. OTOH, maybe I’m just not very perceptive.

  21. pj

    This should prove to anyone reading that Holder is part of an organized group which is profiting from turning the other way. After all, it’s just a temporary job, and you have to make hay while the sun shines.

    Or, so I believe they tell themselves.

Comments are closed.