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Bill Black: Yglesias Pours the Geithner, Holder, Breuer (GHB) Banksters Immunity Doctrine in our Drinks

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Yves here. Some readers may not get Black’s joke. GHB (gammahydrabuterol) was demonizied as a date rape drug when it was legal and is now a Schedule 1 drug.*

By Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City.

It’s early, but Salon has published on January 30, 2013 either the funniest or saddest column of the year to date: “Are Banks Too Big To Prosecute?

The column is attributed to Matthew Yglesias, a blogger who studied philosophy as an undergraduate. It could be a brilliantly ironic satire of the Geithner, Holder and Breuer doctrine of immunity for banksters (which I am dubbing “GHB” for short). GHB is the “roofie” that the Obama administration gave us so the banksters could screw us repeatedly with impunity. Alternatively, and far more likely, Yglesias has written the saddest and most immoral apologia for elite white-collar crime that has yet made it into electronic bits. It takes a rerouted beginning student of philosophy, posing as a commentator on finance, to replace what should be a discussion that includes virtue ethics with a virtue-free, criminology-free, and economics-free apologia for the felons who became wealthy by costing the Nation $20 trillion and 10 million jobs.

Matthew Yglesias wrote a similar column on April 14, 2011 embracing the Geithner immunity doctrine. He titled it: “The Fraud Free Financial Crisis” – and it proves our family’s rule that it is impossible to compete with unintentional self-parody. In 2011, Yglesias thought we might be experiencing the first “Virgin Financial Crisis” – conceived without sin.

Here was how Yglesias stated his position in 2011:

[T]he key sentiment underlying the whole thing is that the Obama administration felt it was important to restabilize the global financial system. That meant, at the margin, shying away from anxiety-producing fraud prosecutions. And faced with a logistically difficult task, that kind of pressure at the margin seems to have made a huge difference. There simply was no appetite for the kind of intensive work that would have been necessary.

Tim Geithner’s judgment was probably correct.

I replied to Yglesias’ column on April 16, 2007, in an article entitled: “Fiat Justitia Ruat Caelum (Let Justice be done, though the Heavens Fall).” The article explained why the best means to prevent the financial heavens from falling was to insist on that the rule of law apply to even the most powerful elites.

I find it strange that neither of Yglesias’ columns on a subject that has a vital ethical component discusses the ethics of his support for giving elite bank frauds immunity from the criminal laws. Yglesias’ relevant expertise on this subject was in ethics.

The context of the excerpt quoted below is that Yglesias is disturbed that “the populists”, as exemplified by Frontline’s documentary, “The Untouchables,” are winning the debate as to whether the elite bank frauds should be prosecuted. Here is his reasoning:

So the populists win that round. But I think that returns us to the real policy question. Would prosecution of major banks have been a good idea? Luigi Zingales is mighty breezy on this subject.

Here’s the counterpoint. When I first moved to D.C., I opened an account at Riggs Bank since Riggs was close to my house. The next year, Riggs ended up in tons of legal trouble since it turned out to have been complicit in a lot of illegal money laundering. That’s shifting frozen funds to indicted war criminal Augusto Pinochet, helping the dictator of Equatorial Guinea conceal funds stolen from his population, and the financing of al-Qaida terrorists. Serious stuff. Serious investigation. Serious penalties. The upshot was to make the bank nonviable, and it got taken over by PNC Bank out of Pittsburgh. A midsized regional bank facing prosecution and being taken over by a larger regional bank from a geographically adjacent region is bank regulation as it’s supposed to be done. But what if the DOJ had prosecuted Bank of America or Citigroup into nonviability in 2009? Who was going to buy them? Nobody! That was the whole point of TARP and all the rest.

Had you secured criminal convictions against these megabanks, you’d have had to nationalize them and assume their liabilities or else face an economic catastrophe. But if the Obama administration wanted to nationalize the banks, it could have secured that outcome without the bother of criminal prosecution. They decided nationalization was bad public policy. Others disagree. That was an interesting debate in 2009, and I think it remains an interesting debate today. At the time I was an ardent nationalizer. In retrospect I’m not so sure.

But either way, implementing a non-nationalization approach to bank recapitalization and then prosecuting the banks into a renewed state of insolvency and then nationalizing them would have been nuts. If saving the banks was a mistake, then the error had nothing in particular to do with prosecutions, and if saving the banks was the right thing to do, then curtailing prosecutions was the only way to execute the strategy.

I do not know what Yglesias intended to convey by the use of the word “breezy.” The article by Zingales that Yglisias criticizes discusses an econometric study that adds another confirmation that fraud by mortgage lenders was “endemic.” Yglesias makes no effort to refute or even question the econometric study, so under normal uses I would describe Zingales’ discussion as “thoughtful” and Yglesias’ ad hominem dismissal of Zingales’ analysis as “breezy.”

Yglesias then discusses Riggs Bank, a particularly destructive and dishonest bank run by the Allbritton family. Yglesias cites the Wikipedia article on Riggs as his source. The article can be found at this link:

http://en.wikipedia.org/wiki/Riggs_Bank#Repercussions

Yglesias’ summary of Riggs activities and the governmental response is:

Serious stuff. Serious investigation. Serious penalties. The upshot was to make the bank nonviable, and it got taken over by PNC Bank out of Pittsburgh.

Riggs’ actions were beyond “serious.” They were criminal and they helped murderous national leaders commit murder, loot their Nations, and hide their crimes and the money they looted from U.S. and international prosecutors. Were there “serious investigations”? Not so much according to the article Yglesias relies on. The Office of the Comptroller of the Currency (OCC) failed to investigate competently for many years. Its examiner-in-chief of examining Riggs left the government and took a job with Riggs.

There were no “serious penalties” – in large part due to the weakness of the investigations. The senior officers who directed and were enriched by Riggs’ crimes were not prosecuted. Riggs became richer and more powerful through its crimes and its senior managers’ reputations were made by those illegal profits. Joseph Allbritton was inducted into the Washington Business Hall of Fame in 2002. A lower level Riggs officer was criminally investigated – but he was alleged to have embezzled from the bank.

The so-called “serious penalties” were a $25 million OCC penalty and a $16 million penalty for money laundering. At those low levels of penalties crime paid. It paid very well. The amount of funds Riggs was able to manage because it aided the looting of Equatorial Guinea was massive: $360 million. Riggs had $6.4 billion in total assets.

The same article described Riggs’ profits as “anemic” even with the benefit of Riggs’ many crimes. That was because of Riggs’ expenses – generous compensation, expensive branches, and glorious perks.

The high profits that Riggs made through its crimes were the only thing that kept Riggs profitable despite being bled by its senior officers.

Yglesias claims that the minor penalties made Riggs “nonviable” and that the regulators saved it by arranging an acquisition by PNC Bank.

The upshot was to make the bank nonviable, and it got taken over by PNC Bank out of Pittsburgh. A midsized regional bank facing prosecution and being taken over by a larger regional bank from a geographically adjacent region is bank regulation as it’s supposed to be done.

The reality is that Riggs was not made non-viable by the small penalties but by the requirement that it cease its highly profitable crimes. PNC did not acquire Riggs with the aid of FDIC insurance. It paid money to acquire Riggs. The regulators did not pick an acquirer with a strong reputation for integrity in order to clean up the Riggs cesspool.

In June 2003, PNC Bank agreed to pay $115 million to settle federal securities fraud charges after one of its subsidiaries fraudulently transferred $762 million in bad loans and other venture-capital investments to an AIG entity in order to conceal them from investors.

Yglesias claims that this travesty of failing to regulate, prosecute, and appropriately resolve a criminal bank enterprise (Riggs) represents “bank regulation as it’s supposed to be done.” That phrase is either irony of such subtlety that it represents genius or unintentional self-parody that is so embarrassing that it makes the reader cringe.

I can assure Yglesias that the regulation of Riggs violated virtually every principle by which we judge regulators.

I don’t expect Yglesias to understand regulation or regulators, but even without relevant expertise about regulation he should have been able to see the total lack of integrity his preferred system of immunity for elite bankster frauds would create. I cannot think of any philosophical basis for believing that the senior officers of a large bank should be allowed to become wealthy by causing their bank, unlawfully, to aid murderous Dictators loot “their” Nations. The senior officers’ actions are profoundly unethical and they set the “tone at the top” that determine a bank’s ethical culture.

Yglesias’ anti-regulatory/anti-prosecution system would eliminate deterrence. Most importantly, it would create a devastating “Gresham’s” dynamic.

[D]ishonest dealings tend to drive honest dealings out of the market. The cost of dishonesty, therefore, lies not only in the amount by which the purchaser is cheated; the cost also must include the loss incurred from driving legitimate business out of existence. George Akerlof (1970) (his seminal article on markets for “lemons”).

Fraud is a dynamic process and elite frauds are not random. Control frauds beget other control frauds. They are strongly criminogenic. Control frauds exist in all three major sectors – private enterprise, NGOs, and government. Government control frauds (“kleptocrats”) loot “their” Nations. Kleptocrats create and seek out other control frauds, such as Riggs Bank, that will aid their looting. Riggs Bank’s aid to the Dictators of Chile and Equatorial Guinea helped them murder and torture thousands of people. Control frauds are weapons of mass economic destruction, but many control frauds also maim and kill large numbers of people. Yglesias thinks a $46 million penalty assessed to a bank with $6.4 billion in assets – not the controlling officers – represents a “serious penalty” for hundreds of crimes that continued for over a decade and produced considerably greater income for the bank than the penalties and helped make the controlling officers wealthy.

Yglesias’ article deteriorates sharply when he moves from discussing Riggs to the current crisis.

But what if the DOJ had prosecuted Bank of America or Citigroup into nonviability in 2009? Who was going to buy them? Nobody! That was the whole point of TARP and all the rest.

Had you secured criminal convictions against these megabanks, you’d have had to nationalize them and assume their liabilities or else face an economic catastrophe.

Consider the phrase “prosecuted [the bank] into nonviability.” I will discuss only three of the obvious problems with Yglesias’ reasoning. First, a prosecutor can avoid the entire supposed dilemma by prosecuting the senior officers who directed the fraud rather than the bank.

Second, a bank is not “prosecuted … into nonviability.” A bank is nonviable because of its crimes and having senior managers who are criminals. There are two variants (though both can happen at very large banks). In an accounting control fraud the senior managers loot the bank, as George Akerlof and Paul Romer explained in their famous article – “Looting: the Economic Underworld of Bankruptcy for Profit. It is essential that the officers who control an accounting control fraud be removed and prosecuted as soon as possible. Doing so is the only rational way of restoring the bank’s viability. Other forms of control fraud produce real, but grossly unethical profits. Examples of such frauds include aiding tax evasion, money laundering, evading governmental restrictions on funding terrorists, illegally foreclosing on lenders, selling grossly inappropriate investment products to seniors, and evading governmental restrictions on funding rogue Nations. Allowing such a fraud to continue can cause great harm to society and produce a powerful Gresham’s dynamic that can cause endemic fraud – precisely what Zingales was warning about. If a bank is nonviable without profits it earns from fraud or if its crimes cause such massive losses to society that if it paid damages to its victims it would fail – then the bank is nonviable. The bank’s officers’ crimes made the bank nonviable – not the prosecutors.

Third, consider the alternative of providing de facto immunity to systemically dangerous institutions (SDIs) (the so-called “too big to fail” banks). The SDIs already have competitive advantages over smaller banks that the conservative economic authors of Guaranteed to Fail describe as being equivalent to “bringing a gun to a knife fight.” The Geithner, Holder, and Breuer (GHB) immunity plan for SDIs would enshrine crony capitalism and imperil our economy, our democracy, and our National integrity.

Then there’s Yglesias’ use of the word “nationalize” to describe placing a failed bank into a “pass-through” receivership. We placed over a hundred S&Ls into receivership under President Reagan and hundreds under the first President Bush and I never heard the term “nationalize” used to describe the process. The term was never used for a good reason. We used “pass through” receiverships to place an S&L in receivership on Friday and reopen it on Monday (the ATMs were available even more quickly). The new, federally chartered bank is placed under the direction of a CEO who was a contractor, not a government employee. The CEO was an experienced bank manager with a strong reputation for integrity. He or she had the responsibility to detect frauds and unethical behavior by the bank and its agents, remove such people and end the abuses promptly, make criminal referrals, and assist the FBI and the Justice Department in investigating and prosecuting the officers who engaged in fraud. The CEO’s other major responsibility was to put the bank in shape to be acquired. Bank of America and Citicorp could, and should, have been split up into far smaller banks that would no longer pose a systemic risk and would be far more efficient. The receiver would have begun this planning. There would have been many acquirers once the initial shock of the crisis was broken by the Federal Reserve’s provision of massive amounts of liquidity (a program that vastly exceeded TARP).

The term “nationalize” was used only in this crisis – to delegitimize placing failed banks into receivership. Fox Business News once tried to grill me on my support for placing fraudulent banks in receivership. They demanded that I acknowledge that it was “socialistic.” I responded that if that were true they had just established that Reagan was a secret Communist.

The truly bizarre aspect of this misuse of the term “nationalization” is that the Obama administration embraced it. By discouraging actions to clean up fraudulent SDIs, the administration enhanced its twin goals of granting the SDIs immunity and minimizing criticism of that practice. The Treasury is already on the hook for SDI’s liabilities. Placing a fraudulent SDI in receivership adds greatly to the stability and integrity of a financial system and reduces ultimate losses to the Treasury. As I have explained many times, the idea that one produces financial stability by leaving fraudulent senior officers in charge of SDIs is beyond delusional.

Note that Yglesias adopts the SDIs’ and GHB’s doctrine of immunity – the view that the SDIs hold the global economy hostage to their (and their senior officers’) ability to commit felonies with impunity. If one grants that premise, then the global economic priority would have to be the elimination of all SDIs by mandated shrinkage to the point where they no longer created a systemic danger and could no longer extort the ability to defraud with impunity. But Yglesias has never joined our call for regulations that would take even that most minimal of steps necessary to reestablish the rule of law and restore our Nation’s democracy and financial stability. The GHB doctrine enshrines deliberate injustice as a National policy and it is a National disgrace.

Yglesias’ final paragraph attempts to use logic to claim that it follows ineluctably that:

But either way, implementing a non-nationalization approach to bank recapitalization and then prosecuting the banks into a renewed state of insolvency and then nationalizing them would have been nuts. If saving the banks was a mistake, then the error had nothing in particular to do with prosecutions, and if saving the banks was the right thing to do, then curtailing prosecutions was the only way to execute the strategy.

For the reasons I have explained, this “logic” is unworthy of anyone who has ever received even an introduction to the study of logic. It ignores the ready, and highly desirable, alternative of prosecuting the senior officers who directed the crimes and grew wealthy through the SDIs’ crimes. Criminologists, regulators, and prosecutors all agree that this is the superior strategy – yet it disappears as an option because Yglesias realized he had to stack the deck if he were to give his claim even a patina of apparent logic.

Yglesias also knows nothing about “insolvency.” We changed the accounting rules – under intense political pressure from the SDIs, working in an odd (but revealing) lobbying coalition that included the Chamber of Commerce, Federal Reserve Chairman Bernanke, and the Obama administration for the express purpose of allowing the SDIs to fail to recognize their losses. Accounting fraud, however, does not make an SDI solvent; it simply allows it to pretend it is insolvent and it allows Geithner to claim that he is a genius who restored the SDIs to health (other than Fannie and Freddie).

Yglesias does not understand that as long as you leave the fraudulent senior officers in control they have an overwhelming interest in continuing to lie about the SDIs’ financial condition. It is absolutely essential to find the true facts about the SDIs losses – an action that the Bush and Obama administration prevented at every key stage. The stress tests, for example, are carefully designed not to find existing losses on bad assets. Two factors are essential to determine the real losses. First, one must ensure that the controlling officers have strong incentives to identify the losses instead of covering them up. “Pass through” receiverships do this superbly well. Second, one must investigate problem assets. Vigorous criminal investigations greatly aid in the detection of losses that were being covered up by the fraudulent managers. Our mantra in criminology with respect to sophisticated financial frauds is that if you don’t look; you don’t find.

Yglesias writes as if “insolvency” were some purely scientific measurement that was conducted by the regulators and that we know that the SDIs were insolvent in 2008 but are solvent now. We know no such thing. Yglesias has no concept of how to conduct a rigorous financial investigation. Think about Geithner’s incentives under Yglesias’ take on “solvency.” If Geithner ordered a rigorous investigation of the SDIs’ solvency and found that several SDIs were insolvent or even badly undercapitalized, then he (1) would be transformed into a failure and (2) he would “cause” a global crisis by triggering a “catastrophe.” Under Yglesias’ own framing of Geithner’s incentives we can only conclude that Geithner’s (and the regulators’) claims that all is well at the SDIs have no credibility because of a powerful bias by the SDIs and the regulators to hide losses.

Consider the errors in this phrase: “If saving the banks was a mistake, then the error had nothing in particular to do with prosecutions….” We don’t need to “sav[e] banks.” This argument only arises as to SDIs – the Bush and Obama administrations decided not to “save” hundreds of smaller banks. SDIs are far too large to be efficient and they create systemic crises such as the Great Recession that cost this Nation $20 trillion in lost wealth and 10 million jobs. Eliminating SDIs is, logically, our second highest economic priority (after ending our terrible current unemployment crisis). Even regulators who believe that SDIs are “too big to fail” (TBTF) do not mean that they are too large to place in pass through receiverships. TBTF has always been a misleading phrase. It actually means that we save the SDIs’ general creditors – not the SDIs. The fear is that if the general creditors (who are often banks) of an SDI were to suffer severe losses it might produce “cascade” failures that would cause a wave of failures by creditors, including many banks and cause a global financial crisis.

The “mistake” in refusing to place fraudulent banks in pass through receiverships had a great deal “to do with prosecutions.” The fact that the senior officers controlling many of our SDIs were directing “control frauds” was a prime reason why it was vital to place the SDIs in pass through receiverships and appoint new CEOs who would find the SDIs’ true financial condition and detect, fire, and help prosecute the fraudulent officers. Only someone like Yglesias who was “Roofied” could believe that adopting GHB’s doctrine of immunity for SDIs – keeping fraudulent officers in charge at our Nation’s largest financial institutions – had “nothing in particular to do” with whether it was a mistake not to place the fraudulent SDIs in pass through receiverships.

Yglesias ends his attempt at logic by repeating his false framing of the policy options and employing euphemisms: “if saving the banks was the right thing to do, then curtailing prosecutions was the only way to execute the strategy.” I begin with the euphemism – GHB’s doctrine did not “curtail prosecutions” of SDIs and their managers for the frauds that drove the financial crisis. They prevented virtually all prosecutions of elite bank fraudsters and fraudulent banks. Indeed, they prevented virtually all prosecutions of senior officers of even non-elite banks. Worse, as we have been saying for years and as “The Untouchables” confirmed – GHB’s immunity doctrine prevented even vigorous criminal investigations of the SDIs. That denied us the facts about fraud, including how much the senior officers gained in wealth through fraud, how large were the losses their frauds caused, and how deeply did the losses drive the SDIs into insolvency. The failure to investigate and prosecute also minimized any reputational injury to the frauds – maximizing their ability to defraud us in the future. I’ve already pointed the deliberate abuse of logic exemplified by Yglesias’ false claim that preventing “prosecutions” was “the only way” of “saving the banks.” We can prosecute the SDI officers who directed the control frauds and grew wealthy through those frauds without having to prosecute the banks.

But perhaps I am being too fair to Yglesias. Perhaps he is saying that if we successfully prosecuted the SDIs’ controlling officers for using the SDIs as “weapons” to defraud the SDIs’ customers, creditors, and shareholders then we would inherently establish that the SDIs were liable through civil suits for the massive damages their frauds caused. (A corporation is normally liable for the wrongs of its officers committed in their capacity as officers.) Indeed, successful prosecutions and guilty pleas could establish “collateral estoppel” and allow the victims to easily win their civil cases against the SDIs. The damages in these civil suits should be extraordinary because fraud allows the recovery of punitive damages and the SDIs committed so many crimes that treble damages are available against the SDIs through civil RICO suits. Perhaps Yglesias, like GHB, believes that it is essential that we not be allowed to hold the officers accountable criminally and that we must act to prevent the victims of the SDIs’ frauds from receiving more than token recompense from the SDIs lest we fail to “save the banks” (by which he really means “save the SDIs”). Does Yglesias want the U.S. to add to the injury to the victims and to provide further aid and comfort to the elite fraudsters by declaring immunity from prosecution for the officers who grew rich through fraud?

___
* My endocrinologist was outraged by the campaign against GHB, because it produced a very high quality sleep and was out of your system in 4 hours. He strongly suspected Big Pharma was behind the date rape scare, since GHB was superior to prescription sleeping pills (and pretty much any barbiturate in alcohol will knock someone out).

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68 comments

    1. g

      gamma-hydroybutyric acid… a substance with many uses… as is its precursor gamma-butyrolactone, and the related 1,4 butanediol… its an industrial cleaner, a body-building supplement, a narcolepsy treatment, and an intoxicant…

  1. anon y'mouse

    dayummm- you ripped that little pissant a new one, Mr. Black!

    as a fellow errant philosophy student (sort of), i can only say that Kant would not approve of Senor Yglesias. actually, neither would Aristotle. Mill might get behind the whole “keeping the banks alive causes less harm than doing them in” argument, but that Utilitarianism was wishy-washy anyway.

  2. Dr. Pitchfork

    Yglesias clearly has no idea what he’s talking about. I’m grateful for Bill Black’s response, and it’s nice that Yglesias’s article gives Black the opportunity to write what he did. However, Yglesias is just Making Stuff Up. Wouldn’t know a CDO from a ham sandwich.

  3. jake chase

    Great piece, Mr. Black.

    I have no idea who Yeglesias is. I thought he was one of those guys referred to these days (oxymoronically?) as a “recording artist”.

    Does anyone else remember the time when banks were limited to one location, then to one State? Clearly, we need megabanks no more than we need cancer, and for the same reason.

    1. Patty Uagon

      Indeed. Unfortunate though that you have to waste your valuable time and expertise dealing with clarifying and debunking such idiocy and propaganda.

      BTW, the link went to slate, not salon. The latter would surprise me less, corporate-controlled (via adverstising) latte-neo-liberal mouthpiece that it is.

  4. Punkyclown

    The President and therefore his administration knows where there marching orders come from. Immunity for banksters has been built in to the system. You will never get any administration from here on out to go after banking fraud. They will not even entertain the thought. The banksters have free right to steal from any and all that they can. And feel completely justified in doing so. It’s called doing business in America, the rich elites have no feelings of guilt. The poor and the working class have assumed it all.

  5. Ruben

    It looks like the fight of a pit bull and a chihuahua. Come’n, Yglesias is a charlatan, why spend so much time tearing him to pieces?

    Anyways, one small correction:

    “Riggs Bank’s aid to the Dictators of Chile and Equatorial Guinea helped them murder and torture thousands of people.”

    That’s not true, at least as far as the Chilean dictator is concerned. He stole money from a reserved presidential account, used for ceremonial things, and hid it in Riggs Bank. When he stole the cash, the murders and torturing have all ceased more than 10 years ago.

    You might try to be more careful with facts, but otherwise excellent article. Thanks.

    1. H. Alexander Ivey

      Sir, your “small correction” itself looks like a cheap shot. Was the Chilean dictator a personal friend? Offer some evidence of Mr Black’s incorrect statement(s).

      1. Ruben

        Regarding my assertions, you can do your own research.

        Dr. Black can be a bit theatrical, humble commenter is trying to polish some rough edges.

        Mr. Pinochet was no friend of mine, but I heard him laying down bare the essence of neoliberalism, in one short sentence, in his own hillbilly manner, straight out from Dr. Friedman’s disciples.

          1. Ruben

            Yes sir, right away sir! ;-P

            Don’t be lazy, just go to duckduckgo.com and search for Pinochet Riggs and check the dates. The Riggs case happened when Pinochetr was no longer president. What a lame challenge Mr. Allin.

            I’m in talkative mood. I was in Chile on and off doing business, when the case exploded. It was such a chicanery to steal from the reserved funds (“fondos reservados”) but it was really easy since those were funds that the notoriously simple-minded general need not back up with documents. He just declared that he needed them to carry out “duties of State”.

          2. lambert strether

            People who make a claim should back it up with evidence and/or linky goodness when challenged. G.G. Allin is right.

            If everybody applied Ruben’s principle, the NC comments section would become a morass of random unsupported assertions and “he said/she said.” That would be bad.

        1. lambert strether

          It’s OK for the (well paid and influential) Yglesias to abuse the facts, but not OK for Black to deploy the tools of academic controversy? There’s a recipe for holding the press accountable!

      1. Eureka Springs

        Indeed. He defines the so-called left, certainly much of its meme, in America today.

        IIRC, Riggs owns Politico. Perhaps it’s all a simple as Sinclair’s old expression and Hugh’s constant important reminder about the fact we live in a Kleptocracy. Yg may be looking to maintain friends inside his circle or even make a move and get a raise. Either way it’s amazing how a terrible pop song can be so popular for so long. He’s at best an old tired one hit wonder.

  6. bmeisen

    Would shareholders be adversely affected, e.g. wiped out if an SDI went to pass through receivership? If so then isn’t it problematic to claim that an SDI could be placed in pass through receivership as easily as an S & L, especially given the number of shares and their distribution? I imagine that GHB wanted to keep a straight face when praising the Ownership Society. If there had been another hit like Enron then their addresses to the Chamber of Commerce would have been picked up by Comedy Central.

  7. H. Alexander Ivey

    Yglesias’s philosophy is fedualism, loyality to a central person, usually the one who pays you. So he is a BS’er; lies and truth are irrelevant to him, they have no meaning. “Truth” is whatever the one person Yglesias serves, wants. Or it is whatever will make Yglesias look important (LOOK important, NOT be correct or logical). So arguing with him over philosophy, if your philosophy uses a yardstick based on a non-human being (God) or based on the-greatest-good-for-the-greatest-number or even on respect-for-person, is a non-starter.
    Unfortunately, the above critique applies to many others in the DC circuit…

  8. Goin' South

    Yglesias and Ezra Klein are born of the same primordial blogging stew that produced Kos and Atrios. They worked as a team to promote each other even though about all the unites them is atheism and support for LGBT rights–and perhaps a desire to make a nice, easy living.

    Don’t get me wrong. There’s nothing wrong with atheism. And from the perspective of 2013, it must be admitted that these fellows’ blogs did contribute to a remarkable, positive social revolution re: gay equality, but otherwise, the fizzling of the “blogging revolution” and its almost complete lack of attention to class issues and social justice can be blamed in part on how that early history played out.

    At Harvard, Yglesias wrote for the Independent, a conservative rag with a Propertarian bent that was created to counter the Crimson. As for philosophy, it’s clear that Yglesias is more Nozick than Rawls, but more fundamentally, the mentioning of “ethics” and Yglesias in the same sentence demonstrates that Black is an old codger like me, out of touch with these post-ethical times.

    1. Nathanael

      Yglesias is annoying, because he regurgitates conventional wisdom when he should know better. For his sins, he got jobs with Big Money Media.

      Atrios is practically always right, and spends his time finding the soundbite for “right”. He’s stopped linking to Yglesias. Of course, he didn’t get jobs with Big Money Media.

  9. par4

    Yggles is beyond reeducation. He should be put shovelling and wheelbarrowing shit at a huge poultry operation.

  10. from Mexico

    Bill Black said:

    I cannot think of any philosophical basis for believing that the senior officers of a large bank should be allowed to become wealthy by causing their bank, unlawfully, to aid murderous Dictators loot “their” Nations.

    I Can. Here’s how Andrew M. Lobaczewski puts it in Political Ponerology:

    It is a common phenomenon for a ponerogenic association or group [an association or group of psychopaths, sociopaths and other lesser characteropaths] to contain a particular ideology which always justifies its activities and furnishes motivational propaganda. Even a small-time gang of hoodlums has its own melodramatic ideology and pathological romanticism. Human nature demands that vile matters be haloed by an over-compensatory mystique in order to silence one’s conscience and to deceive consciousness and critical faculties, whether one’s own or those of others.

    If such a ponerogenic union could be stripped of its ideology, nothing would remain except psychological and moral pathology, naked and unattractive.

    Here’s a slightly different take from Reinhold Niebuhr:

    [I]t is impossible to justify the degree of inequality which complex societies inevitably create by the increased centralisation of power which develops with more elaborate civilisations. The literature of all ages is filled with rational and moral justifications of these inequalities, but most of them are specious… No impartial society determines the rewards. The men of power who control society grant these perquisites to themselves… Most rational and social justifications of unequal privilege are clearly afterthoughts. The facts are created by the disproportion of power which exists in a given social system. The justifications are usually dictated by the desire of the men of power to hide the nakedness of their greed, and by the inclination of society itself to veil the brutal facts of human life from itself… They therefore invent romantic and moral interpretations of the real facts, preferring to obscure rather than reveal the true character of their collective behavior.

    – REINHOLD NIEBUHR, Moral Man and Immoral Society

    1. Ruben

      Mexican gringo, thanks for the quotes hombre. It describes perfectly well what after careful observation and reflection has dawned on me as the ethical foundations of that most remarkable and consequential “group of psychopaths, sociopaths and other lesser characteropaths”, namely, statemen. They will lie tiredlessly, kill and maim, rob and defraud, do all kinds of evil, but all of that can be and will be construe in their minds as for “reasons of State”, “the greater good”, …, “reasons of State”.

      Mere mortals who have not grasped this concept will not understand Obama for hiring Geithner, Putin for Beslan, the nuclear frying of little japanese children, the raping of all German women by the Red Army, and so many other admirable works of the State. But it is often the most simple statemen, the Pinochet’s and the junior Bush’s of the world, who provide the best glimpses into the mind of the great people doing all their deeds for reasons of State. So was Bush junior when he said: Fellow Americans I will to lie to you in order to protect you. So candid.

      1. from Mexico

        Ruben said:

        But it is often the most simple statemen, the Pinochet’s and the junior Bush’s of the world, who provide the best glimpses into the mind of the great people doing all their deeds for reasons of State.

        I think it is a mistake to place Bush in the same league with Pinochet, or the United States in the same league as post-Pinochet Chile. As George Orwell put it:

        All such arguments boil down to saying that half a loaf is the same as no bread. In England such concepts as justice, liberty, and objective truth are still believed in. They may be illusions, but they are very powerful illusions. The belief in them influences conduct, national life is different because of them. In proof of which, look about you. Where are the rubber truncheons, where is the castor oil? The sword is still in the scabbard, and while it stays the corruption cannot go beyond a certain point.

        — GEORGE ORWELL, “England Your England”

        The human condition, even at its best, isn’t perfect. Far from it. But what both Lobaczewski and Hannah Arendt (in The Origins of Totalitarianism) argue is the existence of a political, economic, social and cultural disease that, if left untreated, progressively takes control of the body politic. Liberalism, for instance, because of its “oversimplification of reality” is “easily adapted and used in political propaganda.” Liberalism facilely morfs into fascism, and fascism into Nazism.

        It is absolutely necessary to study these phenomena, however, and to see where Bush or Obama might fit on a scale with Hitler and Pinochet at one extreme. As Lobacewski explains:

        If physicians behaved like ethicists, i.e. relegated to the shadow…relatively un-esthetic disease phenomena because they were primarily interested in studying questions of physical and mental hygiene, there would be no such thing as modern medicine… In spite of the fact that the theory of hygiene has been linked to medicine since its ancient beginnings, physicians were correct in their emphasis upon studying disease above all. They risked their own health and made sacrifices in order to discover the causes and biological properties of illnesses and, afterwards, to understand the pathodynamics of the courses of these illnesses. A comprehension of the nature of the disease, and the course it runs, after all, enables the proper curative means to be elaborated.

        1. Ruben

          I don’t agree with the half loaf of bread analogy but I am trying to stress a different point, motivated by your great quotes from Lobaczewski and from Niebuhr. That the stateman or statewoman becomes less morally bound that the private individual because individual morality is overcome in the state-person by the reasons-of-State logic, and the higher the person climbs the State hierarchy the less morally bound that person becomes.

        2. Nathanael

          Conservatism has a much, much more extreme oversimplification of reality — believing in a magical golden time of perfection in the past — and as such, conservatism morphs into totalitarianism *far* more often than any other semi-legitimate philosophy.

    2. jake chase

      Is a ponerogenic association like, say, the University of Chicago economics faculty? Or, the law and economics fraternity wherever situate?

      Can anybody join, or do you need sponsorship?

  11. Mary Bess

    The Bankster Crisis calls out for a Special Prosecutor. Public sentiment would support it. The criminality engaged in by banksters and the threat they continue to pose to the well being of the population demand it . How do we proceed?

    1. geojos

      Off topic, but I am amazed at how many want to punish undocoumeted workers for crossing the border to support their families with humble wages, but say nothing about punishing the bankers that imploded the economy and cost all of us money and heartache. The workers at least perormed needed serives and gave back much to businees and govrnment much of what they earned ( buying food, clothes, rents, sales tax, etc.) Of course, most bankers are white males. Sorry for the rant.

  12. timotheus

    A minor quibble with Yglesias: Pinochet was not a “war criminal” unless torturing thousands of your own citizens and dropping their bodies, alive and dead, from helicopters into the Pacific Ocean constitutes “war.” That usually applies to conflicts between or among nations, not the act of turning the monopoly of force held by armed forces against the nation’s own citizens. Pinochet was simply a “criminal.”

  13. from Mexico

    Bill Black said:

    It is absolutely essential to find the true facts about the SDIs losses – an action that the Bush and Obama administration prevented at every key stage. The stress tests, for example, are carefully designed not to find existing losses on bad assets.

    This is the really scarry part. We are clueless as to what the true financial status of the TBTF banks is. It’s entirely possible that they are in worse shape now than they were in the spring of 2007: completely, hopelessly insolvent because the fraud has continued unabated. The criminals are still in charge.

    This is identical to what happened during the first eight years of the S&L crisis. The solution pursued by Bush and Obama is the “Reagan solution,” which boils down to denying a problem exists and then deregulating even further, hoping the problem will self-correct. Even though the S&L crisis began in 1980, “Resolution of the S&L crisis did not really begin until February 6, 1989, when newly inauguated President George Bush announced his proposed program, whose basic components were enacted later that year in FIRREA.” Between 1980 and 1988, the problem was downplayed and an appropriate response was avoided “partly to the continued reluctance to admit that taxpayer dollars would be required, and partly to the fact that members of both political parties were vulnerable to criticism for their role in the crisis.” ( http://www.fdic.gov/bank/historical/history/167_188.pdf )

    As a result of leaving the criminals in charge for so long, and giving them impunity, the S&L crisis ended up costing American taxpayers many times what it would have if it would have been dealt with expeditiously. As the report I cited earlier concludes, “the S&L crisis highlights the importance of promptly closing insolvent, insured financial institutions in order to minimize potential losses.”

    What if the GFC is on a similar timeline to the S&L crisis and we’re just now sitting at 1986, six years into the crisis? If that comparison is apt, we ain’t seen nothin’ yet, and the worst — far, far worse than what we’ve seen so far — is yet to come.

    1. Nathanael

      That’s approximately where we are. There’s a lot of other stuff going on simultaneously, though. The failure of the US political system is a relatively minor one. Global warming is the big one which will eclipse *everything*.

  14. Incongruity

    Bill —

    You say you replied to Yglesias’ 2011 column with something you wrote in 2007?

    Shit man, fuck the ideological battles. Ever seen Back to the Future? Just get a Sports Alamanac and be done with the rest.

    1. from Mexico

      All that for what obviously is a mere typo?

      Yglesias’ article was published on April 14, 2011.

      If you will follow the link for Black’s article, you will see it was published on April 16, 2011, not 2007.

  15. Gil Gamesh

    My god. The raw courage it takes to argue, cogently, conclusively, that the rich and powerful must be immunized from any criminal liability. The people, society, but most of all, our vaunted capitalist economy — the most robust ever, the envy of all peoples, living or dead — simply could not afford it.

    Bill Black obviously has nothing, zero, nada, to add to our national discourse on banks, finance, regulation, crime. He is so beyond the pale of Reason and Seriousness that he resembles none so much as this https://www.youtube.com/watch?v=Bp3iHjGBfT4.

  16. ltr

    Matthew Yglesias is desperately trying to sell himself higher than Slate. Yglesias realized that he had made a terrible career mistake when Ezra Klein got to the Washington Post, and he is trying to compensate. That means being increasingly conservative while pretending to be a traditional Democrat.

  17. Rodger Malcolm Mitchell

    Your otherwise excellent article misses the key point: WHY does the Obama administration let the rascals go free?

    Unless you address WHY?, you’re just flailing at the wind.

    The WHY? is this: Politicians are bribed, therefore controlled, by the upper 1%, via campaign contributions and promises of lucrative employment later. The media are owned by the 1%, so they under-report the facts.

    I’m saddened that UMKC, the center for MMT, still doesn’t address the bribery issue. It’s at the very core of the problem.

    In economics, everything devolves to motivation (http://mythfighter.com/2013/02/01/political-bribery-the-most-powerful-yet-ignored-force-in-economics/)

    1. Sluggeaux

      WWhile I agree with Mr. Black and all of the comments, It is Rodger who hits the ethical nail squarely on the head: it is the absolute and pervasive corruption of our government through opaque campaign contributions controlled by the .01% and the “revolving door” of under-compensated regulators and government officials looking for soft landings which has created the culture TBTF/TBTJ.

      While Bush and Obama have been captured, the biggest stooge of the kleptocracy is Mr. William Jefferson Clinton, the bankster-payola multi-millionaire who will likely soon be living in the White House again.

  18. monday1929

    A Typo: in the paragraph that starts: “Yglesias also knows nothing about insolvency…” S/Be …..”to pretend it is NOT insolvent”

    Is there really a debate about whether we should prosecute criminals? has it realyy come to this?

  19. larry

    As an analytic philospher and historian and philosopher of science taught by some of the best in the field, I can say that, were Yglesias a student of mine, he would fail. It is rare to read such inept philosophical musings by someone who lays claim to be some sort of philosopher. Disgraceful.

  20. Blurtman

    Lets put the discussion of criminally prosecuting institutions aside, and discuss prosecuting individuals. If you buy the Lannie Breuer dodge, please do not be misled into thinking it applies to individuals who have committed fraud. There are swelling ranks of financial execs who would willingly fill the slots vacated by jailed execs at institutions that woudl continue onward. Please do not conflate prosecution of institutions with that of individuals as you fall into an intentionally laid out trap.

  21. docG

    “First, a prosecutor can avoid the entire supposed dilemma by prosecuting the senior officers who directed the fraud rather than the bank.”

    That says it all as far as I’m concerned. It’s amazing how much time and mental energy can be wasted when the basic issue is misleadingly framed by the media. How can an institution commit a crime anyhow? And why would we need to prosecute an institution when the crimes are committed by individuals running that institution? Those individuals can certainly be replaced without trashing the institution. Ye Gods, what are people like Yglesias thinking?

  22. Doug Terpstra

    An excellent takedown by Dr. Black. And yes, as he wonders at the end, he is “being too fair to Yglesias”, way too fair. Yglesias’ logic is so twisted and incompetent that, coming from a philosophy/ethics student, it can only be deliberately dishonest. Likewise, with the criminal administration that he supports and defends, these malefactors should no longer be accorded the presumption of being well-intended but mistaken. Their consistent actions over so many years can only be seen as the willful and malicious obstruction of justice. Understanding that all of this is deliberate is important.

    It’s great to get such swift confirmation of something I wrote just yesterday in response to the Marcy Wheeler post about “TBTF” being such a problematic term. “Used so universally and uncritically, [TBTF] inevitably cedes the argument to the banksters, who cleverly planted it in the first place and now use it, by association, to preemptively immunize themselves as ‘too big to jail’ . . . [TBTF] automatically precludes the imminently-logical alternative of public receivership, while at the same time making the malefactors themselves somehow ‘untouchable’, giving them a get-out-of-jail-free card rather than direct [rendition] to Gitmo.”

    “Strategically dangerous institutions” SDI, is much better. The megabanks are financial weapons of mass destruction.

    1. monday1929

      And, I would like to repeat my request that NC always use quotes around the term “regulator”. This would distinguish them from regulators who actually regulate, as in,
      The regulator in my car is broken, yet it still works better than the “regulators” at the SEC/CFTC/etc. who have sold their souls to the devil.

  23. steelhead23

    I find a logical error in consequentialism (basing ethical choice on outcomes) – no mortal can accurately predict the future. A fact the dilemma often used to support such an ethical frame – whether one should torture a terrorist who has placed a bomb to save lives – is a false dilemma, it is simply impossible to know that lives would thus be saved. Very few outcomes can be assured at the time a decision is made. Further, a decision process based on consequentialism would be inherently subject to extortion, particularly extortion by the powerful. Society has adopted the rule of law, and accepts the consequences that from time to time, strict adherence to the letter of the law would lead to injustice or undesired injury. Also, Yglesias is wholly ignoring the consequences or undermining the rule of law – namely a loss of faith in government, a sense of betrayal, and a diminishment of voluntary cooperation with authority. In short, this kind of thinking leads to a loss of confidence in government – sometimes termed a legitimation crisis. Is that a desirable outcome my sophomoric friend?

    1. Nathanael

      I think there are strong arguments for consequentialism, but agree with you 100% on this:

      “Yglesias is wholly ignoring the consequences or undermining the rule of law – namely a loss of faith in government, a sense of betrayal, and a diminishment of voluntary cooperation with authority. In short, this kind of thinking leads to a loss of confidence in government – sometimes termed a legitimation crisis. Is that a desirable outcome my sophomoric friend?”

      I’ve been talking about the legitimation crisis for YEARS now. It’s not just this. Let me count off the “straws on the camel’s back” of the legitimation crisis:

      Group A: voting
      (1) Gerrymandering. –> your vote doesn’t count.
      (2) Two party system (this is caused by Duverger’s Law and could be ended with proportional representation) –> if you don’t like the two parties, your vote doesn’t count.
      (3) US Senate malapportionment. –> if you’re not in Wyoming, your vote doesn’t count as much.
      (4) US Senate filibuster BS. –> Even when your movement win a majority of both houses of Congress, your vote doesn’t count.
      (5) Election “machines” –> Maybe your vote isn’t even being counted.
      (6) Election theft in 2000. –> The Supreme Court will actually stop the vote counting in order to give their crony the Presidency. Your vote definitely doesn’t count.

      Group B: government violence and abuse
      (1) They started a war based on lies and got away with it.
      (2) They tortured innocent people and got away with it. (Maher Arar, etc.)
      (3) They spied on everyone in the US and got away with it, and then “legalized” it. (Warrantless wiretapping)
      (4) Drug “war”. They break into random people’s houses with SWAT teams and murder them — even when they have the wrong address.
      (5) General police lawlessness. The NYPD “policeman” who assaulted a judge and got away with it, for instance.
      (6) General prosecutor lawlessness. Carmen Ortiz seems to be a typical criminal prosecutor, and I use the word criminal advisedly.
      (7) TSA / “Homeland Security”.
      (8) Judicial lawlessness — like the Scranton case where judges took kickbacks to send innocent children to private prisons.
      (9) School lawlessness. The same stuff plays out in public schools, which are frequently run as little prisons with dictatorial and abusive administrators. Kids learn to distrust authority early, that’s the best I can say for this.

      Group C: private criminality with government acquiescence or support:
      (1) Copyright mafia. They threaten people with bankruptcy and 30 years in prison for downloading a song — even when they can’t prove that the person downloaded the song, and even when they didn’t own the copyright to the song.
      (2) Patent mafia. Patents on obvious, abstract ideas used as cudgels to blackmail small businesses.
      (3) Bank mafia. Naked Capitalism has been documenting this.
      (4) Medical mafia: bills submitted by medical offices are phony and padded, insurance companies refuse to comply with their contracts, nobody cares, the government does nothing.

      Group D: Failure to provide what people expect from a functioning government:
      (1) The US has a high rate of people without enough food, and the government and elite private companies are making the problems worse.
      (2) The US has a high rate of people without homes, and the government and elite private companies are making the problems worse.
      (3) The US has a high rate of people without medical care, and the government and elite private companies are making the problems worse.
      (4) The US has a high rate of people without work, and the government and elite private companies are making the problems worse.
      (5) The US is doing absolutely nothing about global warming and the innumerable attendant problems.

      Oddly enough I think D-5 is the one which is finally going to push things over the edge.

  24. dcer

    I’m a HUGE of Bill Black fan and agree with this all the points he brings up in this article — but I have two (small) issues with it:

    1) Please fix all the obvious typos: Yglesias writes for Slate, not Salon; you responded to his April 14, 2011 on April 16, 2011 — not on April 16, 2007, as stated above, etc.

    2) Why bring is undergrad major into it? I’m not a Yglesias fan, but what’s wrong with him being a philosophy major? These issues aren’t so complex that only an econ/finance/business major can understand them. He’d probably be even more supportive of big banks/Wall Street if he was an econ/finance major.

    1. monday1929

      That is the point- an economics/business major would have no ability to know right from wrong (based upon actual events.events on your planet may differ). One might hope a philosophy major might understand the distinction.

  25. wat

    near end of this paragraph i think bill b meant “pretend they were solvent” instead of “insolvent”

    Yglesias also knows nothing about “insolvency.” We changed the accounting rules – under intense political pressure from the SDIs, working in an odd (but revealing) lobbying coalition that included the Chamber of Commerce, Federal Reserve Chairman Bernanke, and the Obama administration for the express purpose of allowing the SDIs to fail to recognize their losses. Accounting fraud, however, does not make an SDI solvent; it simply allows it to pretend it is insolvent and it allows Geithner to claim that he is a genius who restored the SDIs to health (other than Fannie and Freddie).

    1. NotTimothyGeithner

      “Yglesias also knows nothing”

      You hit the nail on the head with a sledgehammer. Have you read Yglesias’ foreign policy views? The guy is crazy.

  26. Jim Shannon

    Fascism is clearly the Defining Quality of all government. We all continue to pretend they are run for The People, when that is clearly not true! The 99% must live with that observed reality!
    Multi – Trillion$ were lost by Million$ of “Little People” world wide as the Criminal Class, the CentaMillionaire$ and Billionaire$ got “Bailed Out” with “Little People’s” money!
    Hubris and Greed go hand in hand, as the CentaMillionaire$ and Billionaire$ have their way with modern day wage slaves and puppet governments. Life’s truly is about cash flow. TARP proved that fact, and only solved the Streets Liquidity Crisis! All SDI’s were and still are insolvent! The “New Normal” was and still is notin aint worth notin – something the SDI’s and Fed can’t fix.
    CentaMillionaire$ and Billionaire$ should thank God everyday that this is a nation of Idiots!

  27. scraping_by

    @Ruben

    Wrong.

    Riggs Bank helped Pinochet get away with his crime. An accessory is just another co-conspirator.

    It’s a false anchor to claim only those with the guns are guilty. The infrastructure of crime is just as important, since it gives the criminal the means needed to get away with the crime. And only stupid or crazy criminals don’t make enjoying the proceeds of crime part of the criminal act.

    Since the looting of Chile was an ongoing crime, not just the few acts of murder and torture that made the looting possible, anyone who’s part of the looting is part of the murder.

    Compounding a felony. Compounding a crime against humanity.

    The bankers knew what he was when they allied their business with his. They’re certainly not innocent, possibly not even not guilty.

  28. Hugh

    A masterful takedown. It was depressing to see people like Yglesias who did good work exposing scandals in the Bush Administration reveal themselves as nothing more than Democratic tribalists not only willing to drink the koolaid once the Democrats were in power and doing much the same things as the Republicans they had displaced but enthusiastically circulating their koolaid to the rest of us.

    As for nationalization, many of us used it not in the sense of the Irish bank bailout but more in terms of the Swedish model as the pass through receivership Bill Black describes. Another term would be “resolution”. And because of bank interconnectivity, we also talked about the need for a systemic reset, to address the problem of contagion, that most, if not all, banks would have to be taken over and cleansed of their criminal leaderships, criminal ways, and bad debts.

    I also like that Bill Black refers to kleptocrats. Kleptocrats are more than African dictators looting their countries. In the US, China, and Europe, we have a class of the rich abetted by the elites who control the levers of government and accomplish lootings on an even grander scale. These too are kleptocrats.

    1. Lambert Strether

      IIRC — and it seems like a long time ago — when eveything went pear-shaped after Lehman, everybody was reading Roubini, because he was seen to have called it, and Roubini was big on the Swedish model. So when I think of “nationalization” that’s what I think of, and I bet others do as well.

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