William Black Uses the "F" Word A Lot

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William Black, in a lecture in Iceland, discusses how the role of fraud in the financial crisis has been virtually ignored when he contends it was a major factor, and is also overlooked in the regulation of financial institutions. He also argues that standard econometric models produces the worst possible when a financial bubble is growing.

The lecture comes in two videos, Part 1 and Part 2. Enjoy!

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  1. GawainsGhost

    I’ve been saying the same thing for years.

    I resigned from teaching in 02, when my father was sick and dying of cancer, to help my mother run her real estate company. We deal mainly with repossessed homes, and from what I’ve seen fraud is endemic and systemic.

    I’m talking about mortgage fraud, appraisal fraud, brokerage fraud, accounting fraud, you name it. I’m talking about a monstrosity of a manufactured home that sold for $280,000 in 06, was foreclosed on six months later, then resold for $45,000 in 07. I’m talking about builders using phantom buyers, appraisers routinely overvaluing properties by at least $35,000, mortgage brokers falsifying documents, buyers taking out liar’s loans, not only on the house but the appliances and furniture as well, then gutting the home, stealing everything and disappearing. I’ve seen it all.

    Question: If one of the constitutional duties of government is to protect the citizens from fraud, then why is fraud so rampant? Answer: Because the government is not doing its job.

    I am sickened and sad at heart.

  2. Dikaios Logos

    That was really illuminating, if deeply disheartening. I will pass around to as many people as possible.

  3. LeeAnne

    I have been saying that increased share price used as payment for executive compensation creates a conflict of interest.

    Therefore, executives can buy in the open market any stock subject to insider rules, while stock options are limited to principles and investors in new businesses prior to any public offering which, I believe, is their original purpose.

  4. MutantCapitalism

    Re: “. . .mortgage fraud, appraisal fraud, brokerage fraud, accounting fraud, you name it.” Let’s not omit the biggie . . .
    MORTGAGE SERVICING FRAUD. It can happen to anyone, even those current on mortgage payments!
    FTC v.Fairbanks/SelectPortfolioServicing — 40 million dollar settlement, NO ADMISSION OF GUILT – 281,000 victim class.
    http://www.ftc.gov/os/caselist/0623031/index.shtm FTC v. EMC/Bear Stearns — 28 million dollar settlement, NO ADMISSION OF GUILT -86,000 settlement checks mailed out so far.

  5. DownSouth

    Brilliant! Awesome!

    That should be required viewing for every person of mayority age in the United States.

    Amanda Pustilnik, who teaches law and neuroscience at Harvard, lectures on some of the underlying theories of law and neuroscience (very much in the vanguard) that I believe could be germane:

    What we define as a criminal offense, and even what we define as a violent criminal offesnse, contains a strongly normative component defined by social mores and also by the law.~


    Pustilnik goes on to elaborate on some specific examples where the criminal law has undergone recent changes as it relates to domestic violence, the maritial rape exception and homosexual behavior.

    Pustilnik’s comments dovetail with those of Kevin Phillips in Wealth and Democracy:

    The result by 2000 was a Washington in which liberals found themselves muttering about “corruption” that was largely legal behavior—decision-making lubricated by so-called “soft money” political contributions, and resulting in flagrant tax favoritisms, bank bailouts, gutted regulations, and see-no-evil administration of the federal election laws.~

    Pustilnik offers a critique of our traditional criminal law theory “that tends to focus on individual adjudications of guilt or not-guilt.” This leads us to emphasize “thinking about the individual and not thinking quite so much about the individual in context.”

    More recent findings in neuroscience indicate that genes are not so deterministic to human behavior as what was earlier believed. Pustilnik says the “first draft of neurological equipment that we come into the world with” can be “shaped by culture.”

    She concludes that if we could:

    understand the roles that education and other structural or insititutional level interventions can play in minimizing the types of negative behaviors that people tend to engage in we might be able to use neuroscience at a more general level to create more prosocial institutions and reduce antisocial behavior and the costs therefrom…~

    I suppose Pustilnik’s endeavors are but a continuation of the centuries-long Enlightenment enterprise of trying to find solutions to social problems through science. Neuroscience as applied to law, politics and economics nevertheless may represent a breakthrough, and may supply the final bit of empiricism neccessary to debunk secular religions such as orthodox economics, libertarianism and New Atheism.

  6. DownSouth

    Another lecture that is quite germane is this one concerning interpersonal trust and law given by Erin O’Hara, who teaches law at Vanderbilt.

    The goal of neuroscience is to discover how people are, not how they ought to be, these endeavors of course being heresy in the eyes of the reigning secular religions (orthodox economics, libertarianism and New Atheism).

    As O’Hara goes on to explain:

    Because legal rules can influence trust, legal scholars and legal policy makers are quick to make claims, lots of different types of claims, about how a proposed legal rule or legal policy might influence trust, interpersonal trust in relationships…

    The problem, up until about ten years ago, is that we knew relatively little about how trust relationships formed, how they are maintained and how they can erode.~


    She cites how policy makers quickly latched onto some of the earlier findings of experimental economists that were supportive of deregulation.

    More recent findings, however, are not so supportive of deregulation.

    The results of some of these more recent (and sophisiticated) trust games are fascinating, to say the least. In some of these, players were provided three different vignettes of their playing partners: a hero, a neutral and a villian. The findings were quite illuminating:

    But interestingly, player-ones continued to cooperate with their “hero” player-twos even when the computer had the “hero” player-twos cheat, to keep the three dollars, in surpriing amount of times. And more interesting from my perspective they weren’t finding activity in the cognate neucleus not even from the beginning (from the first time they played with the hero) for the hero stories.~

    This may help to explain why it is so effective for these corporations to load their boards up, as Black describes, with “heroes.”

    Also, as player-ones have successful interactions with player-twos, the “activity in the cognate neucleus tends to fall off over time.” This may help explain why humans are so vulnerable to Ponzi schemes.

  7. Don

    Financial Crises go through different stages, like grief. Right now, we’re still at the Stupidity, Complexity, Elmer Fudd, Ostrich, Devil Made Me Do It, Inanimate Causes, Defenses level or stage. The first stage. The actors were idiots and are happy now to say so, having earned millions as experts.

    The Fraud, Negligence, Fiduciary Mismanagement, and Collusion, Stage, which I consider as a group the second leading cause of our crisis, takes time, and, more importantly, litigation to develop and uncover. Hang in there. We’ll get to it.

    Don the libertarian Democrat

  8. Jim Davidson

    It’s all very simple really.

    There’s no fear. No fear of punishment.

    A few death sentences, a few public hangings, for the aforementioned crimes, and I guarantee the fraud drops 90% or more.

    But you have to actually hang someone.

    In public.

    Do it.

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