Bill Black: Why the World Economic Forum and Goldman Sachs are Capitalism’s Worst Enemies

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 is fitting that Goldman Sachs is the recipient of this year’s “Public Eye” designation, but it is even more fitting that it is being announced during the World Economic Forum (WEF) at Davos. Goldman Sachs exemplifies the travesty that WEF has created. It is not the worst of the worst. It is representative of the financial world of systemically dangerous institutions (SDIs) that are spreading crony capitalism through the West. The SDIs are the so-called “too big to fail (or prosecute)” banks.

The ability of the SDIs to commit fraud with impunity from the criminal laws is a defining element of crony capitalism. The impunity and implicit national subsidies to SDIs combine to make “free markets” an oxymoron. The SDIs’ economic power translates easily into dominant political power. Crony capitalism cripples markets and democracy.

The ability of the SDIs’ senior officers to commit massive frauds with impunity from the criminal laws makes “control fraud” a “sure thing.” Control fraud will make the largest banks’ senior officers exceptionally wealthy very quickly – but it will also cause severe harm to the public (and often the bank). Control fraud occurs when the persons who control a seemingly legitimate entity use it as a “weapon” to defraud. In finance, accounting is the “weapon of choice.” It is important to remember, however, that other forms of control fraud maim and kill hundreds of thousands and cause grave environmental damage. We must always remember the infant formula scandal in China where 300,000 infants were hospitalized with kidney stones due to consumer frauds that drove every honest manufacturer out of business.

Large, individual accounting control frauds cause greater financial losses than all other forms of property crime – combined. Accounting control frauds are weapons of mass financial destruction. Epidemics of accounting control fraud drove the national crises that produced the Great Recession. We have reliable information on this in the United States, the United Kingdom, Ireland, and Iceland. Spain has kept the facts about lending too opaque to determine reliably what caused their bubble to hyper-inflate, but the lending pattern is consistent with accounting control fraud. These accounting control fraud epidemics drove crises that caused a loss of over $20 trillion in wealth and cost roughly 20 million workers their jobs.

These epidemics of accounting control fraud were not random “black swan” events. Criminogenic environments produce such intense and perverse incentives that they generate epidemics of control fraud. Our financial policies have been so criminogenic for decades that we are suffering recurrent, intensifying financial crises. WEF is one of the important architects and engineers that have made our financial system so criminogenic. WEF’s dogmas and policies are so perverse that they drive financial crises, create crony capitalism, and make WEF’s leading products (the Global Competitiveness Index (GCI) and Global Risk Reports (GRR) epic embarrassments. The WEF is degrading the state of the world.

Criminogenic environments for Accounting Control Fraud

1. The dogma that control fraud cannot be material
2. The three “de’s” – deregulation, desupervision, and de facto decriminalization
3. Modern executive and professional compensation
4. The ability to grow quickly
5. Extreme leverage
6. Ease of entry
7. Assets that lack readily verifiable market values
8. Weak accounting requirements, particularly on allowances for loan and lease losses (ALLL)
9. Distressed banks

Each of these factors need not be present. I discuss here only the first three environmental characteristics, which are the most important.

Fraud Deniers

In 2012, in response to endemic, elite financial frauds, the WEF declared the following without citation or reasoning in its 2012 report on “Rethinking Financial Innovation.”

6.1.1 Consumer Disservice

Malfeasance and outright fraud [in finance] are extraordinarily damaging but also, fortunately, extremely rare.

This is a convenient dogma for a group of CEOs to hold. It is an empirical claim that is falsified by reality, but it is a vital belief if one is a philosophical opponent of regulation. Alan Greenspan was the high priest of this dogma, claiming that there was no such thing as an unregulated market because private creditors always regulated markets to prevent misconduct. Greenspan’s most infamous statement of this dogma was to Brooksley Born, then Chair of the Commodities Futures Trading Commission in connection with her proposal to investigate whether to regulate credit default swaps (CDS). Here is her account of the discussion.

“Well, Brooksley, I guess you and I will never agree about fraud” [Greenspan]

“What is there not to agree on?” [Born]

“Well, you probably will always believe there should be laws against fraud, and I don’t think there is any need for a law against fraud,” she recalls. Greenspan, Born says, believed the market would take care of itself.

Greenspan later admitted that this dogma had failed. The WEF has, recurrently (and implicitly) assumed away control fraud because it shares Greenspan’s dogma. (The implicit nature of the assumption is particularly dangerous – and symptomatic of dogma. It is the things we assume out of existence implicitly that are most dangerous because we do not consciously know we have made the assumption and therefore never test its accuracy.)

The leading “law and economics” text on corporate law has taught a generation of American lawyers that “a rule against fraud is not an essential or … an important ingredient of securities markets” (Easterbrook & Fischel 1991).

WEF’s founding ideology is “stakeholder” theory – the philosophical belief that a corporation should serve the interests of its stakeholders. The stakeholders include stockholders, creditors, and workers. Variants of control fraud target each of these stakeholders. Control frauds, therefore, are the kryptonite to stakeholder theory. Control frauds drive stakes through their stakeholders. WEF’s solution is to assume away reality. WEF ignores the findings about control fraud made by modern criminology, effective regulators and prosecutors, and top economists and to embrace Greenspan’s dogma even after Greenspan has abandoned it.

I cite information below on the dominant role of fraud during the savings and loan debacle. The role of accounting control fraud in the Enron-era is not in dispute. My FCIC testimony details the extraordinary levels of accounting control fraud driving the U.S. crisis. (I have other papers discussing the decisive role of accounting control fraud in Ireland and Iceland.) The briefest version is that by 2006, roughly 40% of mortgage loans made that year were “liar’s” loans. The incidence of fraud in liar’s loans is 90%. Lenders put the lies in liar’s loans.

The figure for liar’s loans was even higher in the UK. On January 25, 2012, Martin Wheatley delivered a speech to the British Bankers’ Association entitled “My Vision for the FCA.”

And so it must be different from some of the behaviour we saw during the boom years for the housing market.

Here we saw many examples of both poor lending and poor borrowing. It became more common for people to borrow without having their income verified – 45% of people did this at the market’s peak – and, as many have observed, both lenders and consumers were caught up in a misplaced faith in never-ending house price rises.

It is now obvious that the market in the years leading up to the crisis was unsustainable. The crisis and its aftermath changed things temporarily, but we want to change things for the better, for good.

And so here we have to look at the FSA’s mortgage market review proposals, these are currently out for consultation; we hope to be able to finalise rules in the summer.

And what our first-time buyer won’t see in a FCA-regulated world is a queue of lenders waiting to offer them a loan on the basis of what they claim their income is, with no proof required.

And they won’t find brokers thinking they can get away with persuading them to lie about their income.

This is why, based on our discussions with you, with brokers, and with consumer organisations, we are embedding common sense standards to lending across the board, so that we don’t see a return to the risky mortgage lending and borrowing seen in the boom times.

Forty-five percent of the home mortgage loans in the UK were liar’s loans – and the new “supervisor” believes that the bank officers made these loans because they all went simultaneously delusional and believed that there was an infinite bubble.

The Three “De’s” and the First Virgin Crisis

George Akerlof was made the Nobel Laureate in Economics in 2001. He co-authored a famous article in 1993 about accounting control fraud (“Looting: the Economic Underworld of Bankruptcy for Profit”). They concluded the article with this paragraph in order to give it special emphasis.

Neither the public nor economists foresaw that [S&L deregulation was] bound to produce looting. Nor, unaware of the concept, could they have known how serious it would be. Thus the regulators in the field who understood what was happening from the beginning found lukewarm support, at best, for their cause. Now we know better. If we learn from experience, history need not repeat itself (George Akerlof & Paul Romer.1993: 60).

Akerlof & Romer explained why deregulation encouraged control fraud.

[M]any economists still seem not to understand that a combination of circumstances in the 1980s made it very easy to loot a financial institution with little risk of prosecution. Once this is clear, it becomes obvious that high-risk strategies that would pay off only in some states of the world were only for the timid. Why abuse the system to pursue a gamble that might pay off when you can exploit a sure thing with little risk of prosecution? (Akerlof & Romer 1993: 4-5).

N. Gregory Mankiw was a discussant on the Akerlof & Romer paper. His infamous response to their warning about control fraud was that: “it would be irrational for savings and loans [CEOs] not to loot.” Mankiw is arguably the most influential economist because of his textbook and his role as a leading Republican economic adviser. “Mankiw morality” explains why theoclassical economics fails substantively and ethically.

The National Commission on Financial Institution Reform, Recovery and Enforcement (NCFIRRE) investigated the causes of the savings and loan debacle that Akerlof and Romer referenced.

The typical large failure [grew] at an extremely rapid rate, achieving high concentrations of assets in risky ventures…. [E]very accounting trick available was used…. Evidence of fraud was invariably present as was the ability of the operators to “milk” the organization (NCFIRRE 1993).

Investigations, and successful actions and prosecutions, by regulators, the FBI, prosecutors, and white-collar criminologists confirmed the key role that accounting control fraud played in causing the second phase of the S&L debacle.

The Financial Crisis Inquiry Commission (FCIC) investigated the causes of the current U.S. crisis. It reported:

We conclude widespread failures in financial regulation and supervision proved devastating to the stability of the nation’s financial markets. The sentries were not at their posts …due to the widely accepted faith in the self-correcting nature of the markets and the ability of financial institutions to effectively police themselves.

More than 30 years of deregulation and reliance on self-regulation … championed by …Greenspan and others, supported by successive administrations and Congresses, and actively pushed by the powerful financial industry … stripped away key safeguards, which could have helped avoid catastrophe.

This approach had opened up gaps in oversight of critical areas with trillions of dollars at risk….

In addition, the government permitted financial firms to pick their preferred regulators in what became a race to the weakest supervisor.” [FCIC Report:xviii]

The Office of Thrift Supervision (OTS) “won” the U.S. race to the bottom. The photograph of OTS head “Chainsaw” Gilleran (see Exhibit A at the end of this text) is the iconic image of this crisis. It was intended to symbolize that the regulator (sic) and the industry would work together to destroy any regulations or supervision the industry felt was onerous. The OTS and the FDIC were so proud of the image that they placed it in the annual report of the FDIC.

The “race to the weakest supervisor” did not occur only within the U.S. Brooksley Born and a former senior SEC official have confirmed to me that UK regulators directly pitched U.S. financial firms to relocate operations to the City of London in order to obtain weaker supervision. “Fed lite” supervision was a competitive response to the FSA’s “reg lite” system of deliberately weak supervision. The City of London became the most criminogenic environment in the world for financial fraud, which is why so many UK banks and units of foreign banks located in the City have caused the major scandals in the UK and globally.

The investigations into the Irish crisis described their deliberately weak supervision as an EU policy.

…there was a socio-political context in which it would have taken some courage to seem to prick the Irish property bubble….

generic weaknesses in [EU] regulation and supervision…

Four main failings of supervision: (i) Supervisory culture was insufficiently intrusive, and staff resources were seriously inadequate ….

On-site inspections were infrequent. Supervisors … imposed no penalties on banks at all….

Ireland’s mounting financial vulnerabilities meant that strong action was called for to over-ride the prevalent light-touch and market-driven fashions of supervision: to call a spade a spade….

failure to identify, recognise the gravity of, and take tough remedial action to correct such serious governance breaches was a cardinal error of supervision…. [Report on the Irish Crisis (2010)].

The FCIC dissent claimed that deregulation and desupervision could not be a major cause of the U.S. crisis because the crisis also occurred in Europe. The dissent incorrectly (and implicitly) assumed that the three de’s did not occur in the EU.

Only Regulators and Prosecutors can Break a Gresham’s Dynamic and Save Markets

In its 2011-2012 Global Competiveness Report, the WEF conceded that effective financial regulation is essential to a safe and sound financial system.

In order to fulfill all those functions, the banking sector needs to be trustworthy and transparent, and—as has been made so clear recently—financial markets need appropriate regulation to protect investors and other actors in the economy at large [p. 7].

Its GCI, however, has no index category for effective financial regulation – only securities law regulation. The WEF has several more general indices that refer to regulation. Each of them assumes that regulation is inherently harmful – rather than essential. The WEF encourages Nations to use its indices to engage in a competition in regulatory laxity. It makes the financial environment deeply criminogenic.

The key potential of regulators and prosecutors is that we are not employees or agents of the banks we regulate. Control frauds use their powers to hire, fire, promote, and compensate to suborn the supposed internal and external “controls” (such as auditors). As Akerlof and Romer noted, accounting control fraud is a “sure thing” that will promptly produce record (albeit fictional) profits. Creditors love to lend to highly profitable borrowers. Private markets do not “discipline” accounting control frauds – they fund their rapid expansion.

Control frauds have shown strong abilities to suborn even elite financial players, such as audit partners at top tier firms. George Akerlof was the first economist to apply the concept of Gresham’s law as a metaphor to explain how control fraud can create a competitive advantage that drives honest firms out of the markets. In his famous article on markets for “lemons” he explained.

[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).

While economists have had no excuse for not understanding this dynamic for over 40 years, economists were not the first to explain a Gresham’s dynamic. An acute observer of human nature wrote centuries earlier than Akerlof:

The Lilliputians look upon fraud as a greater crime than theft. For, they allege, care and vigilance, with a very common understanding, can protect a man’s goods from thieves, but honesty hath no fence against superior cunning. . . where fraud is permitted or connived at, or hath no law to punish it, the honest dealer is always undone, and the knave gets the advantage. [Swift, J. Gulliver’s Travels].

The WEF, through its many indices that purport to measure internal and external controls and quality of governance spreads the false belief that these actions prevent accounting control fraud. A recent OECD report confirms that the EU suffered from the complete failure of audit and governance to prevent the crisis.

Effective financial regulation is not the enemy of markets or competition – it is essential to the preservation of well-functioning markets and the ability of honest business people to compete. Control fraud begets fraud in the industry and other professions that are supposed to serve as controls. NCFIRRE found that:

abusive operators of S&L[s] sought out compliant and cooperative accountants. The result was a sort of “Gresham’s Law” in which the bad professionals forced out the good (NCFIRRE 1993).

FCIC found a similar Gresham’s dynamic among appraisers.

From 2000 to 2007, a coalition of appraisal organizations … delivered to Washington officials a public petition; signed by 11,000 appraisers…. [I]t charged that lenders were pressuring appraisers to place artificially high prices on properties [and] “blacklisting honest appraisers” and instead assigning business only to appraisers who would hit the desired price targets.( FCIC: 18)

Note that loan origination fraud originated with the loan originators rather than the borrowers.

Modern Executive Compensation is Criminogenic

In a delicious irony, Business Week asked Franklin Raines, Fannie Mae’s CEO why there was such widespread securities fraud during the Enron-era. Raines replied:

Don’t just say: “If you hit this revenue number, your bonus is going to be this.” It sets up an incentive that’s overwhelming. You wave enough money in front of people, and good people will do bad things.

Raines knew that bonuses had corrupted the unit at Fannie that should have been most resistant – internal audit. We know that Raines read Rajappa’s speech because he made handwritten comments on it suggesting how to strengthen the message, which he returned to Rajappa.

“By now every one of you must have 6.46 [EPS] branded in your brains. You must be able to say it in your sleep, you must be able to recite it forwards and backwards, you must have a raging fire in your belly that burns away all doubts, you must live, breath and dream 6.46, you must be obsessed on 6.46…. After all, thanks to Frank, we all have a lot of money riding on it…. We must do this with a fiery determination, not on some days, not on most days but day in and day out, give it your best, not 50%, not 75%, not 100%, but 150%.

Remember, Frank has given us an opportunity to earn not just our salaries, benefits, raises, ESPP, but substantially over and above if we make 6.46. So it is our moral obligation to give well above our 100% and if we do this, we would have made tangible contributions to Frank’s goals.” (Mr. Rajappa, head of Fannie’s internal audit, emphasis in original.)

The investigation into the Irish crisis by Mr. Nyberg displays poor analytics, but the facts he found demonstrate the perverse effects of compensation in encouraging accounting control fraud and enlisting the support of subordinates.

Targets that were intended to be demanding through the pursuit of sound policies and prudent spread of risk were easily achieved through volume lending to the property sector. (Nyberg 2011: 30)

Bank management and boards in some of the other covered banks feared that, if they did not yield to the pressure to be as profitable as Anglo, in particular, they would face loss of long-standing customers, declining bank value, potential takeover and a loss of professional respect. (Nyberg 2011: v)

The [compensation] models, as operated by the covered banks in Ireland, lacked effective modifiers for risk. Therefore rapid loan asset growth was extensively and significantly rewarded at executive and other senior levels in most banks, and to a lesser extent among staff where profit sharing and/or share ownership schemes existed.” (Nyberg 2011: 30)
“The associated risks appeared relevant to management and boards only to the extent that growth targets were not seriously compromised. (Nyberg 2011: 49)

Occasionally, management and boards clearly mandated changes to credit criteria. However, in most banks, changes just steadily evolved to enable earnings growth targets to be met by increased lending. (Nyberg 2011: 34)

all of the covered banks regularly and materially deviated from their formal policies in order to facilitate rapid and significant property lending growth. In some banks, credit policies were revised to accommodate exceptions, to be followed by further exceptions to this new policy, thereby continuing the cycle. (Nyberg 2011).

The demand for Development Finance was so strong over the Period that bank and individual growth targets were easily met from this sector. Both of the bigger banks continued to lend into the more speculative parts of the property market well into 2008, even though demand for residential property (a major end-user) had begun to decline by the end of 2006. (Nyberg 2011: 35-36)

The few that admitted to feeling any degree of concern at the change of strategy often added that consistent opposition would probably have meant formal or informal sanctioning (Nyberg 2011: v).

The last sentence makes explicit the root ethical issue. FCIC examined the same question.

We conclude there was a systemic breakdown in accountability and ethics. The integrity of our financial markets and the public’s trust in those markets are essential to the economic well-being of our nation.

Modern executive compensation further misaligns executives’ financial interests with the shareholders’. It is, instead, superb for fraud because it is very large, largely based on short-term reported earnings or share prices (which the CEO can easily manipulate), and lacks a “claw back” provision. It helps fraudulent CEOs convert firm assets to his personal benefit through seemingly normal corporate mechanisms, which makes it harder to prosecute.

The WEF is, again, a force for harm. It has an index for performance pay. CEOs who participate in the WEF survey are instructed that tying pay to performance is a desirable step, but there is no attempt by the WEF to verify that the dominant executive compensation system in their Nation is tied to long-term performance and has claw-back rights. The index, therefore, tells Nations that they should make their financial environments even more criminogenic.

The WEF Gets it so Wrong Because it Ignores Accounting Control Frauds

WEF’s competitiveness index has a series of indices that relate to the financial system and the quality of public and private institutions. The WEF loved Ireland, Iceland, and the UK’s financial systems while they were massively insolvent – an insolvency hid by accounting fraud and the grotesque failure of EU Nations and audit bodies to interpret international accounting standards as requiring lenders to recognize losses arising from their fraudulent lending.

In its 2006-2007 and 2007-2008 GCI’s, WEF’s executive survey claimed that Irish banks’ “soundness” was, respectively, the 3rd and 5th best in the world. Today, the same index rates them 144 – the worst in the world. The truth is that the worst Irish banks were in economic reality insolvent long before 2006 because of their fraudulent lending practices.

The respective ranks WEF gave Iceland’s banks in those years were 26 and 29. The WEF now ranks them 136. Spain’s banks are down to 109th from 16 and 19. The UK’s banks fell from the fiction that they were the best in the world (2006-07) (4th best in 2007-2008) to 97.

The WEF’s Global Risk Reports’ financial warnings are every bit as embarrassing. They are overwhelmingly odes to the austerity that threw the Eurozone back into a gratuitous recession.

The WEF survey is a mass of business prejudices collated and called science. If the CEOs, despite their close ties with the banks (indeed, many of them are bankers) cannot even spot the problems of banks in Ireland, Iceland, the UK, and Spain over a year after the bubbles have ceased expanding they are even more useless than scholars feared. It is time for WEF to get out of the business of being an apologist for and enabler of control fraud and to tell the likes of Goldman Sachs that a banker who sells its clients toxic mortgages the bank describe internally as “shitty” is a bank that is degrading the state of the world and it is unwelcome in Davos.

Exhibit A

The Faces of Desupervision in the U.S.: “Chainsaw” Gilleran and friends – America’s leading bank lobbyists act together with their faux regulators to destroy effective regulation and supervision.

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  1. Veri

    The WEF and participants do not care what you think. After all, they have the loot and you don’t.

    It really is this simple.

    And if the system is going to change, it is because THEY want it to change. Not because you want it to change. You simply do not have enough “critical mass” of people.

    This is the reality.

      1. Yves Smith Post author

        You don’t even necessarily need numbers. With complex and fragile systems (computer and otherwise), you need critically placed people.

          1. zygmuntFRAUDbernier

            Nassim Taleb was interviewed on C-SPAN2’s BookTV around 2006-2007 about his book: “The Black Swan”. Taleb said that people manufacture explanations for complex events after the fact, and he cited the outbreak of World War I in the summer of 1914. He also said that it was good to invest a bit in many small-scale research and development efforts than make one big bet with a lot invested in one big reaserch&development effort. Serendipity means a “happy accident” or “pleasant surprise”, or finding something useful when one is not looking. Just as supporting each in a small way the NC blog seems like a good way to bring the world to its senses, there could be many other small-scale projects to invest time and or money into with roughly the same goal: exposing the truth about the machinations of big finance, etc.

    1. Aquifer

      “And if the system is going to change, it is because THEY want it to change. Not because you want it to change. You simply do not have enough “critical mass” of people.”

      And as long as you believe that – “THEY” win – we HAVE a critical mass, we have always had it – the funny part is we even seem to realize that – as evidenced by the ubiquity of the 99% meme. And the 1% know it, too, which is why it is sooo important that they convince us we don’t have the power to change it …

      As Alice Walker, and no doubt others, have said – the best way to keep people from exercising their power is to convince them they have none – TPTB have, it appears, done a masterful job of doing just that …

      Once we acknowledge that – the next step is how to exercise it – TPTB also know that there is still extant a mechanism for us to use – the ballot box – which is why they spend so much time and money and go through so many contortions to make sure that that mechanism is used only for their ends, and not ours …

      1. Moneta

        The top 20% still thinks it stands a chance. The revolt will come when it starts getting squeezed like the bottom 80%

        1. Dan The Man

          This is probably true. I read that the French Revolution contrary to popular belief, was not led by farmers with pitchforks but a disenchanted upper class realizing it wouldn’t be going along for the ride.

      2. Mark P.

        ‘TPTB also know that there is still extant a mechanism for us to use – the ballot box’

        Effectively worthless. They own all the politicians, and make the laws through them — and will still break those laws when it suits them.

        At this point, civil disruption is all that will do it

        1. Aquifer

          No – the ballot box is not worthless – we simply haven’t been using it for what we could – we have been using it only to elect those the MSM has told us “can win” ….

          That is my point – think about it – why would TPTB spend all that time and money convincing us we have to vote for one of the duopoly if there were, in fact, no possibility of voting any other way ….

          1. Zach

            The problem is that it is entirely possible to predict the behavior of large groups of people. We know the huge extent to which media influences peoples’ opinions, and this influence has only increased in recent years as media has become more pervasive. The fact that the internet has allowed access to more information and a greater variety of opinions is outweighed by the fact that it also gives far more opportunities to present mainstream views (the fact that the overwhelming majority of people have opinions that reflect those presented on stations like Fox or MSNBC more or less proves this).

            As a result, we can say with reasonable confidence that changing public opinion from the perspectives presented in mainstream media is impossible. The fact that it’s difficult/impossible to predict the actions of specific individuals doesn’t mean that it’s also impossible to predict the actions of large groups.

            The only way change that runs counter to the interests of the wealthy could ever occur is if a majority (or at least a large portion) of the population is pushed to the point where it can’t even meet basic needs, like food or shelter. And even then, I wouldn’t be surprised if peoples’ anger/frustration still manages to be directed elsewhere, as it is now.

    2. Moneta

      That’s assuming that all these backstabbing “me, myself and I” leaders will stick together when push comes to shove.

      The system is too big and complex. All they know is what they have been doing for the last 30 years… cut rates and blow bubbles. It’s hard to show an old dog new tricks. They’ll stick to the status quo. And it will keep on hiccupping… at one point there will be lots of backstabbing… Europe is just getting started.

      1. gc wall

        The mind of a successful person is the most difficult to change. Unfortunately, successful people tend to believe in their “gut” rather than what available data proves. The reflexive editing ability of the mind accepts data that reinforces one’s beliefs, prejudices, superstitions and ignores or forgets the rest. People live in a trance state that consists of repeated ideas that function as hypnotic suggestions. The view of the world is limited by redundant induced and educed information filtered through an individual’s temperament. I have no idea how to cause change in this behavior.

    3. Generalfeldmarschall Von Hindenburg

      All revolutions that succeed start from at or near the top. As cited, the French one was the product of a class of prosperous merchants who were being shut out of all the decision making. I’m looking to see where the analog is to our situation. What with history rhyming and not repeating and all that.

  2. Chris Engel

    Dr. Black:

    Great article as usual, good to see a counterbalance to all the hot air that is coming out of Davos.

    One question though, about bad corporate governance and warped incentives of modern executive remuneration policies:

    You’ve mentioned that there’s too many short-term incentives that basically drive a demand for accounting control fraud so that executives can score big bonuses (my words not yours).

    But I haven’t seen a solution from you regarding this. Shareholders demand value maximization, and most boards draw up remuneration packages with this exact motive in mind. Short of the government or even central bank coming in and setting minimum standards for compensation incentives, how can we control for these bad practices which lead to risk taking and systemic instability?

    Can we really tell a private company how they’re supposed to compensate their executives? I’d like to hear more specific ideas on how to address distorted compensation incentive issues from a policymaking perspective.

    Or if anyone other than Dr. Black can chime in on that.

    1. jake chase

      What is a “private company”? Corporation laws have existed for more than 150 years. Unfortunately, these laws actively encourage executive looting through the fiction that corporate directors chosen by management exercise independent authority over management. In real life, “independent” directors are nothing but celebrity stooges. They “serve” up to a dozen corporations in identical enabling roles, and not one of them would last until the next board meeting if he (or she) ever challanged a CEO who installed him.

      Large corporations are simply private piggy banks. Their products are increasingly shoddy and dangerous. Their stockholders are traders whose time frame is measured in days, weeks or minutes. Their financial reports are a combination of fiction, misrepresentation and nonsense. They are fiefdoms which serve no interest other than the executive interest, and there is no possible way of reining them in except through National laws which say you can’t do this and you must do that. Why do you think that people can be regulated until their eyes bug out, but the world will collapse unless businesses are left to serve the executive interest and pretty much nothing else?

      1. tar, etc.

        This is why we need to reassert supremacy of citizenship over the rights of incorporation. States might even support a federal structure of corporate charter as states like Pennsylvania arr reaping the problems of fracking without the revenue from companies incorporated in Delaware or Nevada. There is a race to the bottom in states’ charter standards, similar to the international race to the bottom.

        I have no legal training, and I am sure objections will be raised as to federal power versus states’ rights, but the Supreme Court could always call it a tax.

        A federal standard on corporate charters covering:

        Ratios of compensation between management and workers, and reform of stock compensation.

        Minimum standards on shell corporations, off-book accounting and make offshore tax evasion illegal.

        Minimum standards for citizenship. A corporation, not unlike a person, would lose national identity after a certain amount of business moves offshore. Its lobbyist would be required to register as a foreign agent.

        This is just off the top of my head, but I believe federal standards for corporations could be included as part of a set of goals that can serve as a focus of reform. Have a platform instead of a person and exclude the Ds and the Rs from it… unless they’d like to embrace its principles. Not socialism and not faux free marketism. A common ground to restore common prosperity while preserving OUR freedom, not international corporations’.

    2. fairleft

      As Jake indicates, corporations are public institutions created by government. So, we change their rules. For example, ban stock option and similar compensation and increase the power of workers, creditors, and community on company boards. If this were a democracy, our representatives would have long been working on the operational/governing rules for corporations till they and we got them right.

        1. hunkerdown

          And if you want to change the people who make the rules, you have to change the rules. “Advice and consent of the Senate” is a gauntlet of special interests, each of which can be a veto point. The election system has several veto points (fundraising, endorsements, and that vapid measure of “electability” which is eerily proportional to their loyalty to incumbent creditors).

          Recognize that the game needs the players more than the players need the game. That is why general strikes are answered with military threats.

        2. Aquifer

          “electability” is in the eye of the beholder – anyone who meets the statutory requirements for office is “electable”, if enough people vote for him/her ….

    3. hunkerdown

      If the Federal government has the authority to impose a minimum wage, or to create new monetizable exclusive rights out of thin air and criminally enforce their observance under color of “establishing an orderly market”, it would take a particularly tortured, partisan reading to exclude its ability to regulate executive compensation.

      “Won’t somebody please think of the market?” has been effective enough so far in destroying it; judicious application of the same cynical refrain might could also repair it.

    4. nad

      It seems to me that as corporate charters are granted/licensed by the state, that we should revert to granting charters only to those entities which benefit the state for a distinct purpose and additionally for a limited amount of time, requiring renewal.

    5. dale pues

      Shareholders need more voice. The word itself seems antiquated. Maybe the comments on regulating charters would include a greater shareholder involvement. Other than just collecting dividends. I’m not hopeful of this happening.

      1. fairleft

        Shareholders need much less voice. It’s weird when so many progressives misunderstand what has happened. Shareholders basically want the stock price to go up, so since the 70s/80s corporate upper management incentives have been changed to make them focus only on short-term boosting of company stock price. Prior to this ‘short-term shareholder value’ era upper mgmt normaly had a more balanced focus that tried to improve both short and long term prospects for ‘the corporation’ (which they understood was not (just) the shareholders).

        1. different clue

          It sometimes seems to me, from way down here near the bottom of the social class ladder, that there are two basic types of shareholders.

          The family fortune super-rich were used to holding hundreds of thousands or millions of shares of a corporation for many years to recieve a steady dividend income stream from those huge blocks of shares. Managing a corporation for THEIR benefit might involve keeping a corporation alive for decades as a steady dividend per share revenue stream generator.

          Then there were all the “small investors” who would never have enough shares to harvest income streams from hundreds of thousands of dividend payouts on hundreds of thousands of shares. The “small investors” bought stockshares the same way they bought lottery tickets, and with the same hope, that they would go up and then be sellable/ cashinable like lottery tickets. That type of person would want shares to go up fast enough high enough to be cashed in like lottery tickets. Those people would want a corporate management to value-strip the corporation to make the stockshare lottery tickets cashinable for big per-share payouts.
          Which group do corporate managements “think like” nowadays?

    6. gc wall

      The capitalist meme does not allow for disincentives for greed and exploitation, nor to speak falsely, for that matter. If one can exploit a resource at a cost of $.05 per unit and a market exists or can be created for $.50 per unit or 1000% profit should there be a regulation that limits the profit margin to 500%, 200%, 100% or less? Does a limit on profit margins protect the common good or does the limit act as a disincentive exploitation of the resource?

      The problem occurs when the argument is put as an either or situation rather than an in addition to argument. There is historical data that can prove great wealth has been created due to 1000% or more mark-ups, as well as proof that extremely high mark-ups have either put a company out of business, because a market did not exist at such a high margin or the resource was depleted over a few hundred years of less.

      Combine the above idea with the position that Wall Street has taken with regard to sales, incentives and contract law with the conclusion that the seller is not obligated to educate a free agent, (the buyer,) nor must the seller read and explain every aspect of a contract the buyer signs, because it is the responsibility of the buyer to read and understand the contract the buyer signs. In other words, buyers and sellers have the freedom to be exploited due to improper diligence as free agents.

      Therefore, the consensus business argument is that if a person is screwed by the terms of a contract it is the person’s fault for not exercising his responsibilities before signing a contract. Any attempt on the government’s part to intercede on the behalf of one party to a contract disadvantages the other party. Thus, we are left with the argument that government regulation has a negative impact on both parties to a contract, which acts as a disincentive within the capitalist meme.

      Of course, the above argument completely ignores the reality of the relationship between a predator and its prey. The capitalist view is that all adults are free agents who choose their role as victim or perpetrator through design or neglect.

      Government regulation is necessary to control the negative impact on society of predator and prey negotiations where neither is exercising responsibilities that go beyond an individual contract. The capitalist meme argues that responsibity ends with the individuals involved in contract negotiations, while reasonable people have to look toward the impact on society as a whole. Unintended consequences and moral hazard arguments are used to support the idea that government cannot know how its regulation will impact the free market and the society in which it exists. One must then take a leap of faith to believe that free agents operating in a free market will result in rational outcomes, eventually.

      Capitalism is neither a religion or science; it is a theory that is manipulated by those who currently have the advantage.

  3. John Hope

    Bill Black and others inveigh tirelessly against these monsters and every time they do so on this blog and elsewhere new people read this stuff some wake up and realise things are not as they have been made to appear in the propaganda that passes for news . And that is how critical mass is achieved, from the bottom, one by one, little by little; and then one day that number ( which no-one can know ) is reached and over it goes because the fraud that Bill describes so clearly is unsustainable . As in the natural environment something new is being born ( which is always unseen ) and at the same time something that has been around for sometime and is diseased is dying . The same is true in the world of human affairs, finance being just a part, but nowadays too large a part and its size and the diseased nature of it will die, but nobody can know when that will be, but all the signs are there right now.

    1. Chris Engel

      Well I can tell you in my own personal case that I was a true believer as recently as one year ago (wrt to austerity, unfettered markets, self-interest axiomatically leading to optimized collective benefit, etc.).

      You can really only believe in a failed ideology for so long before the facts just make you look like ridiculous and you have to concede that the system is broken and that my worldview was poorly constructed.

      And I’m someone who worked in consulting right after grad school in a division specifically for banking advisory, where basically everyone was a true believer.

      I was seeing a lot of the facts in front of my face, and just hoped that if I held out that things would correct, and after enough time and open discussion with people of various disciplines, how can anyone really still push austerity and failed hard currencies and bad regulatory regimes that promote inequality which only hurts the aggreagte.

      So have faith, the intelligent and intellectually honest individuals out there will come around. The problem is of course summed up in Upton Sinclair’s famous quote:

      ‘It is difficult to get a man to understand something, when his salary depends on his not understanding it.’

      And when you’re working 60+ hours a week you barely have the free time to reflect on the shortfalls and externalities of such phenomena.

      1. rps

        The validity of currency has been separated from its primary function –labor compensation utilized as a universal bartering tool for trade, goods and services. The interdependency of compensation and exchange has been dragged into the alley, beaten, robbed, and stabbed. The off-shoot cultists (aka Chicago boys theorists such as Greenspan and the practitioner priests Dimon, Blankefein, etc…) of the newfangled pseudo-hippie religion of No-Boundaries, No Regulation Economics has subverted currency into a measurement independent of its original blueprint.

        Simply, the Grand Master financiers have uncoupled currency from its primary function. They claim labor is unnecessary to create wealth. Thus,the Grand Masters of Wall Street’s no holds barred casinos are anointed with special privileges of owning the “Pass Go and collect $$$” at the Federal Reserve Piggy Bank discount window for freebies along with Treasury’s blessing and Congresses officialdom acts of taxpayer tithings to the .001% Pigs –who are more equal than the 99% pigs.

        However, by de-coupling currency from labor compensation, the collective psychosis blindfold has dropped away to expose the new/old ideology that we have been become the enslaved subjects of the kings and queens of Wall Street.

        In hindsight this timeperiod will be pointed to as the pillaging, rape and death of old religion economics by the financial terrorist invaders, and the beginning of a new ideology of how we will collectively agree upon labor and compensation practices

        1. Aquifer

          “They claim labor is unnecessary to create wealth.”

          Well, let’s face it – one doesn’t have to work too hard to convince people – it has a very fundamental appeal to folks. Anyone who has ever bought a lottery ticket has succumbed to it …And Madison Ave has ever understood the appeal of “labor saving” devices …

          The problem with insisting that there never is, or perhaps more importantly, never should be, a disconnect, potentially also leads, ISTM, to the “no free lunch crowd” that rails against social safety nets – that echoes the “takers” meme …

          There is, ISTM, a need to pull that labor/wealth connection out of the drawer and examine it an all sides – the upper and the under side, especially …

    2. jurisV

      Wow ! Very well said, John Hope. Thanks for offering a rational vision of progress. It’s going to take a lot of time, and a lot of people till it reaches a “critical mass”, which doesn’t have to be a majority or even get high in the single digit percent.

      Although, as you say, one can’t predict when or how, but the decadence in the system will cause rot and decay until the dying gasp of a collapsing empire. When it does happen the fall will be surprisingly fast. Unfortunately, the symptoms of the dying and associated consequences cannot be predicted. Wish us all luck and hope that the required “critical mass” is in the single digit % range.

      To Chis Engel: as you said “working 60+ hours” (I would add — even 40 hours) doesn’t leave you time to really see the illusions that our propaganda weaves. Most of the illusions I had accepted only began to evaporate after I retired and had the time to examine the world around me. I suspect it’ll always be a “work in progress.”

    3. Brooklin Bridge

      Optimism? Bah, Humbug. They have learned the art and the science of fooling not all or even some, but just enough of the people just enough of the time all of the time. And over the last seventy years, they have become terribly terribly good at it. Just look at OWS, for one example, to see just how illusive this critical mass threshold idea actually is in any effective way. Egypt? Look at Egypt a year plus later. USSR? Germany? What’s left of Russia and the unified Germany are both veritable cesspools of crony capitalism.

    1. JEHR

      I agree. No one has been so tireless in explaining over and over again what the fraud was (and is). Thank you, Bill.

      1. direction

        I’m now adding the phrase “Modern Executive Compensation is Criminogenic” to my collection.

  4. livewire

    Love Bills papers! The dynamics described happen at all levels of organizations, IMHO. While ethics are professed at the corporate level, the reality is that they are constantly overlooked or fudged to accomplish some goal. Rocking the boat brands a ethical person negatively which perpetuates the “group think” of we must do this or we can’t keep up with the market. I wonder if the issues discussed in the article could ever be addressed without outside governance. Seems the board of directors at corporations are not doing their jobs, and changing boards is a problem due to the nature of stock ownership voting power. Prosecution, when or if it occurs, is like paying a parking ticket without admitting guilt for the corporation.

  5. zygmuntFRAUDbernier

    Charles Keating is a name that comes up in the S&L saga. Surely there must be good books on this sad episode?

    1. rob

      I think great book on the savings and loan scandal was “The mafia,cia and george bush”.by pete brewton.
      He was a houston reporter that did some of the initial investigation that broke the scandal.The book came out in @ 1992.
      besides so many recurring names from scandals past and present….there was a number of bush family jeb/niel children as well as george W.bush’s former air national gaurd friend,james bath, who was at the time working in part for the bin laden family,salem bin laden.this was before /while the dad HW bush was partners in carlyle group with osama’s dad,bin laden….
      others were the iranians like ghorbannifar and some other iranians who were part of the BCCI scandal and iran-contra and iraq gate.
      The savings and loan scandal was just a chapter in a long book ,someone is still writing.

  6. jennifer hill

    Consolidation and Self Governance were two concepts developed as standards for the Federal Government and it’s contractors. A researcher at Los Alamos described how they had assisted the Bush admin on how to make government smaller and permanently privatize certain functions of the Government. This idea of self-governance assumed that the corporation would act in the best interest of the US because they are profit driven and that is a pure motive, and would never be at the expense of the American people. That was a good one! LMAO

  7. McWatt

    Professor Black provides another well written and easily understood
    article. I wish that it was published in the New York Times.

    “Catch-22 says that they can do anything we can’t stop them from doing.”

  8. Telee

    But didn’t the Obama DOJ prove beyond a doubt with exhaustive investigations that their were no improprieties on Wall Street? All they could find was banks following the highest ethical and business standards.

  9. Tom

    As always, great information from Bill Black.
    I don’t for a moment believe that the type of change needed will occur. The type of change IMO needed is a relief of debt overhead in addition to legal reformulation and oversight which will, as much as possible, dissolve the incentive for Gresham’s dynamic and control fraud growth. Both Gresham’s and Control fraud are outgrowths of predatory and rent seeking activities – the act of imposing as much debt as possible to encourage asset bubbles which enables the rent extraction of debt service compound interest ( I will defer to Black ans Hudson on these matters). After all, human nature always tries to gain as much as possible with as little work as possible.
    What truly has me worried is the perception I have as to the goals of the rent seekers/predatory class (I hope I am dispelled of my thinking by someone).
    It seems that the predatory/rent seeking class is arguing among st themselves at how best to keep the machine going in balance.
    They are debating the question: At what rate of extraction from the productive economy can we sustain, and what level or source of money needs to be fed into the productive economy to maximize extraction with out crashing it down?
    How much can we get without jeopardizing our lives? how much human suffering can we get away with, how much environmental degradation can we get away with, how much and at what rate can we lower standards in pursuit of expanded extraction margins.

    1. JEHR

      Tom, that is one way to look at what is going on but what makes you think that they are not just going for broke and seeing who gets to the bottom of the barrel first? Any sane person would be happy to get $10 million for a few years and retire on his ill-gotten gains. Methinks that if the banks and corporations are not brought to heel, they will continue to do what they are doing until ALL the wealth is in their hands. Why would they stop? What, you think they have empathy? Silly boy.

      1. Tom

        Nothing makes me think that they will self correct (free market mythology and human nature – note I am not a cynic but maybe silly.
        Was it Thomas Jefferson who said something like -corporations have no compassion-.
        I hope we shall crush in its birth the aristocracy of our monied corporations which dare already to challenge our government to a trial by strength, and bid defiance to the laws of our country.
        Thomas Jefferson

        On another note – just my crazy side.
        Everyone stop all payments to the FIRE sector for three months – place those amounts in a secured account and let-em try to come after everybody – a non-violent revolution at hand. Just shows you how silly I am to think that a common cause could be had this way – so maybe I crazy on the face of it or am as distressed as I am that the rent/predatory non-consumption and production side of our economy is hurting, national defense, constitutional intent, the commons etc. through their deliberate action.

        1. Aquifer

          Here, Tom, is a simple way to start the process, and, IMO, the only way, short of revolution – use the ballot box to install decent (read “No D/Rs need apply”) folks in office – the “criminogenic environmnet” of policy and law Black describes will not change unless we do – note, this is not to say it is guaranteed to change if we do, only that it is guaranteed NOT to if we don’t …

          1. hunkerdown

            Would that right-thinking birds could steer the flock that easily. Unfortunately, the political process is made up of mainstream institutions which all baldly assert their own, the others’ and the very mainstream’s legitimacy. These interlocking pieces often respond to external forces on the system with a greater-than-unity reaction (cognitive dissonance, writ large and small) and, taken as a whole, are rather stable.

            Disrupting that system makes for a *lot* of objectives to capture in the space of one election cycle, let alone one news cycle. That suggests a *lot* of people need to be loyal to the goal of particular changes in the face of the usual bribes, threats, slanders, and actual violence that often accompanies regime change, whether political or economical. The bribes are of particular importance, as it only takes the offer of a small token of power within the system to neutralize or divert a large measure of power within the opposition.

            I’m not saying it’s impossible, by any means, but it’s a pretty tall order to turn all those hearts and minds from learned helplessness and pre-conventional morality when those who benefit from the system will happily spend half their wealth to protect the positional power of the other half, at whatever other costs there may be.

        2. ohmyheck

          Yup, it sounds crazy. But I have had that same idea for years.
          I simply have no idea what it would take to get enough people to join in. My thought is maybe they won’t need to join in, that, if things continue, too many people will not have enough money to make those payments anyway.

          Either by choice or by force…it could happen.

      2. Breton

        If They leave just enough on the table for enough of the Rest of US, this could go on a very long time.


  10. jal

    “Why would they stop? What, you think they have empathy? Silly boy.”

    Liar loans are still happening. They are necessary to prevent the system from crashing.

    ex. +$1T in student loans.

  11. The Black Swan

    I’m currently reading Mankiw’s book on Macroeconomics. It is surreal. Reality has proven wrong almost every assumption and theory contained within the text. This new religion of ‘the market’ is the most asinine and devastating religion that mankind has ever thought up. Completely devoid of context. First nature was God, then man was God, now there is no God only man. Arrogance will be our undoing.

  12. Aquifer

    “The implicit nature of the assumption is particularly dangerous – and symptomatic of dogma. It is the things we assume out of existence implicitly that are most dangerous because we do not consciously know we have made the assumption and therefore never test its accuracy.”

    Another variation of Whitehead’s Fallacy of Misplaced Concreteness – or minimalizing, denying or discounting “the things we don’t know we don’t know” (as Rummie might have said :)) – an indictment of “models”. What i think is very useful about the invocation of this Fallcy, per se, here, or in any discussion along these lines, is that one doesn’t have to get into a long, what i consider, digression about motivation, in order to make a valid critique …

    But i digress ..

    “Control frauds drive stakes through their stakeholders.”

    Ha, ha, Bill is finally starting to get the hang of this “sound bite” thing … that one might catch on …

    However, i have to confess that i am continually flummoxed by a guy, such as Bill, who sees this stuff so clearly – who advocates for steps that must be taken to fix it, yet leaves out what is, IMO, one of the, if not the, most critical step(s) – actually putting in place lawmakers who will make and enforce the appropriate policies/laws that he advocates …

    If he can’t bring himself to do that, at what point will he realize he is spitting in the wind … Perhaps he figures that is not his job – the problem is, until enough folks with Bills heft do it – the odds that it will get done are much diminished …

    ISTM that one of the things that Bill, and others like him, are “assum(ing) out of existence” is a concept that the current bunch of lawmakers, the ones that have made and “enforced” the rules that created the environment he talks about, are, to put it simply, schmucks, and must be replaced …. Leaving that little “variable” out of the equation leads to the “and then a miracle happens” in the middle of it …

  13. Chauncey Gardiner

    Bill Black mentioned Brooksley Born. For those of us who are unfamiliar with her work, I feel it is worthwhile taking a couple minutes to read about Brooksley Born, a remarkable woman and 2009 winner of the Profiles in Courage award. A concise summary that I believe captures much of what she is about, and the opposition to her from Rubin, Greenspan, Summers et al can be read at

    Sadly for all us, her warnings about financial derivatives continue to be ignored and marginalized to this day.

    The systemic threat posed by derivatives (along with the carrots of campaign financing and post-public service employment and lucrative deals), are two of the principal tools the kleptocracy uses to perpetuate the status quo. I believe that for many policy makers this truly becomes “the offer you can’t refuse”.

    We need to design and implement a better financial and monetary system. Implementing policies to reverse and eliminate the nine environmental factors that Bill Black identifies as key to Control Fraud would be beneficial. A tenth measure would be breaking up the “Too Big to Prosecute” institutions and reinstatement of the Glass-Steagall Act; and an eleventh, criminal prosecutions by the DoJ. I am sure others can add to the list.

    As Aquifer mentioned above, the question is how we can get legislators and regulators to act on our behalf? The capture of the two major political parties is an impediment that I believe can be overcome.

    1. Aquifer

      “The capture of the two major political parties is an impediment that I believe can be overcome.”

      Yes, indeed – simplest way – supporting a party that hasn’t been captured …

  14. Tom

    I think – and correct me if I am wrong – that Bill Black, Yves, Hudson etal do see what needs to be done and are trying to make change. However, and I do believe everyone must vote with knowledge. The reality exists that a long term propaganda machine (our, what is it? – neoclassical economic thought) has been infused throughout a majority of citizens who vote (continually being attached by by the monied interests- by the way). Another words, even with voting, the basis of vote (knowledge) has been intentionally distorted by the salesman.

    “If a nation expects to be ignorant and free, it expects what never was and never will be … The People cannot be safe without information. When the press is free, and every man is able to read, all is safe.” – Thomas Jefferson

    So yes vote vote vote – everyone and all. Caution, what we are presented in media, in campaign, in everyday life – as applied to our economic life – is a well orchestrated mirage. Until a majority learn the history and the now – a continued mirage will be our reality going forward. Bill et al contribute to knowledge in the hope that this knowledge will progress our republic (correct me if wrong) toward a more just and sustainable society/planet.

    So yes, putting in place lawmakers who will make a change is desirable but, those lawmakers are, in this country, dependent upon on a well informed citizenry. The tyrannical are dependent on mis-information, chaos, diminished freedoms and decreased knowledge. Tyranny exists within a mirage.

    1. Aquifer

      Yes, Tom, well put …

      It is the responsibility of the citizen to be well informed – we can’t honestly be pissed at a gov’t that we have put so little thought into forming ….

      We have allowed ourselves to be fooled time and again –

      Jefferson was right about the importance of a free press – but ours is pretty much bought and paid for -so we have to be our own media ….

  15. Carla

    Professor Black, you say:

    “In finance, accounting is the “weapon of choice.” It is important to remember, however, that other forms of control fraud maim and kill hundreds of thousands and cause grave environmental damage.”

    These days, finance owns controlling stakes in the corporations that despoil the world, and finance directs the governments that wage wars. So perhaps accounting control fraud is the ultimate weapon of choice.

    Let’s keep that in mind as we witness the explosion of domestic drones headed our way.

  16. Hugh

    A post of such length dealing with pervasive fraud and criminality yet kleptocracy is never mentioned once. And it all leads up to this singularly confused statement:

    It is time for WEF to get out of the business of being an apologist for and enabler of control fraud and to tell the likes of Goldman Sachs that a banker who sells its clients toxic mortgages the bank describe internally as “shitty” is a bank that is degrading the state of the world and it is unwelcome in Davos.

    Davos is one of several celebratory conferences each year where elites and kleptocrats gather to exchange notes, boast of their successful lootings, preach austerity to the rest of us, and blame us for the harm their looting does to us.

    For these reasons, Goldman will always be welcome at Davos. Goldman is an expression of Davos. Davos is an expression of Goldman. A reformer like Black who is so good at description becomes disconnected in his prescriptions. Somehow he thinks that a conclave of crooked individuals and organizations like Goldman is going to hold a crooked organization like Goldman accountable. That is what he is calling for, inexplicable though it is.

  17. allcoppedout

    Cameron was at Davos talking about tax avoidance and trotting out usual lines on transparency, even saying banksters were asking him to clean things up. I wouldn’t mind placing a highly leveraged bet nothing will really change! One wonders on the protocols of his thinking. If I made such a speech I would know I was lying. Generally, people internally excuse their deceptions – we need to know more on how they achieve this.

  18. rob

    Great article!
    Why is it; that which is so obvious to some, cannot be seen by others?
    In my opinion, this constitutes “a train of abuses”.
    …..”but when a long train of abuses and usurpations,pursuing invariably the same Object,evinces a design to reduce them under absolute despotism,it is their right,it is their duty,to throw off such government,and to provide new gaurds for their future security.”……

    The trick really is ,how do we get the rest , to look.

  19. Rufus T. Firefly, Jr.

    It’s time for a revolution, folks. Time to round up these criminals like the rabid dogs that they are and herd them over to Gitmo for a little waterboarding vacationing, until they disclose all their secret offshore accounts. After that we can “mercifully” guillotine them.

    Here’s a little more about the “wonders” of capitalism:

    We need to start dismantling this criminal system called capitalism ASAP.


  20. Murky

    The photo Bill Black posted as ‘exhibit A’ is infamous and worthy of more detailed comment.

    The photo dates to June 3rd, 2003, and is captioned on the FDIC website with the words, “Determined to cut red tape and reduce regulatory burden”.

    Standing in the photo left to right are:

    1) James Gilleran, Director of the Office of Thrift Supervision
    2) Jim McLaughlin of the American Bankers Association
    3) Harry Doherty of America’s Community Bankers
    4) John Reich, Vice Chairman of the FDIC
    5) Ken Guenther of the Independent Community Bankers of America

    James Gilleran, gripping a chain saw on the left, and John Reich, second from the right, were champion deregulators and enablers of fraud during the subprime mortgage fiasco. As successive Directors of the OTC, a vast amount of economic damage occurred under their watch. Gilleran was Director from 2001-2005, and Reich was Director from 2005-2009.

    The official mission statement of the OTC was as follows: “To effectively and efficiently supervise thrift institutions to maintain their safety and soundness…”

    But Gilleran did little to supervise the thrift industry, instead acting as consultant, advocate, and lobbyist. In 2004 when adjustable-rate-mortgages were becoming popular, Gilleran voiced no concern about predatory lending practices. His concern was to cut away any regulations that industry members found objectionable.

    Reich outdid Gilleran in his pro-industry and anti-consumer stance. His administration got caught in openly fraudulent activity. His people backdated the balance sheets of IndyMac to improve the appearance of financial solvency. Reich soon resigned as Director of OTS after that incident.

    The list of thrifts that failed in consequence of Gilleran’s and Reich’s tenure includes Washington Mutual, IndyMac, and Downey Financial, all major mortgage originators. Countrywide Financial was also bleeding billions, and desperately needed a more fraud-permissive regulator. In 2007 the OTS granted the company’s request to change regulators from the FED and OCC over to the OTS. Other failed or failing financial institutions under Gilleran’s and Reich watch’s included portions of AIG, Merrill Lynch, Lehman Brothers, and Morgan Stanley.

    So that’s the clubby atmosphere of the ‘gentlemen’ in the photo. These top public officials championed deregulation, lived as corporate cronies, and actively enabled the subprime mortgage fraud.

  21. dbak

    The problem of all of your comments are this. There are many sugestions, most of which are quite admirable, but that is the problem. We need to focus on a single approach. Our elected leaders will not change their ways as long as it requires huge sums of money to run for public office. This opens the door for special interests to buy their votes. It is hard for single individuals to influence events but modern technology such as the Internet allows many voices to speak loudly. We need to strongly advocate public financing of political campaigns. Until we can elect politicians who have not sold their souls to special interests there isn’t much hope for change. There are many clever people on this and other websites so put your collectve minds together and start pushing this process.

  22. impermanence

    The entire history of Western Civilization has been one version of the “something for nothing” culture after another, that is, slavery to serfdom to wage-labor…

    …same basic deal, different method of stealing from people.

    Until this ends, you have people doing everything under the sun to maximize this theft, be it completely legal [which 99.9% of it always is] or illegal.

  23. Lipseeciple

    Для рецепта вам потребуется:

    мука – 2.5 стакана
    яйцо – 5 шт.
    сахар – 100г
    сливочное масло – 200г
    молоко – 3 стакана
    соль – 3/4 ч.л.
    сыр – 300г.

    На мелкой терке натереть сыр. Отделить желтки от белков. Взбить желтки с молоком, добавив туда же тертый сыр, муку, соль.
    Взбить белки и добавить полученную белковую пену в тесто.
    Обжаривать в масле до получения золотистой хрустящей корочки. При этом блинчики должны быть небольшими.

    Надеюсь вам понравиться

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