Trump Models His War on Bank Regulators on Bill Clinton and W’s Disastrous Wars

By Bill Black, the author of The Best Way to Rob a Bank is to Own One, an associate professor of economics and law at the University of Missouri-Kansas City, and co-founder of Bank Whistleblowers United. Jointly published with New Economic Perspectives

The Wall Street Journal published an articleon December 12, 2018 that should warn us of coming disaster:  “Banks Get Kinder, Gentler Treatment Under Trump.”  The last time a regulatory head lamented that regulators were not “kinder and gentler” promptly ushered in the Enron-era fraud epidemic.  President Bush made Harvey Pitt his Securities and Exchange Commission (SEC) Chair in August 2001 and, in one of his early major addresses, he spoke on October 22, 2001to a group of accounting leaders.

Pitt, as a private counsel, represented all the top tier audit firms, and they had successfully pushed Bush to appoint him to run the SEC.  The second sentence of Pitt’s speech bemoaned the fact that the SEC had not been “a kinder and gentler place for accountants.”  He concluded his first paragraph with the statement that the SEC and the auditors needed to work “in partnership.”  He soon reiterated that point:  “We view the accounting profession as our partner” and amped it up by calling accountants the SEC’s “critical partner.”

Pitt expanded on that point: “I am committed to the principle that government is and must be a service industry.”  That, of course, would not be controversial if he meant a service agency (not “industry”) for the public.  Pitt, however, meant that the SEC should be a “service industry” for the auditors and corporations.

Pitt then turned to pronouncing the SEC to be the guilty party in the “partnership.”  He claimed that the SEC had terrorized accountants.  He then stated that he had ordered the SEC to end this fictional terror campaign.

[A]ccountants became afraid to talk to the SEC, and the SEC appeared to be unwilling to listen to the profession. Those days are ended.

This prompted Pitt to ratchet even higher his “partnership” language.

I speak for the entire Commission when I say that we want to have a continuing dialogue, and partnership, with the accounting profession,

Recall that Pitt spoke on October 22, 2001.  Here are the relevant excerpts from the NY Times’ Enron timeline:

Oct. 16 – Enron announces $638 million in third-quarter losses and a $1.2 billion reduction in shareholder equity stemming from writeoffs related to failed broadband and water trading ventures as well as unwinding of so-called Raptors, or fragile entities backed by falling Enron stock created to hedge inflated asset values and keep hundreds of millions of dollars in debt off the energy company’s books.

Oct. 19 – Securities and Exchange Commission launches inquiry into Enron finances.

Oct. 22 – Enron acknowledges SEC inquiry into a possible conflict of interest related to the company’s dealings with Fastow’s partnerships.

Oct. 23 – Lay professes confidence in Fastow to analysts.

Oct. 24 – Fastow ousted.

The key fact is that even as Enron was obviously spiraling toward imminent collapse (it filed for bankruptcy on December 2) – and the SEC knew it – Pitt offered no warning in his speech.  The auditors and the corporate CEOs and CFOs were not the SEC’s ‘partners.’  Thousands of CEOs and CFOs were filing false financial statements – with ‘clean’ opinions from the then ‘Big 5’ auditors.  Pitt was blind to the ‘accounting control fraud’ epidemic that was raging at the time he spoke to the accountants.  Thousands of his putative auditor ‘partners’ were getting rich by blessing fraudulent financial statements and harming the investors that the SEC is actually supposed to serve.

Tom Frank aptly characterized the Bush appointees that completed the destruction of effective financial regulation as “The Wrecking Crew.”  It is important, however, to understand that Bush largely adopted and intensified Clinton’s war against effective regulation.  Clinton and Bush led the unremitting bipartisan assault on regulation for 16 years.  That produced the criminogenic environment that produced the three largest financial fraud epidemics in history that hyper-inflated the real estate bubble and drove the Great Financial Crisis (GFC).  President Trump has renewed the Clinton/Bush war on regulation and he has appointed banking regulatory leaders that have consciously modeled their assault on regulation on Bush and Clinton’s ‘Wrecking Crews.’

Bill Clinton’s euphemism for his war on effective regulation was “Reinventing Government.”  Clinton appointed VP Al Gore to lead the assault. (Clinton and Gore are “New Democrat” leaders – the Wall Street wing of the Democratic Party.)  Gore decided he needed to choose an anti-regulator to conduct the day-to-day leadership.  We know from Bob Stone’s memoir the sole substantive advice he gave Gore in their first meeting that caused Gore to appoint him as that leader.  “Do not ‘waste one second going after waste, fraud, and abuse.’”  Elite insider fraud is, historically, the leading cause of bank losses and failures, so Stone’s advice was sure to lead to devastating financial crises.  It is telling that it was the fact that Stone gave obviously idiotic advice to Gore that led him to select Stone as the field commander of Clinton and Gore’s war on effective regulation.

Stone convinced the Clinton-Gore administration to embrace the defining element of crony capitalism as its signature mantra for its war on effective regulation.  Stone and his troops ordered us to refer to the banks, not the American people, as our “customers.” Peters’ foreword to Stone’s book admits the action, but is clueless about the impact.

Bob Stone’s insistence on using the word “customer” was mocked by some—but made an enormous difference over the course of time. In general, he changed the vocabulary of public service from ‘procedure first’ to ‘service first.’”

That is a lie.  We did not ‘mock’ the demand that we treat the banks rather than the American people as our “customer” – we openly protested the outrageous order that we embrace and encourage crony capitalism.  Crony capitalism’s core principle – which is unprincipled – is that the government should treat elite CEOs as their ‘customers’ or ‘partners.’  A number of us publicly expressed our rage at the corrupt order to treat CEOs as our customers.  The corrupt order caused me to leave the government.

Our purpose as regulators is to serve the people of the United States – not bank CEOs.  It was disgusting and dishonest for Peters to claim that our objection to crony capitalism represented our (fictional) disdain for serving the public.  Many S&L regulators risked their careers by taking on elite S&L frauds and their powerful political fixers.  Many of us paid a heavy personal price because we acted to protect the public from these elite frauds.  Our efforts prevented the S&L debacle from causing a GFC – precisely because we recognized the critical need to spend most of our time preventing and prosecuting the elite frauds that Stone wanted us to ignore..

Trump’s wrecking crew is devoted to recreating Clinton and Bush’s disastrous crony capitalism war on regulation that produced the GFC.  In a June 8, 2018 article, the Wall Street Journal mocked Trump’s appointment of Joseph Otting as Comptroller of the Currency (OCC).  The illustration that introduces the article bears the motto: “IN BANKS WE TRUST.”

Otting, channeling his inner Pitt, declared his employees guilty of systematic misconduct and embraced crony capitalism through Pitt’s favorite phrase – “partnership.”

I think it is more of a partnership with the banks as opposed to a dictatorial perspective under the prior administration.

Otting, while he was in the industry, compared the OCC under President Obama to a fictional interstellar terrorist.  Obama appointed federal banking regulators that were pale imitation of Ed Gray, Joe Selby, and Mike Patriarca – the leaders of the S&L reregulation.  The idea that Obama’s banking regulators were akin to ‘terrorists’ is farcical.

The WSJ’sDecember 12, 2018 article reported that Otting had also used Bob Stone’s favorite term to embrace crony capitalism.

Comptroller of the Currency Joseph Otting has also changed the tone from the top at his agency, calling banks his “customers.”

There are many terrible role models Trump could copy as his model of how to destroy banking regulation and produce the next GFC, but Otting descended into unintentional self-parody when he channeled word-for-word the most incompetent and dishonest members of Clinton and Bush’s wrecking crews.

The same article reported a trade association’s statement that demonstrates the type of outrageous reaction that crony capitalism inevitably breeds within industry.

Banks are suffering from “examiner criticisms that do not deal with any violation of law,” said Greg Baer, CEO of the Bank Policy Institute….”

The article presented no response to this statement so I will explain why it is absurd.  First, “banks” do not “suffer” from “examiner criticism.”  Banks gain from examiner criticism.  Effective regulators (and whistleblowers) are the only people who routinely ‘speak truth to power.’  Auditors, credit rating agencies, and attorneys routinely ‘bless’ the worst CEO abuses that harm banks while enriching the CEO.  The bank CEO cannot fire the examiner, so the examiners’ expert advice is the only truly “independent” advice the bank’s board of directors receives.  That makes the examiners’ criticisms invaluable to the bank.  CEOs hate our advice because we are the only ‘control’ (other than the episodic whistleblower) that is willing and competent to criticize the CEO.

Second, we do our job as examiners best when we make “criticism” of bank actions that are not a “violation of law.”  When a bank commits a violation of law relevant to the regulators, it is nearly always a felony.  The idea that examiners should not criticize any bank misconduct, predation, or ‘unsafe and unsound practice’ that does not constitute a felony is obviously insane. While “violations of law” (felonies) are obviously of importance to us in almost all cases, our greatest expertise is in identifying – and stopping – “unsafe and unsound practices” because such practices, like fraud, are leading causes of bank losses and failures.

Third, repeated “unsafe and unsound practices” are a leading indicator of likely elite insider bank fraud and other “violations of law.”

The trade association complaint that examiners dare to criticize non-felonious bank conduct – and the WSJ reporters’ failure to point out the absurdity of that complaint – demonstrate that the banking industry’s goal remains the destruction of effective banking regulation.  Trump’s wrecking crew is using the Clinton and Bush playbook to restore fully crony capitalism.  He has greatly accelerated the onset of the next GFC.

Print Friendly, PDF & Email


  1. Tim Smyth

    I am not all sure of the time frame but didn’t Mike Patriarco end up going to work for Promontory Consulting. Can’t say I am terribly impressed although I wasn’t around when the S&L crisis occured.

  2. todde

    I am a Certified Public Accountant.

    The key word being Public. I serve the Public, not shareholders or CEOs.

    If I fail the Public they have every right to destroy me and take my livelihood.

    I am ok with that. If you are not ok with that, I would suggest not doing the work a Certified Public Accountant.

  3. Tom Stone

    The only question I had when 2016 ended up as Trump Vs Clinton was whether the new President would be a disaster or a catastrophe.
    That question has been answered.
    Is it time to expand the 1033 program and reemphasize asset forfeitures?

  4. redleg

    Meanwhile, whistleblowers get destroyed emotionally, financially, physically by both parties with wanton efficiency.
    No good deed shall go unpunished!

  5. Chauncey Gardiner

    Thank you for this, Bill Black. IMO the long-term de-regulatory policies under successive administrations cited here, together with their neutering the rule of law by overturning the Glass-Steagall Act; de-funding and failing to enforce antitrust, fraud and securities laws; financial repression of the majority; hidden financial markets subsidies; and other policies are just part of an organized, long-term systemic effort to enable, organize and subsidize massive control and securities fraud; theft of and disinvestment in publicly owned resources and services; environmental damage; and transfers of social costs that enable the organizers to in turn gain a hugely disproportionate share of the nation’s wealth and nearly absolute political control under their “Citizens United” political framework.

    Not to diminish, but among other things the current president provides nearly daily entertainment, diversion and spectacle in our Brave New World that serves to obfuscate what has occurred and is happening.

    1. RBHoughton

      I’m with you Chauncey. I believe the rot really got started with creative accounting in early 1970s. That’s when accountants of every flavor lost themselves and were soon followed by the lawyers. Sauce for the goose.

      Banks and Insurers and many industrial concerns have become too big. We could avoid all the regulatory problems by placing a maximum size on commercial endeavour.

  6. chuck roast

    A number of years ago I did both the primary capital program and environmental (NEPA) review for major capital projects in a Federal Region. Hundreds of millions of dollars were at stake. A local agency wanted us (the Feds) to approve pushing up many of their projects using a so-called Public Private Partnership (PPP). This required the local agency to borrow many millions from Wall Street while at the same time privatizing many of their here-to-fore public operations. And of course there was an added benefit of instituting a non-union shop.
    To this end I was required to sit down with the local agency head (he actually wore white shoes), his staff and several representatives of Goldman-Sachs. After the meeting ended, I opined to the agency staff that Goldman-Sachs was “bullshit” and so were their projects.
    Shortly thereafter I was removed to a less high-profile Region with projects that were not all that griftable, and there was no danger of me having to review a PPP.
    Oh, and I denied, denied, denied saying “bullshit.”

  7. flora

    Thank you, NC, for featuring these posts by Bill Black.

    I have more than a passing acquaintance with banking, banking regulation, and banking’s rectitude (such an old fashioned word) in the importance for Main Street’s survival, and for the country’s as a whole survival as a trusted pivot point in world finance, or for the survival of the whole American project. I know this sounds like an over-the-top assertion on my part, however… I believe it true.

    Main Street also knows the importance of sound banking. Sound banking is not a ‘poker chip’ to be used for games. Sound banking is key to the American experiment in self-determination, as it has been called.

    Politicians who ‘dont’t get this” have lost touch with the entire American enterprise, imo. And, no, the neoliberal promise that nation-states no longer matter doesn’t make this point moot.

    1. flora

      adding: US founding father Alexander Hambleton did understand the importance of sound banking, and so Obama et al confusing “banking” with sound banking is too ironic, imo.

  8. Tim

    It was actually worse than this. The very deliberate strategy was to indoctrinate employees of federal regulatory agencies to see the companies they regulated not as “partners” but as “customers” to be served. This theme is repeated again and again in Bush era agency reports. Elizabeth Warren was viciously attacked early in the Obama Administration for calling for a new “watchdog” agency to protect consumers. The idea that a federal agency would dedicate itself to protecting citizens first was portrayed as dangerously radical by industry.

  9. John k

    Models on Clinton and bush…
    What’s not to like? Why isn’t msm and dem elites showing him the love when he’s following their long term policies?
    And we might assume these would be hills policies if she had been pushed over the line.
    A little thought realizes that in spite of the pearl clutching they far prefer him to Bernie.

  10. sierra7

    We continue to live within a “criminal political/enterprise system” and will not change until a total social revolt. But, then what comes? “What is to be done?”

Comments are closed.