Bill Black: If Current Laws Prosecuting Bankers Aren’t Used, What Can Warren Change?

This is the second in two recent Real News Network interviews with Bill Black, white collar criminologist and frequent Naked Capitalism contributer. Bill is author of The Best Way to Rob a Bank is to Own One and teaches economics and law at the University of Missouri Kansas City (UMKC).

See the first interview, Sen. Warren Wants to Jail Those Who Caused 2008’s Meltdown, for background and historical context. The interviews aren’t long, and there are transcripts.

Bill argues that the problem isn’t deficient laws, which is Warren’s focus. He says instead:

It’s far better to focus on using the existing criminal laws but changing the things in the system that are so criminogenic and changing institutionally the regulators, the F.B.I., and the prosecutors, so that you go back to systems that we’ve always known how to make work. The simple example is task forces. What produced the huge success in the savings and loan, the Commercial Bank, and the Enron era fraud prosecutions? It was these task forces where we brought everyone together to actually bring prosecutions. They killed those criminal task forces, both under the Bush administration and under the Obama administration.

I think this is cause for optimism. For it means we don’t have to go through the long and torturous process of passing new laws to get somewhere with fixing a deeply broken system. The Dodd-Frank Act wasn’t passed until July 2010, despite the huge clamor to do something about the banks that created the Great Financial Crisis. And then it took many years for all affected agencies to finish rule-makings necessary to administer and enforce the law. Imagine if we had to do that again to get somewhere with the necessary clean-up.

Instead, we merely have to elect politicians who will appoint necessary personnel to confront the prevailing criminogenic environment. I know, I know – that’s a big ask too.  But believe me, it would be even bigger if we must also take the preliminary step of passing new legislation as well.

MARC STEINER Welcome to The Real News Network. I’m Mark Steiner. Always good to have you with us. Now if you were watching the previous segment and you saw what Bill Black and I were talking about, you saw that we were kind of diving into the history of this. Why it’s so difficult to prosecute or maybe it’s not, and we’re finding out why. But what we didn’t jump into was about Elizabeth Warren’s proposal. Do they make sense? If they passed, will they actually make a difference. What is it that we do we need, more laws like that or do we need more regulation? What would solve the crisis that we seem to constantly be falling into? And we’re still here with Bill Black as always, which is great. So Bill, let me just jump right into this. Her proposals— do they meet muster? Do they actually make a difference? Some people say she’s piddling around the edges. What do you think?

BILL BLACK So for example, the proposed bill on Too Big to Jail would largely recreate the entities that we had during the great financial crisis, which led to virtually no prosecutions. So yes, we need more resources, but bringing back SIGTARP, the special inspector general for the Treasury, would have next to no effects. The criminal referrals have to come from the banking regulatory agencies. They have essentially been terminated. You need new leadership at those entities that were actually going to make criminal referrals. The second part— would it change things to be able to prosecute simply by showing negligence? Well yes, but it would still be a massive battle to show negligence in those circumstances and at the end of the day, the judge could just give probation. And judges are going to be very hostile to it, particularly after Trump gets all these judicial appointees. You would just see a wave, if you used a simple negligence standard of conservative judges who didn’t think it was fair to make it that easy to prosecute folks. They would give people probation. Prosecutors wouldn’t want to go through a huge fight just to get probation and such. And so, it would be immensely ineffective, and it would break. There’d be maybe some progressive judges that would actually give the maximum term, but that’s only one year under her proposal. So you’re not going to get significant deterrence through those mechanisms. It’s far better to focus on using the existing criminal laws but changing the things in the system that are so criminogenic and changing institutionally the regulators, the F.B.I., and the prosecutors, so that you go back to systems that we’ve always known how to make work. The simple example is task forces. What produced the huge success in the savings and loan, the Commercial Bank, and the Enron era fraud prosecutions? It was these task forces where we brought everyone together to actually bring prosecutions. They killed those criminal task forces, both under the Bush administration and under the Obama administration. So we don’t have to reinvent the bike. We don’t have to design a new vehicle. We have a vehicle that works for successful prosecutions. We actually need to use it and to do that, we need people in charge who have the will to prosecute elite white-collar criminals.

MARC STEINER So you do agree with a critique of these bills, saying what we need is just to have greater regulation and enforce regulations we have? We don’t need new prosecutorial tools? Is that what you’re saying?

BILL BLACK No I completely reject that view in Slate that is by two folks who have really extreme views. One thinks that we prosecute and sentence elite white-collar criminals way too much and much too heavily. And the other, for example, has written an article saying, we shouldn’t make wage theft which is theft, a crime. Even though it’s Walmart’s dominant strategy and it makes it impossible for more honest merchants to compete against Walmart, that is an insane view. And of course, it will never happen because you’re going to put the same people in charge who don’t believe. If they don’t believe in prosecuting, you think seriously they believe in regulating the big banks?

MARC STEINER What I’m asking you though Bill, to critique that, what do you think? Are the bills that Elizabeth Warren is suggesting unnecessary, other than maybe putting more money into regulatory agencies to oversee all of this? Are you saying that we have enough prosecutorial tools?

BILL BLACK They’re unnecessary. The specifics in the bills are unnecessary. But that doesn’t mean that regulation is the answer to it, although it’s part of the issue.

MARC STEINER I got you. Right.

BILL BLACK What you need is leaders who will use the tools we know work, to do the prosecutions. And they made absolutely sure— that’s Lanny Breuer who you talked about in the first episode of this thing, that actually said to a nationwide audience on video that he was kept awake and fearing not what the bank criminals were doing but fearing that somebody might lose their job in banks because of it. You know he doesn’t represent the American people at that point. If you put Lanny Breuer in, you could put 10,000 F.B.I. agents and you would still get no prosecutions, because Lanny Breuer simply isn’t going to prosecute just like Eric Holder simply wasn’t going to prosecute.

MARC STEINER Well this has been really edifying for me and I think all of our viewers. Bill Black, it always is. I deeply appreciate your thinking, and the work you’ve done, and what you bring to us. Thank you so much for all of this.

BILL BLACK Thank you.

MARC STEINER And I’m Mark Steiner here for The Real News Network. Thank you all for joining us. Take care.

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16 comments

  1. Colonel Smithers

    Thank you, JL-S.

    It’s not just the US, but the UK, too.

    Readers may be aware that the British government is seeking a successor to Mark Carney at the Bank of England, which has resumed most, but not all, of its former supervisory responsibilities this decade.

    One of the candidates, Andrew Bailey, a former Bank official and currently head of the conduct risk regulator, is desperate for the Bank job and publicly and privately speaking about lightening the regulatory load. Not only that, Bailey is also reluctant to take action against the well connected and have anything going on that will have an impact on his application, vide the current London Capital Finance scandal.

    At a recent address to asset managers, Bailey said that not on Brexit + day 1, but soon after the red pen would be applied to the UK rule book. He implied that prosecutions would be a rarity. It was very much a plea to firms to stay after Brexit and to lobby for his candidacy.

    Reply
    1. templar555510

      I am old enough remember clearly the Blue Arrow case in the 1980’s ( easily looked up ) but essentially a share rigging operation. The smokescreen advanced by the establishment in these cases had always been the same; that company fraud is far to complicated for ordinary mortals to understand . But in the Blue Arrow case they ( the jury ) did understand it, which terrified the establishment, and word came down from on high that no such prosecutions should ever happen again . And then we had ‘ light touch regulation ‘. And then we had the Great Financial Crash.

      Reply
      1. Colonel Smithers

        Thank you, T.

        Me, too. Also, I joined Coutts, part of the then NatWest Group, in the late 1990s. We were taught about the case as part of the new joiner induction.

        Do you recall the Guinness scandal?

        Reply
        1. Templar555510

          I do indeed Colonel. Both scandals seem almost quaint in the light of the scale of the manipulation and fraud in the years leading up to the GFC and subsequently; and the unwillingness of both the UK and US government to even attempt to bring about prosecutions. The intertwining of politics and big business ( ‘ the revolving door ‘ ) has played a large part in this and IMHO distressed the wider public to such an extent that when they had the opportunity to show their displeasure they did so and voted for Brexit and Trump.

          Reply
    2. Off The Street

      Those regulators and their ilk need trips to the Old Bailey, although that is not likely to happen in the foreseeable future. Too much is riding on the Brexit preparations, until the next panic, and then the following panic. All of those militate against any action that would harm the fabric of, ahem, pay packets.

      Reply
  2. diptherio

    Your video embed is a little on the big side and overlapping the sidebar…on Firefox, any way.

    Reply
  3. Watt4Bob

    If you put Lanny Breuer in, you could put 10,000 F.B.I. agents and you would still get no prosecutions, because Lanny Breuer simply isn’t going to prosecute just like Eric Holder simply wasn’t going to prosecute.

    IMHO, you could put Bill Black in, many, if not most of those 10,000 F.B.I. agents would passively resist, and you would still get no prosecutions.

    We’re seeing, with Trump, what passive resistance looks like, the same will be done to Bernie if elected.

    The massive momentum of neo-liberal rule is baked in, and has been quite successful at making sure Trump doesn’t screw any of their plans up, in fact Trump derangement syndrome seems to be working better than they could ever have dreamed to cover the really nasty stuff that’s going on while the people are treated to Russia, Russia, Russia! 24/7.

    Bernie would face the same, but probably worse, more intense resistance from what would be a unified, bi-partisan resistance, the 10%, with forty years worth of Washington Consensus training under their belts, all either chanting in unison against the evils of socialism, or sticking their fingers in their ears and chanting Na, Na, Na, Na!

    After 9/11, the FBI pulled thousands of agents off white collar crime and switched them to fighting terrorism, in hindsight, this seems closer to evidence of a plan than an accident of history.

    By now, most, if not all those agents have decided that for the sake of their careers, they had better forget about what they used to think was important.

    It would probably take all of Bernie’s first term to bring the public up to speed, and in alignment with the effort to prosecute the banksters, and that’s being optimistic.

    Right now, half the electorate believes that dead-beat borrowers crashed the economy in 2008.

    There’s a lot of brain-washing to be undone.

    Reply
    1. Yves Smith

      You don’t need the FBI to prosecute bank crimes. In his book version of Inside Job, Charles Ferguson laid out the evidence for WaMu (and IIRC another bank) that was sufficient to be able to indict executives. There was plenty of evidence in the public domain.

      Reply
      1. Watt4Bob

        Yes, and what is it we are discussing, the reasons why no indictments were made, and what is to be done about it?

        My point is that changes in leadership, IMO are insufficient to prompt those indictments into being in the near term because in the period since 2008, everything possible has been done to load the federal bureaucracy with politically reliable persons dedicated to helping defend the status quo.

        I might add that ‘The Resistance’ has, IMO, been focused almost exclusively on making sure Trump is not reelected, thereby protecting democratic rice bowls, and sadly, not so much on preventing his destroying regulatory systems, the courts, and every remnant of the New Deal.

        The situation we’re facing is the Augean Stables, except that it’s been 40 years, not 30, that the filth has been building up without a proper cleaning.

        So, being wildly optimistic, we elect Bernie Sanders, and if we’re lucky, start a generation long process against a strong head wind.

        That said, I remain wildly optimistic that that is what will happen, I just can’t help myself.

        Reply
  4. JimTan

    I’m not a legal expert but what about going after banks, most of which do business in NY state, by using the existing Martin Act like Eliot Spitzer. According to this older article :

    “Spitzer’s big gun was New York’s Martin Act. The law allowed him to subpoena virtually any document from anyone doing business in the state. Because the law permits prosecutors to pursue either civil or criminal penalties, Spitzer could refuse to tell suspects which one he was seeking. Spitzer’s willingness to wield the considerable powers permitted by the Martin Act turned the New York AG’s office from a backwater into a rainmaker and made the SEC, which could impose only puny civil penalties, look like a peashooter. Spitzer used the Martin Act to drag angry and unwilling corporate executives into his office for questioning. Then he’d subpoena huge company files. Dedicated staff combed through them and, almost inevitably, found a smoking gun: secretive after-hours trading between mutual funds and hedge funds; alleged bid rigging at Marsh; and emails from Wall Street analyst Jack Grubman bragging to his mistress about how he’d recommended a shoddy company in a three-way deal to help his boss, Citigroup chairman Sandy Weill, humiliate a corporate foe. Spitzer would then wave “the bloody shirt,” as journalist Roger Donway puts it, in front of the cameras, show off the worst offenses he had uncovered and use them to tar and feather an entire industry.”

    Reply
  5. Susan the other`

    To continue with deregulation now is beyond counterproductive. If it was once productive it was because it filled the void for lost jobs/purchasing power. No one in their right mind could have thought that this was anything more than a temporary fix while they managed to balance the economy and get back on track. But due to the reigning neoliberal mindset a balanced economy was not possible. The goal was laissez faire economics and allowing inequality to make a very few people very rich. Now this very mindset should be made illegal. We know what damage it has done. By all means go back to enforcing effective laws but while we do that we should establish clearly how destructive these last 30 years have been. And how destructive it would be to continue on with all the ruthless fraud, Gresham’s competition, and externalizing costs to society and the environment. To throw the banksters in jail is just the tip of the iceberg. We’d need to go back and get all the sleazy politicians and big corporation CEOs and bureaucrats and at least half of congress. If we do pass some new law with the hope of changing things we should make neoliberalism itself a crime against humanity. And the planet.

    Reply
  6. Oh

    To throw the banksters in jail is just the tip of the iceberg. We’d need to go back and get all the sleazy politicians and big corporation CEOs and bureaucrats and at least half of congress.

    Well said!

    Reply

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