“We today have zero convictions, zero indictments, zero arrests of any of the elite, non-prime lenders that, through their fraud, drove this crisis.” William K. Black
William K. Black, a former regulator who helped crack down on massive fraud during the savings and loan crisis in the 1980s, is interviewed by Bill Moyers on THE JOURNAL : “despite evidence of fraud at the top banks, prosecutions seem far away.”
Video transcript (extract):
April 23, 2010
WILLIAM K. BLACK Lehman’s failure is a story in large part of fraud. And it is fraud that begins at the absolute latest in 2001.
BILL MOYERS: Bill Black is with me now. One of the country’s leading experts on crimes in high places he teaches economics and law at the University of Missouri-Kansas City, and wrote this book, THE BEST WAY TO ROB A BANK IS TO OWN ONE.
Lehman was brought down primarily by selling liar’s loans. It was the biggest seller of liar’s loans in the world.
And when we look at these liar’s loans, we find 90 percent fraud. 90 percent. And we find that most of the frauds are not induced by the borrower, but they’re overwhelmingly done by the loan brokers.
BILL MOYERS: And liar’s loans are?
WILLIAM K. BLACK A liar’s loan is we don’t get any verified information from you about your income, your employment, your job history or your assets.
BILL MOYERS: You give me a loan, no questions asked?
WILLIAM K. BLACK No real questions asked. Certainly no answers checked.
WILLIAM K. BLACK
Who got in trouble at Lehman? You got in trouble if you told the truth. They fired the people who found the problems. They promoted the people that caused the problem, and they gave them massive bonuses.
BILL MOYERS: What is a criminogenic environment?
WILLIAM K. BLACK A criminogenic environment is a steal from pathology, a pathogenic environment, an environment that spreads disease. In this case, it’s an environment that spreads fraud. And there are two key elements. One we talked about. If you don’t regulate, you create a criminogenic environment because you can get away with the frauds. The second is compensation. And that has two elements. One is the executive compensation that people have talked about that creates the perverse incentives. But the second is for these professionals. And for the lower level employees, to give the bonuses. And it creates what we call a Gresham’s dynamic. And that just means cheaters prosper. And when cheaters prosper, markets become perverse and they drive honesty out of the market.
WILLIAM K. BLACK we repealed Glass-Steagall. Well, the Fed pushed for the repeal of Glass-Steagall.
BILL MOYERS: Glass-Steagall was the act that was repealed in the late nineties that separated regular banks from investment banks, right?
WILLIAM K. BLACK Correct. So this is a deliberately created regulatory black hole, created by the Fed. And then the Fed comes into the hearing, eight years later, and said, we were helpless. Helpless to do anything, because of a black hole we designed.
WILLIAM K. BLACK Treasury Secretary Geithner testified that in the circumstances they were dealing with at Lehman, “We were on the brink of the destruction of the entire global financial system.” And then Chairman Bernanke testified how many people the Fed sent to Lehman to prevent us on the brink of global collapse.
BILL MOYERS: And how many?
WILLIAM K. BLACK Two. They have a staff of thousands. This is criminal negligence except, because he’s a federal employee, we can’t charge him with a crime.
In the last three weeks, we have finally done a half-baked investigation, mind you. Not — nothing like we did in the Savings & Loan days — of Washington Mutual (WaMu), Citicorp, Lehman, and Goldman. And we have found strong evidence of fraud at all four places.
And we have looked previously at Fannie and Freddie and found the same thing. So the only six places we’ve looked, at really elite institutions, we’ve found strong evidence of fraud. So where are the other investigations? Why are there no arrests? Why are there no convictions?
BILL MOYERS: Well, Bill, where are the other investigations? Why have there been no arrests? Why have there been no convictions?
WILLIAM K. BLACK Because we have still Bush’s wrecking crew in charge of the key regulatory agencies. Why are they still in place? They have abysmal records as major causes of this crisis.
BILL MOYERS: You talk about the Bush appointees still being there, but Goldman’s former lobbyist, his treasury secretary, Timothy Geithner’s chief of staff, the head of the Commodity Futures Trading Commission, Gary Gensler, who may soon have new power over derivatives, worked for Goldman.
So did the deputy director of the White House National Economic Council, the under Secretary of State is a former Goldman employee. Goldman’s hired Barack Obama’s recent chief counsel from the White House on his defense team. I mean–
WILLIAM K. BLACK Don’t forget Rubin.
BILL MOYERS: Robert Rubin, whose influence is all over the place, who used to be–
WILLIAM K. BLACK It’s his protégés that are in charge of economic policy, under Obama.
BILL MOYERS: So is this administration, which still has some Bush holdovers in it, and now has a lot of Goldman people in it, is this administration going to be able to pass judgment on Goldman Sachs?
BILL MOYERS: Bill, are you describing a political culture, that is criminogenic?
WILLIAM K. BLACK We have not heard speeches by the president demanding that the frauds go to prison. We have not heard speeches from the attorney general of the United States of America, Eric Holder. Indeed, we haven’t heard anything. It’s like Sherlock Holmes, the dog that didn’t bark. And that’s the dog that is supposed to be our guard dog. It must bark. And it must have teeth, not just bark.
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