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Former Regulator Talks Fraud and the Big Bank Getaway



February 19, 2010 – Comments (11)

This is a fantastic video / interview with Bill Black, former banking regulator who has had very smart and relevant things to say on the current crisis for the past couple of years. Another person in power (or was in power) not being listened to.


Former Regulator Talks Fraud and the Big Bank Getaway - FULL VIDEO AND TRANSCRIPT

(this might not embed on Caps)

Here is a very good section of the transcript:

PAUL SOLMAN: What would you have us do about the major financial institutions as they currently exist?

WILLIAM BLACK: First, stop them from getting bigger. The 19 largest institutions are what we call systemically dangerous institutions. Many of them are already insolvent on any real market value basis.

PAUL SOLMAN: What do you mean insolvent? I mean, they're reporting large enough profits, that they can give bonuses to their employees.

WILLIAM BLACK: They were able to get Congress to extort FASB, which is the Accounting Standards Board, to change the rules, so that you no longer have to recognize losses on your bad loans, unless and until you actually sell them.

PAUL SOLMAN: Extort FASB? Why would it be extorting FASB?

WILLIAM BLACK: They said, you will change the rules, and you will change the rules such that banks no longer have to recognize their losses, or we will remove your authority over the accounting rules, which is the whole reason for existence for FASB, right? So, that's extortion in anybody's language.

PAUL SOLMAN: But they did that in order to give financial institutions some breathing room. After all, these assets were selling at fire-sale prices. Eventually, they would come back up. So, let things calm down and then price them.

WILLIAM BLACK: No. I mean, now, that -- you're again stating the rhetoric that was used, but that's not the reality. This was done in 2009. The secondary market in subprime collapsed in March of 2007.

So, this wasn't some weird idiosyncratic price. And it's not correct that these assets didn't sell. They just sold at their true economic value, which is about 25 cents on the dollar, in terms of the collateralized debt obligations.

Now, if you have 75 percent losses, how many institutions that have large amounts of CDOs could possibly be solvent? And the answer is not many. And, so, they had the political juice to get the accounting rules changed.

Now, this is -- of course, it was accounting fraud that allowed you to value these CDOs as if they were money good assets, AAA assets and such, when they were, in fact, loans overwhelmingly backed by fraudulent mortgages.

11 Comments – Post Your Own

#1) On February 20, 2010 at 2:15 PM, imobillc (< 20) wrote:

Great story!

Wish more people see it!


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#2) On February 20, 2010 at 3:06 PM, binve (< 20) wrote:

Hey imobillc! Thanks, I agree people need to see this!

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#3) On February 20, 2010 at 3:32 PM, blake303 (28.63) wrote:

Thank you for posting this. I highly recommend his book. It's not the most entertaining read, but very insightful and applicable to the current crisis. 

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#4) On February 20, 2010 at 3:50 PM, binve (< 20) wrote:

Thanks blake! I think I will check the book out (I haven't read it yet), thanks!

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#5) On February 20, 2010 at 6:10 PM, blake303 (28.63) wrote:

I think it is worth your time. Just keep in mind that he is a bank regulator turned academic as opposed to I-Banker turned full-time author like Michael Lewis or 'gonzo' journalist like Taibbi. It can read like more of a textbook in portions, which is not necessarily a bad thing, just a matter of preference.

Black is one of my favorite voices on financial regulation. It won't make me many friends in the CAPS world, but I believe the private sector is responsible for the majority of the idiotic/criminal events leading to our present economic situation. That is not to say the government bears no responsibility, far from it, but I prefer Black's pro-regulation ideology to the "government is the root of all evil" rhetoric espoused by Paul, Schiff, and other free marketers who are worshiped by many Fools. I think Abitare had a great clip of a Black lecture posted a while back too. I will look around for it.

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#6) On February 20, 2010 at 6:23 PM, blake303 (28.63) wrote:

Abitare's post is here, but the video doesn't work for me. Try this if you can't see it. 

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#7) On February 20, 2010 at 7:30 PM, whereaminow (< 20) wrote:


This is my belief and I do not speak for every free market supporter. 

I believe that regulation will further entrench the special interests.  I want to see that Kleptocracy completely torn down.  I believe all fractional reserve banking is fraud and could not possibly coexist in an environment that allowed 100% reserve banking, except as a fringe institution that attracts a small group of speculators the way 3x ETF's do.   I believe the Federal Reserve engages in legalized counterfeiting and could not compete with a free market currency. 

The Federal Reserve already has the power to regulate nearly every single aspect of banking in America.  It knew all about what was going on...  and did nothing.  Here is a short list of some of the Fed's powers:

Regulation of:
Bank holding companies
State-chartered banks
Foreign branches of member banks
Edge and agreement corporations
US state-licensed branches, agencies, and representative offices of foreign banks
Nonbanking activities of foreign banks
National banks (with the Comptroller of the Currency)
Savings banks (with the Office of Thrift Supervision)
Nonbank subsidiaries of bank holding companies
Thrift holding companies
Financial reporting
Accounting policies of banks
Business "continuity" in case of an economic emergency
Consumer-protection laws
Securities dealings of banks
Information technology used by banks
Foreign investments of banks
Foreign lending by banks
Branch banking
Bank mergers and acquisitions
Who may own a bank
Capital "adequacy standards"
Extensions of credit for the purchase of securities
Equal-opportunity lending
Mortgage disclosure information
Reserve requirements
Electronic-funds transfers
Interbank liabilities
Community Reinvestment Act subprime lending requirements
All international banking operations
Consumer leasing
Privacy of consumer financial information
Payments on demand deposits
"Fair credit" reporting
Transactions between member banks and their affiliates
Truth in lending
Truth in savings

This doesn't even touch the fact that without the Federal Reserve's implicit guarantee to all parties that they would bail them out (Google "Greenspan put"), matched with their ability to do so by manipulating the currency, none of the fraud would have been possible in the first place.

Yes, these "private sector" bankster gangsters should be in jail. Every last one of the crooked bastards.  But the system of regulation is not, and never has been designed to punish them. 

Quick history:

Banks collect deposits.
Bankers promise 100% reserves
Banks embezzle the funds
Customers complain
Bankers and government rewrite the rules (regulation) and screw the customers
History repeats itself

This has been the history of fractional reserve banking since ancient Greece!  Every time, regulation is an after-the-fact fix to calm the masses who have just been totally screwed over and does nothing to prevent the next round of buttf*cking.

Just my two inflation-adjusted cents.

David in Qatar

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#8) On February 20, 2010 at 8:14 PM, blake303 (28.63) wrote:

Although you likely disagree with Black on the role and effectiveness of regulators, you share many sentiments.  He has been a staunch critic of the Fed.  

"The Federal Reserve already has the power to regulate nearly every single aspect of banking in America.  It knew all about what was going on...  and did nothing." - David in Qatar

"The Fed's failure was the most harmful because it had unique authority to prevent the fraud epidemic and the resulting economic crisis. The Fed refused to exercise that authority despite knowing of the fraud epidemic and potential for crisis." - William K Black

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#9) On February 20, 2010 at 9:07 PM, Starfirenv (< 20) wrote:

More from Bill Black on PBS. It's 28min but worth watching..
Over 1000 convictions for fraud in the S and L mess and not even a single indictment here.  Hmmm.

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#10) On February 20, 2010 at 9:30 PM, binve (< 20) wrote:

whereaminow and blake303,

I very much agree with blake's response in #8. I did not write this post to advocate for more regulators. I think we can all agree that the regulations that are already in place and be done far more effectively.

No, the point of this post was to show Black's criticism of financials, how the government kowtowed to them, and the fact that every rule change to help them during the crisis is at least fradulent if not criminal.


Over 1000 convictions for fraud in the S and L mess and not even a single indictment here.  Hmmm.

... exactly. our tax dollars at work.

Thanks for the link!..

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#11) On February 20, 2010 at 10:22 PM, Starfirenv (< 20) wrote:

Binve-  " our tax dollars at work" or ROI on PAC money?

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