Former Regulator Talks Fraud and the Big Bank Getaway
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.