William Black on how our financial system became a Ponzi scheme

William Black, Associate Professor of Economics and Law at the University of Missouri-Kansas City, is a former financial regulator and a white-collar criminologist, who helped to expose Congressional corruption during the Savings and Loan Crisis in the late 1980s, by accusing then-house speaker Jim Wright and five US Senators, subsequently known as the Keating Five (who included John Glenn and John McCain), of doing favors for the S&L’s in exchange for contributions and other kickbacks. Although the senators only received a slap on the wrist, Charles Keating — after whom the so-called “Keating Five” were named — had sent a memo that read, in part, “get Black — kill him dead.”

Based on his experiences, Black wrote a book entitled: “The Best Way to Rob a Bank is to Own One.

In April 2009, William Black was interviewed by Bill Moyers on PBS. He explained how the banks and the credit ratings agencies were together committing fraud, with the result that the financial system “became a Ponzi scheme”:

BILL MOYERS: So if your assumption is correct, your evidence is sound, the bank, the lending company, created a fraud. And the ratings agency that is supposed to test the value of these assets knowingly entered into the fraud. Both parties are committing fraud by intention.

WILLIAM K. BLACK: Right, and the investment banker that — we call it pooling — puts together these bad mortgages, these liars’ loans, and creates the toxic waste of these derivatives. All of them do that. And then they sell it to the world and the world just thinks because it has a triple-A rating it must actually be safe. Well, instead, there are 60 and 80 percent losses on these things, because of course they, in reality, are toxic waste.

BILL MOYERS: You’re describing what Bernie Madoff did to a limited number of people. But you’re saying it’s systemic, a systemic Ponzi scheme.

WILLIAM K. BLACK: Oh, Bernie was a piker. He doesn’t even get into the front ranks of a Ponzi scheme…

BILL MOYERS: But you’re saying our system became a Ponzi scheme.

WILLIAM K. BLACK: Our system…

BILL MOYERS: Our financial system…

WILLIAM K. BLACK: Became a Ponzi scheme. Everybody was buying a pig in the poke. But they were buying a pig in the poke with a pretty pink ribbon, and the pink ribbon said, “Triple-A.”

He also pointed out that the policies of Obama administration remained in violation of the law:

BILL MOYERS: Yeah. Are you saying that Timothy Geithner, the Secretary of the Treasury, and others in the administration, with the banks, are engaged in a cover up to keep us from knowing what went wrong?

WILLIAM K. BLACK: Absolutely.

BILL MOYERS: You are.

WILLIAM K. BLACK: Absolutely, because they are scared to death. All right? They’re scared to death of a collapse. They’re afraid that if they admit the truth, that many of the large banks are insolvent. They think Americans are a bunch of cowards, and that we’ll run screaming to the exits. And we won’t rely on deposit insurance. And, by the way, you can rely on deposit insurance. And it’s foolishness. All right? Now, it may be worse than that. You can impute more cynical motives. But I think they are sincerely just panicked about, “We just can’t let the big banks fail.” That’s wrong.

Click here to read a complete transcript of the interview.

Two and a half years on, William Black says on Democracy Now! that nothing has changed:

AMY GOODMAN: What do you think has to happen now? And what does this have to do with the Occupy Wall Street protests that have expanded here in Kansas City and across the globe? There are more than a thousand demonstrations that have been held in the last weeks.

WILLIAM BLACK: Well, we have companion problems. We’ve got to stop this dynamic that’s producing recurrent, intensifying crises. I mean, this one has devastated the nation. The next one would probably be equivalent to the Great Depression. And part of that answer—but only part of it—is to hold the folks accountable, especially the most elite, who caused this crisis. And they did it through fraud, and they did it through fraud in what we call the “C-suites” —the CEOs, the COOs — so, the absolute top.

AMY GOODMAN: And how would these powerful financial entities be held accountable? What exactly should happen?

WILLIAM BLACK: It all starts with the regulators, which is why it’s all not started here, because we have, of course, the wrecking crew, Bush’s wrecking crew, what Tom Frank called them, in charge, and they stopped making criminal referrals. So our agency, in the savings and loan crisis, made over 10,000 criminal referrals to the FBI. That same agency, in this crisis, made zero criminal referrals. If you don’t get people pointing the way and pointing to the top of the organization, you don’t get effective prosecutions. So, in the peak of the savings and loan crisis, we had a thousand FBI agents. This crisis has losses 70 times larger than the savings and loan crisis. And the savings and loan crisis, when it happened, was considered the largest financial scandal in U.S. history. So we’re now 70 times worse. And as recently as 2007, we had 120 FBI agents—one-eighth as many FBI agents for a crisis 70 times larger. And they looked not at the big folks, but almost exclusively at the little folks.

AMY GOODMAN: William Black, you mentioned Bush’s wrecking crew, but we live in the time of President Obama.

WILLIAM BLACK: And we’ve been living for some years in the time of President Obama, and he has done absolutely nothing to reestablish the criminal referral process. And as a result, there are virtually no prosecutions of any elites.

He was also asked about what the message from Occupy Wall Street should be:

Well, first, of course, I don’t speak for that movement, and indeed they don’t have official spokespersons with clear plans. So that part is true. They think of that as one of the great strengths of democracy now, right? That things bubble up, and they have different ideas. However, if you look, not just nationwide, but worldwide, you will see some pretty consistent themes developing.

And those themes include: we have to deal with the systemically dangerous institutions, the 20 biggest banks that the administration is saying are ticking time bombs, that as soon as one of them fails, we go back into a global crisis. Well, we should fix that. Right? There’s no reason to have institutions that large. That’s a theme.

That accountability is a theme, that we should keep—put these felons in prison, and there’s no action on that.

That we should get jobs now, and that we should deal with the foreclosure crisis. So those are four very common themes that you can see in virtually any of these protest sites. And they have asked me, for example, to come to New York to talk about some of these things. So, I think, over time, you won’t necessarily have some grand written agenda, but you’ll have, as I say, increasing consensus. And it’s a very broad consensus. It’s not left, it’s not right; it’s not Republican, it’s not Democrat.

Click here to read the full transcript.

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Filed under analysis & opinion, financial derivatives, Uncategorized, USA

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