William K. Black: CSI Bailout
April 3, 2009
William K. Black suspects that it was more than greed and incompetence that brought down the U.S. financial sector and plunged the economy in recession — it was fraud. And he would know. When it comes to financial shenanigans, William K. Black, the former senior regulator who cracked down on banks during the savings and loan crisis of the 1980s, has seen pretty much everything.
Now an Associate Professor of Economics and Law at the University of Missouri, William K. Black tells Bill Moyers on the JOURNAL that the tool at the very center of mortgage collapse, creating triple-A rated bonds out of "liars' loans" — loans issued without verifying income, assets or employment — was a fraud, and the banks knew it.
And while there is no law against liars' loans, Black points out that there are, "many laws against fraud, and liars' loans are fraudulent. [...] They involve deceit, which is the essence of fraud."
Only the scale of the scandal is new. A single bank, IndyMac, lost more money than the entire
Savings and Loan Crisis. The difference between now and then, explains Black, is a drastic reduction in regulation and oversight, "We now know what happens when you destroy regulation. You get the biggest financial calamity of anybody under the age of 80."
>>More about the Savings and Loan Crisis
Biography
William K. Black, author of THE BEST WAY TO ROB A BANK IS TO OWN ONE, teaches economics and law at the University of Missouri — Kansas City (UMKC). He was the Executive Director of the Institute for Fraud Prevention from 2005-2007. He has taught previously at the LBJ School of Public Affairs at the University of Texas at Austin and at Santa Clara University, where he was also the distinguished scholar in residence for insurance law and a visiting scholar at the Markkula Center for Applied Ethics.
Black was litigation director of the Federal Home Loan Bank Board, deputy director of the FSLIC, SVP and general counsel of the Federal Home Loan Bank of San Francisco, and senior deputy chief counsel, Office of Thrift Supervision. He was deputy director of the National Commission on Financial Institution Reform, Recovery and Enforcement.
Black developed the concept of "control fraud" — frauds in which the CEO or head of state uses the entity as a "weapon." Control frauds cause greater financial losses than all other forms of property crime combined. He recently helped the World Bank develop anti-corruption initiatives and served as an expert for OFHEO in its enforcement action against Fannie Mae's former senior management.
Published April 3, 2009.
Guest photos by Robin Holland
Moyers on Banks and Bailouts View our complete coverage of the banking and bailout crisis from early warning from THE NEW YORK TIMES' Gretchen Morgenson in 2007 to James K. Galbraith and George Soros.
Michael Zweig Michael Zweig, Professor of Economics and Director of the Center for the Study of Working Class Life at the State University of New York at Stony Brook, on the economic realities of the downturn. (October 17, 2008)
The Downturn on the Homefront Sociologist Katherine Newman on the global markets' effect on kitchen table issues. (January 25, 2008)
Facing up to the Economy Bill Moyers talks with economist Dean Baker and journalist Bob Herbert about the economic challenges facing the government and the populace. (August 8, 2008)
Mortgage Mess THE JOURNAL travels to ground zero of the mortgage meltdown — Cleveland, Ohio. Correspondent Rick Karr takes viewers to Slavic Village, one of the hardest hit neighborhoods in the nation when it comes to the spate of foreclosures caused by the subprime mortgage crisis. (July 18, 2008)
Barbara Ehrenreich Bill Moyers talks with author Barbara Ehrenreich about inequality in America. (August 3, 2007)
Kathrine NewmanSociologist Katherine Newman on the global markets' effect on kitchen table issues. (January 25, 2008)
William K. Black
"The Two Documents Everyone Should Read to Better Understand the Crisis,"By William K. Black, HUFFINGTON POST, February 25, 2009.
"Adam Smith Was Right about Corporate CEOs' Incentives absent Effective Regulation"By William K. Black, Cato Unbound, December 4, 2008.
"William Black: 'There Are No Real Stress Tests Going On,'"By Yves Smith, NAKED CAPITALISM, February 17, 2009.
"More Musings on the Geithner Plan,"By Yves Smith, NAKED CAPITALISM, March 24, 2009.
General Regulation
Interactive timeline: SEC HistorySecurities and Exchange Commission Historical Society.
"Congress Passes Wide-Ranging Bill Easing Bank Laws"By Stephen Labaton, THE NEW YORK TIMES, November 5, 1999.
The Savings and Loan Crisis
"Special Report: The Savings And Loan Crisis,"By Barbara Rudolph, Gisela Bolte and Richard Hornik, and Thomas McCarroll, TIME, Feb. 20, 1989.
"Ryan: S&L crisis a guide for meltdown,"By Victoria Mcgrane, POLITICO, February 2, 2009.
"The S&L Crisis: A Chrono-Bibliography ,"FDIC Web Site.
Secretary Geithner and Regulation
"As Crisis Loomed, Geithner Pressed But Fell Short,"By Robert O'Harrow Jr. and Jeff Gerth, THE WASHINGTON POST, April 3, 2009.
"Addressing the Need for Comprehensive Regulatory Reform,"Secretary Geithner's testimony before the House Committee on Financial Services.
The Pecora Commission
"Financial Fraud Is Focus of Attack by Prosecutors,"By David Segal, THE NEW YORK TIMES, March 11, 2009.
"Damnation of Mitchell,"TIME MAGAZINE, March 6, 1933.
The Pecora Commission Hearings1932-1934.
