Moyers Journal: Madoff Was A Piker -- America's Big Banks Are a Far Larger
Fraudulent Ponzi Scheme
By Bill Moyers, Bill Moyers Journal. Posted April 6, 2009.
One of America's top bank fraud experts explains the financial industry's
"liar's loans" and wholesale greed that got us in this mess.
Bill Moyers: For months now, revelations of the wholesale greed and blatant
transgressions of Wall Street have reminded us that "The Best Way to Rob a
Bank Is to Own One." In fact, the man you're about to meet wrote a book
with just that title. It was based upon his experience as a tough regulator
during one of the darkest chapters in our financial history: the savings
and loan scandal in the late 1980s.
Bill Black was in New York for a conference at the John Jay College of
Criminal Justice where scholars and journalists gathered to ask the
question, "How do they get away with it?" Well, no one has asked that
question more often than Bill Black. The former Director of the Institute
for Fraud Prevention now teaches Economics and Law at the University of
Missouri, Kansas City. During the savings and loan crisis, it was Black who
accused then-house speaker Jim Wright and five US Senators, including John
Glenn and John McCain, of doing favors for the S&L's in exchange for
contributions and other perks. The senators got off with a slap on the
wrist, but so enraged was one of those bankers, Charles Keating -- after
whom the senate's so-called "Keating Five" were named -- he sent a memo
that read, in part, "get Black -- kill him dead." Metaphorically, of
course. Of course. Now Black is focused on an even greater scandal, and he
spares no one -- not even the President he worked hard to elect, Barack
Obama. But his main targets are the Wall Street barons, heirs of an earlier
generation whose scandalous rip-offs of wealth back in the 1930s earned
them comparison to Al Capone and the mob, and the nickname "banksters."
Bill Black, welcome to the Journal.
William K. Black: Thank you.
Bill Moyers: I was taken with your candor at the conference here in New
York to hear you say that this crisis we're going through, this economic
and financial meltdown is driven by fraud. What's your definition of fraud?
Black: Fraud is deceit. And the essence of fraud is, "I create trust in
you, and then I betray that trust, and get you to give me something of
value." And as a result, there's no more effective acid against trust than
fraud, especially fraud by top elites, and that's what we have.
Moyers: In your book, you make it clear that calculated dishonesty by
people in charge is at the heart of most large corporate failures and
scandals, including, of course, the S&L, but is that true? Is that what
you're saying here, that it was in the boardrooms and the CEO offices where
this fraud began?
Black: Absolutely.
Moyers: How did they do it? What do you mean?
Black: Well, the way that you do it is to make really bad loans, because
they pay better. Then you grow extremely rapidly, in other words, you're a
Ponzi-like scheme. And the third thing you do is we call it leverage. That
just means borrowing a lot of money, and the combination creates a
situation where you have guaranteed record profits in the early years. That
makes you rich, through the bonuses that modern executive compensation has
produced. It also makes it inevitable that there's going to be a disaster
down the road.
Moyers: So you're suggesting, saying that CEOs of some of these banks and
mortgage firms in order to increase their own personal income, deliberately
set out to make bad loans?
Black: Yes.
Moyers: How do they get away with it? I mean, what about their own checks
and balances in the company? What about their accounting divisions?
Black: All of those checks and balances report to the CEO, so if the CEO
goes bad, all of the checks and balances are easily overcome. And the art
form is not simply to defeat those internal controls, but to suborn them,
to turn them into your greatest allies. And the bonus programs are exactly
how you do that.
Moyers: If I wanted to go looking for the parties to this, with a good bird
dog, where would you send me?
Black: Well, that's exactly what hasn't happened. We haven't looked, all
right? The Bush Administration essentially got rid of regulation, so if
nobody was looking, you were able to do this with impunity and that's
exactly what happened. Where would you look? You'd look at the specialty
lenders. The lenders that did almost all of their work in the sub-prime and
what's called Alt-A, liars' loans.
Moyers: Yeah. Liars' loans--
Black: Liars' loans.
Moyers: Why did they call them liars' loans?
Black: Because they were liars' loans.
Moyers: And they knew it?
Black: They knew it. They knew that they were frauds.
Black: Liars' loans mean that we don't check. You tell us what your income
is. You tell us what your job is. You tell us what your assets are, and we
agree to believe you. We won't check on any of those things. And by the
way, you get a better deal if you inflate your income and your job history
and your assets.
Moyers: You think they really said that to borrowers?
Black: We know that they said that to borrowers. In fact, they were also
called, in the trade, ninja loans.
Moyers: Ninja?
Black: Yeah, because no income verification, no job verification, no asset
verification.
Moyers: You're talking about significant American companies.
Black: Huge! One company produced as many losses as the entire Savings and
Loan debacle.
Moyers: Which company?
Black: IndyMac specialized in making liars' loans. In 2006 alone, it sold
$80 billion dollars of liars' loans to other companies. $80 billion.
Moyers: And was this happening exclusively in this sub-prime mortgage
business?
Black: No, and that's a big part of the story as well. Even prime loans
began to have non-verification. Even Ronald Reagan, you know, said, "Trust,
but verify." They just gutted the verification process. We know that will
produce enormous fraud, under economic theory, criminology theory, and two
thousand years of life experience.
Moyers: Is it possible that these complex instruments were deliberately
created so swindlers could exploit them?
Black: Oh, absolutely. This stuff, the exotic stuff that you're talking
about was created out of things like liars' loans, that were known to be
extraordinarily bad. And now it was getting triple-A ratings. Now a
triple-A rating is supposed to mean there is zero credit risk. So you take
something that not only has significant, it has crushing risk. That's why
it's toxic. And you create this fiction that it has zero risk. That itself,
of course, is a fraudulent exercise. And again, there was nobody looking,
during the Bush years. So finally, only a year ago, we started to have a
Congressional investigation of some of these rating agencies, and it's
scandalous what came out. What we know now is that the rating agencies
never looked at a single loan file. When they finally did look, after the
markets had completely collapsed, they found, and I'm quoting Fitch, the
smallest of the rating agencies, "the results were disconcerting, in that
there was the appearance of fraud in nearly every file we examined."'
Lees verder: http://www.alternet.org/workplace/135161/moyers_journal%3A_madoff_was_a_piker_--_america%27s_big_banks_are_a_far_larger_fraudulent_ponzi_scheme/
Geen opmerkingen:
Een reactie posten