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  • The Government is Finally Arresting Wall Street Bankers...For Losing Wall Street's Money


    The Dept. of Justice will let JP Morgan's London Whale off the hook while prosecuting low-level traders. -   October 3, 14
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    Bio

    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.

    Transcript

    The Government is Finally Arresting Wall Street Bankers...For Losing Wall Street's 
MoneyJESSICA DESVARIEUX, TRNN PRODUCER: Welcome to The Real News Network. I'm Jessica Desvarieux in Baltimore. And welcome to this edition of The Bill Black Report, where we'll be discussing how the U.S. government will announce the arrest of two Wall Street traders.

    The traders are in trouble not for defrauding homeowners or state governments, but rather because they lost their employer JPMorgan a lot of money and harmed their reputation by covering up the size of the multibillion-dollar losses.

    Here to discuss all this is Bill Black. Bill Black is an associate professor of economics and law at the University of Missouri-Kansas City. He's a white-collar criminologist and former financial regulator. And, of course, he's a regular contributor to The Real News.

    Thanks for joining us, Bill.

    BILL BLACK, ASSOC. PROF. ECONOMICS AND LAW, UMKC: Thank you.

    DESVARIEUX: So, Bill, will you please just summarize for us what is the story behind this "London Whale" scandal?

    BLACK: Sure. This is actually a story of Glass-Steagall, which was the legislation adopted after the Great Depression to prevent conflicts of interest from owning the same investment banking company and a commercial banking company. And we got rid of Glass-Steagall, which had been a brilliant success, in the next to last year of the Clinton administration. And then, of course, we had a disaster, and we passed legislation that's called the Volcker bill that unfortunately doesn't simply repeal the repeal of Glass-Steagall, but it's designed to prevent this kind of speculation in derivatives by commercial banks.

    Now, the game is that all the big commercial banks don't admit that they're doing massive speculation. They call it hedging or something else. But in reality, it was supposedly a huge source of revenue for JPMorgan--until, of course, it all blew up and it turned out they weren't hedging at all, they were taking enormous risk. They lost the risk, they doubled down, and they actually ended up tripling or even quadrupling their losses, and then they decided to cover it up.

    Now, these are not Wall Street traders, by the way. These are City of London traders. And that's happening for a reason, because the City of London won the competition in laxity. And so, much of the sleaziest activity in the largest commercial banks in the world moved to the City of London, including the so-called "London Whale", the huge trader for JPMorgan. But that's also where the LIBOR scandal has been, the HSBC money laundering scandals, etc., etc., etc. So there's something very rotten in the heart of the financial industry in the City of London.

    So the first thing, of course, is good news. The Justice Department says it's actually going to prosecute somebody who was at least maybe a modestly large bank official. Bad news: not going to try the corporation, not going to bring a criminal case against the top leadership, not even going to bring a criminal case against the guy whose trades, the so-called "London Whale", actually caused the disaster; so just going to, apparently, bring a prosecution against the guys that covered it up

    [snip] this has anything to do with the financial crisis. This occurred after the financial crisis. So the Justice Department record of refusing to prosecute anybody elite who actually caused the financial crisis is going to remain intact. But at least they've remembered that it is possible to prosecute at least the minnows in the large banks. And I guess we need to say hurrah at least for that.

    DESVARIEUX: Do you think that this is a signal that they might prosecute the banks, since they're willing to prosecute the traders?

    BLACK: No. In fact, it's, I think, exactly the opposite, that they're unwilling to prosecute the bank. Indeed, they've said pretty clearly that they won't be prosecuting any large banks, period, that they have effective immunity from the laws. We have a rule of law with, you know, the asterisk some exceptions apply, and one of the asterisks is any really large bank.

    DESVARIEUX: Okay. And the Department of Justice sort of patted themselves on the back last Friday. As you know, that's usually a dump day for the media, when they don't want stories to be exposed, and to get limited coverage. The DOJ announced that they vastly overstated the number of prosecutions of bank officials. Originally, Eric Holder had said that they had prosecuted about 530 people in the financial industry, while actually the number was 107. So in your opinion, Bill, what do you make of this?

    BLACK: Well, first, of course, I guess their defense is going to be lawyers are usually innumerate and can't count. But this is the second time on mortgage fraud prosecutions that they have screwed up the numbers royally. And they did so in order to make a big propaganda splash before elections and such. It's utterly disgraceful. There's no way this could have happened once to let it happen twice. And there's a really good reportage on this by Jonathan Weil, who pounded and pounded Justice Department to get the right numbers. And they kept promising and promising. And finally they refused to even answer his emails. And then, as you say, without any real apology, they just dumped this on a dead Friday afternoon hoping that they would get away.

    So it's bad enough to make a horrific mistake twice. It's bad enough to utterly fail in their duty to prosecute these folks. But to be such cowards and liars about it--I mean, I was a Justice Department lawyer. It makes me sick.

    DESVARIEUX: Okay. Here at The Real News, too, we're always trying to advance the story a bit and think of solutions. What do you think the government could do to rein in Wall Street? If you could, just give us a couple of your thoughts.

    BLACK: Well, the first thing is to take on the systemically dangerous institutions and get rid of them. You should not allow them to grow, and you should give them five years to shrink to the point where they no longer pose a global risk to the world economy. The second thing that you need to do is actually get an attorney general. So you need to fire Holder. You need to replace the heads of the regulatory agencies who are refusing to regulate, you need to reinstall Glass-Steagall, and you need to repeal the Commodity Futures Modernization Act, which created the regulatory black hole for derivatives. Those would be a good start.

    DESVARIEUX: Okay. Thanks so much for joining us, Bill.

    BLACK: Thank you.

    DESVARIEUX: And thank you for joining us on The Real News Network.

    End

    DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.


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