Wall Street's Latest Scheme Will Cost You More at the Gas Pump
The EPA allows banks to speculate on ethanol credits which drives up prices 20-fold - October 3, 14
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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.
JAISAL NOOR, TRNN PRODUCER: Welcome to The Real News Network. I'm Jaisal Noor in Baltimore. And welcome to this latest edition of The Black Financial and Fraud Report. Now joining us is Bill Black. He's an associate professor of economics and law at the University of Missouri-Kansas City. He's a white-collar criminologist, a former financial regulator, author of The Best Way to Rob a Bank Is to Own One, and a regular contributor to The Real News. Thank you so much for joining us, Bill.BILL BLACK, ASSOC, PROF. ECONOMICS AND LAW, UMKC: Thank you.NOOR: So, Bill, The New York Times is reporting that Wall Street is speculating on ethanol credits, prompting a 20-fold spike in only six months. This impacts consumers at the pump, of course. Can you explain the basics of the ethanol credit market, why the program began, and what its original intention was?BLACK: Sure. So this is what happens when four really bad ideas come together at the same time. The genesis of the program was all about Iowa politics. So this is one of those quasi-green projects, sort of like an okra project: green on the outside, but a lot of brown seeds on the inside. Ethanol doesn't turn out to be all that good a thing in terms of renewable, but you can make it from corn, and that means that Iowa loves it. And the first big presidential get-together on who will get the nomination is in Iowa. And so the Bush administration created this big ethanol trading credit program. That's one. The second thing was that [incompr.] the Bush administration had decided there should be no real controls or regulation, because regulation is bad. So they put it under the EPA, but with no enforcement program, no safety and soundness, no system for looking at people who were speculating and manipulating markets, just absolutely no capacity to deal with those problems. The third thing is they got rid of Glass-Steagall, and this has meant that the banks not only loan; they speculate and own all of these. They purchased vast amounts of these renewable credits that are created whenever a gallon of ethanol is created. And there is a federal minimum requirement for how much ethanol you have to have when you produce, or you get fined. So if these credits get scarce, the refiners have to bid up the price really high to be able to get the credits and avoid these very large fines. And that's the economics of the system. And as I said, by repealing Glass-Steagall, we put the banks in a position where they're no longer lenders but they're speculators and market manipulators in something that not only affects the price of oil but of course affects the price of food as well, because ethanol comes from crops that could be used either directly or indirectly to feed human beings. Often, of course, they are used to feed animals. And the fourth really bad idea is that we allow the creation of these systemically dangerous institutions, these banks that are so large that they're too big to prosecute, too big to run, too big to regulate, etc. And so no one is willing to take on these large banks. And the EPA, of all things, the Environmental Protection Agency, has become a shill to the big banks, saying, we don't see any problem here. You know, so what the price is going up? Oh, we don't see manipulation. Well, they don't have any systems for even looking for manipulation. They have no expertise in looking for it and such. So it is a complete screwup from these four disastrous roots.NOOR: Bill Black, thank you so much for joining us.BLACK: Thank you.NOOR: Thank you for joining us on The Real News Network.
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