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  May 12, 2017

Lawyer with Responsibility for Mortgage Crisis Appointed to Take Care of Mortgage Banks

Trump appointed Craig S. Phillips, who contributed to the 2008 financial crisis at Morgan Stanley, to take care of FannieMae and FreddieMac, explains white collar criminologist Bill Black
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Kim Brown: Welcome to the Real News Network in Baltimore. I'm Kim Brown.

Donald Trump is distinguishing himself as a president unconcerned with traditional protocols of running the government - in particular, appointing people to key positions within his administration who either have no government experience or has a particular disdain or disqualification for the agency or position of which they have been passed to work in. This has been true with his picks to head the Department of Education, the Environmental Protection Agency, Housing and Urban Development, and several others, including the man who has been tasked to fix the mortgage giants Freddie Mac and Fannie Mae, both of which remain in a [inaudible 00:00:45]. His name is Craig S. Phillips.

Who is Craig Phillips? Well, here to tell us, we're joined with Bill Black. Bill is an associate professor of economics and law at the University of Missouri at Kansas City. He's also a white collar criminologist and a former financial regulator, author of the book titled The Best Way to Rob a Bank is to Own One, and he's a regular contributor here on the Real News. He joins us today from Minnesota.

Bill Black, so glad to speak with you again.

Bill Black: Thank you.

Kim Brown: Bill, talk to us about Craig Phillips because, as of right now or as of recently, he was serving as a special counselor after Treasury Secretary Steve Mnuchin, but now he has a new role, one that calls into question his decades-long work on Wall Street, especially within the mortgage industry. Tell us what's going on here.

Bill Black: Well, his old role also was a major problem, but this one pushes it from tragedy to farce. He is in charge, as you mentioned, of supposedly fixing Fannie and Freddie, which is interesting because he is one of the principal destroyers of Fannie and Freddie. He was a senior executive at Morgan Stanley, one of the big five investment banks. By the way, the only reason Morgan Stanley still exists is because of us, the public, bailing them out and the fact that the Justice Department failed to prosecute people like Craig Phillips, so, instead of being in prison, they're running the government.

Craig Phillips's claims to fame at Morgan Stanley were selling the toxic mortgage derivatives. In one case, they decided to dump a massive package on a Chinese bank, which sued them for the fraud, but what's fun about that one is that we have the emails of the group that was putting together the deal, and they were competing for a description of the deal. Some of the terms are sufficiently obscene that I won't read them, but, basically, every single one of them made clear that they knew they were selling toxic wastes, and they knew, of course, that they were lying about the toxic waste. Who signed the securities prospectus on that? Well, that would be Craig Phillips.

In addition to that, he sold the same kind of toxic waste to Fannie and Freddie. Fannie and Freddie, as a result of these kinds of frauds, was rendered deeply insolvent, and so we, the public, got to come in and bail them out. Instead of doing a receivership, which is what you're supposed to do when it's solvent, the Obama administration did a conservatorship. The Federal Housing Financial Administration, which is supposed to regulate, but, of course, not very effectively, Fannie and Freddie, is the conservator for Fannie and Freddie and in that capacity brought suit.

Now, these suits, anybody who wants to know about the crisis should read these suits because they have, in enormous detail, how these frauds work, how pervasive the frauds were. They overwhelming used the word "fraud" to describe. This is an official agency of the United States government with the greatest expertise about these fraud schemes saying, "Yes, they're fraud schemes. Here's how they work." Okay, and one of the named defendants is the guy we've been talking about. They have hired to put in charge of Fannie and Freddie the guy that Fannie and Freddie sued for leading the fraud that helped destroy Fannie and Freddie, so let the circle be unbroken type of thing.

Kim Brown: Bill Black, what is it with the Trump administration basically letting the wolves guard the hen house? Obviously, this is a method or a strategy being employed by this White House in order to continue to enrich those who have already profited tremendously off of either frauds within their respective industries. You were talking about this gentleman, Craig Phillips. I'm thinking of Steve Mnuchin with allegations of wage theft as the head of his fast food conglomerate. I mean we can see them, right? I mean they know that we can see what's going on here, so what is the endgame here? Is this just more just being in charge to further deregulate and enrich themselves?

Bill Black: Well, in your introduction, you said they moved away from traditional norms. They've actually moved back to traditional norms of 1700 when there was no question but that the government was run by the wealthy for the wealthy. It was in your face. It was deliberate conflicts of interest. You got to loot with impunity. It's called a kleptocracy, and it's American-style kleptocracy. When you do that, you also have to destroy the democratic response of the government, and, so far, of course, A, the Republicans have given almost total approval to all of these people no matter how sleazy they are, and, B, in a number of cases, the majority of Democrats have actually voted in favor of people who have these obvious massive conflicts of interest. Not with a bang but a whimper as it says is how the world or a democracy or an economy ends.

Kim Brown: Bill Black, is there any advice for the general public in terms of what we can do as private citizens who are concerned about the status of our democracy? Obviously, voting is an option, I imagine, but we won't have an election on the federal level in regards to the mid-term elections until 2018, so we have at least a whole 'nother year before we can perhaps vote the bums out as they say. But, in the meantime, I mean we're seeing all of these things coming from the Trump administration really at rapid speed. The man's only been in office I mean not even several months, just a handful of months since January, and yet everything is being unraveled or things that we have come to grow accustomed to as to how the government works.

Historically, what have societies done to combat this type of kleptocracy, as you say?

Bill Black: All right, so I'll say it again: This is the most criminogenic environment in the history of the United States. This administration will make fraud and corruption absolutely pervasive, and it was pretty darn far along that road, and the answer is to fight everywhere. There are special elections, like in Georgia. Fight there. There are protests. Fight there. There are these rare meetings of legislators with their representatives. You can see how much they are desperate to avoid them and how painful it is when the public shows up and says not only screams out, "Shame, shame," but takes them on in the specifics. Make them defend Craig Phillips. Yes, write and email and everything else that your members organize locally, and just be the resistance because, as I said, the democracy and the economics are ultimately intertwined. You can't turn over the economy to the thieves effectively unless you gut democracy as well.

Kim Brown: Bill Black, last question. I wanted to circle back to Craig Phillips and his role here. Potentially, what is there in the game besides what they've already managed to get out of the U.S. government and in the form of those huge bailouts and at the end of the George W. Bush's [tenuous 09:54] president and going into President Obama's rule there, at least his first term. Craig Phillips, he can do a lot in this position, so how could this potentially impact home owners and those looking to buy a home, especially if they want to go through the FHA program?

Bill Black: Well, it allows them to do it again, but they're going to rip off these institutions again, they're going to produce the next and bigger financial crisis, and what they had seen from the Obama administration is the ability to do this with total impunity. The CEO, the corporation, like Morgan Stanley, paid a significant amount of money, but none of that, not a penny, came from the Craig Phillips's of the world, so the CEOs, and not a single one of them ... It's not simply that they failed in their prosecutions. They never tried to prosecute, even though, again, there's a federal agency saying that what was done was plain vanilla fraud and not even the most sophisticated of frauds.

When you talk about Fannie and Freddie, you're talking about trillions of dollars. When they see Fannie and Freddie, they see massive dollar signs, and, as you said, this is not foxes in charge of chickens. This is a rabid wolverine that's been biochemically engineered to be the perfect killer and sent by people who are part of this process. The bigger folks sit in the White House, and these are their attack wolverines.

Kim Brown: Who has better analogies than Bill Black? A rapid wolverine genetically engineered to ravage. We have been speaking with Bill Black, ladies and gentlemen. He is an associate professor of economics and law at the University of Missouri at Kansas City, also a former white collar criminologist. Get his book. It's called The Best Way to Rob a Bank is to Own One. Bill Black, as always, we appreciate you joining us today. Thank you.

Bill Black: Thank you.

Kim Brown: Thank you for watching the Real News Network.


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