Bill Black: Jobs Now, Stop the Foreclosures, Jail the Banksters
Bill Black: Here are three things the "Occupy Movement" could focus on - November 3, 2011
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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.
PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Washington. A few days ago I was in New York at Liberty Plaza, and we were talking about the demands, which is the topic of the day on the square. Now joining us to talk about what he thinks would be a good series of demands dealing with the current economic crisis is Bill Black. Bill is an associate professor of economics and law at the University of Missouri-Kansas City. He's a former financial regulator and author of the book The Best Way to Rob a Bank Is to Own One. And he joins us from Kansas City. Thanks for joining us again, Bill.WILLIAM K. BLACK, ASSOC. PROF., UMKC: Thank you.JAY: So what do you think? In terms of the current crisis, what at least are some short-term solutions people could be demanding?BLACK: Three things: jobs now, stop the foreclosures, jail the banksters.JAY: Okay. Well, let's start with number one, because everybody says they're for more jobs. The Republicans are saying they're for more jobs. President Obama certainly says it. But we're not seeing more jobs out of Congress or out of President Obama. So what would you do that would create more jobs?BLACK: I would have an employer-of-last-resort program. It is incredibly stupid to have a system in which you pay people who want to work and are able to work not to work, instead of paying them to do constructive work that's good for them. It's good for society and such. And we are locked in this utter greatest waste you could imagine, which is throwing people on the scrap heap who want to work. We now have 26 million Americans who want to work full time who can't. We have 46 million Americans in poverty. We have more than 20 percent of all children in America are in poverty at the current time. That--those are all obscenities. And in our system, that translates to all kinds of terrible educational/health outcomes, life expectancy, everything you want to mention. So use the government through the nonprofits and NGOs as the employer of last resort. This is a system that worked brilliantly in the Great Depression and it should be a regular feature of all governments. You should end wasteful unemployment. Secondly--.JAY: Before we move on, let's just talk about why that isn't happening. I mean, it's kind of an obvious plan. We've seen it before, as you said, in the 1930s. But is one of the reasons why it's not being done or even being talked about in DC at any serious level is that, one, to have more jobs, you need more real demand in the economy, so you have to have some kind of measures that allow wages to go up? Two, if you did it, wages would go up, 'cause you wouldn't have so much unemployment, which is one of the biggest pressure on low wages. And instead of actually trying to find ways for more jobs and higher wages, in fact what's happening right across the country is companies are taking advantage of this high unemployment to actually lower wages. And I saw the recent wage index just came out. In fact, wages went down about a percent just in the last month.BLACK: Well, I think your initial premise is incorrect, and the data you cite help to explain why. It is quite correct that you're not going to get private sector jobs, because private sector demand has collapsed. And, of course, it has because we're in a great recession. That's the whole point of why you cannot do it through the private sector alone. That's why you have the government do it. And the modern era, unlike the WPA era, we can leverage all of these nonprofits and NGOs that already exist, so that we don't need a single, massive federal program; we can have a federal overall program of funding, and we can do productive things through the, actually, hundreds of thousands of NGOs and nonprofits that exist out there. So we're particularly lucky in the United States to have such a vast network, and we could do it quicker [incompr.]JAY: Now, my point wasn't you couldn't do it. My point is that the pressure coming from the private sector, especially some of the bigger companies, on the politicians and on Congress is they don't want this to happen, because they're taking advantage of this situation to lower wages.BLACK: Well, but do you see it's really bad for them as well in terms of overall profitability? If more people have incomes, then they buy more things, and business does better as well. I don't disagree with you that the Koch brothers of the world are, you know, semi-suicidal in their approach to life. They are destroying America in the process. And as you gut, first, the middle class and the working classes, you ultimately gut even the professional classes above them. And that's just nuts. We want demand to improve, and the best way to get demand to improve is by having people work. And they aren't and won't do it at anything like an appropriate rate under the present system, because private sector demand is completely inadequate to pay for it. So we have--are doing the opposite. We are going through our states and localities at a time when teachers have never been more necessary, police officers have never been more necessary, firefighters, etc., and firing those people and losing all of their skills and experience. That's just crazy. Remember, every government comes in saying it's going to stop fraud, waste, and abuse. Well, there is no greater waste than taking 26 million Americans who want to work full time and saying no, actually, even though it's not going to make the recession worse, even though it'll make the overall economy worse, even though it'll make your lives worse on every psychological dimension, we will not give you jobs; we will pay you instead to stay home and watch television. That's crazy talk.JAY: Okay. Go to point two.BLACK: Point two: stop the foreclosures. We have over 12 million Americans whose mortgages are seriously underwater, I mean, severely underwater. In other words, their loan is more than 125 percent of the true value of their house, which is to say they owe a lot more in debt, in the mortgage, than their house is worth. So we have a good 12 million or more Americans at serious risk of losing their homes. If they do, if any significant portion of them lose their homes, then we guarantee that we go back into recession, we guarantee that [it will] create a massive increase in poverty and unemployment and health care crisis, because folks will be made homeless in these circumstances. This is self-destructive again. It's bad for industry, it's bad for people of all classes, and we need to stop it. The way to stop it is--you know, the existing programs cannot work, precisely because of those figures I gave you. Overwhelmingly, people were put into houses that weren't worth anywhere near as much as they paid for them, and the most common reason this occurred was through fraud in the inducement. So what you need: stop the foreclosures. Reduce the principal where that will actually allow, with the person's income, them to repay, which is a win-win for the lender and for them. And in situations where it's just absurd, you can't reduce the principal in any reasonable amount so that they can continue to pay, then there are folks like Dean Baker who have innovative programs for renting, you know, converting from ownership to a rental where you can't possibly afford the place. But that will keep these properties from deteriorating and being destroyed, and that's exactly what's happening.JAY: Bill, this concept of odious debt that exists at the state level in common law and British and US law, if I understand it correctly, it has to do with if a lender lends money to someone that, one, they know they could never repay and in the final analysis won't go to the benefit of that person, that odious debt is considered something that doesn't have to be repaid. I mean, is there enough of a tradition here in the United States that could be fought on, and would it apply in this situation?BLACK: Only in a few states, and it would be very difficult. And the people who would most need it won't have lawyers. So no is the short answer.JAY: So it needs a straightforward law to freeze foreclosures is what you're saying.BLACK: It does need a straightforward law. And it's going to need actions, not by individual, but by the government overall, that says places like Washington Mutual, places like Countrywide were engaged in endemic fraud, in which they induced homeowners into these situations, typically by dramatically inflating the appraisal. So in the case of Washington Mutual, for example, governor--then Attorney General of New York Cuomo, now Governor Cuomo, investigation found that WaMu had a blacklist of appraisers, but you got on the blacklist if you refused to inflate the appraisal. Step back for second. Would an honest lender ever inflate an appraisal? 'Cause that's their great protection against loss. And the answer is no. So we have good information on the fact that there was endemic appraisal fraud. Borrowers can't do that. That comes from lenders and their agents. So we have massive cases borrowers being induced by fraud to take out those loans.JAY: So that leads to point three.BLACK: That leads to point three. But it also leads to point two. That provides a basis for foreclosure relief. In fact, that gets you out of the mortgage debt potentially entirely, and you can just put the house back to them with no ability for them to have a deficiency judgment against you. The third thing is the banksters. And here it is obscene. So, again, the contrast to the savings and loan crisis. Savings and loan crisis, our agency, the Office of Thrift Supervision, makes well over 10,000 criminal referrals. We work with the FBI to prioritize the absolutely worst, most elite criminals. We prosecute them. We have a 90 percent success rate against the best criminal defense lawyers in the world, and we get over 1,000 felony convictions in these prioritized ultra-elite cases. Flash forward to the current crisis. The same agency, the Office of Thrift Supervision, makes zero criminal referrals, produces, of course, zero cases, because these complex cases can only be brought if the regulators who have to serve as the regulatory cops on the beat make the case for the FBI and the Justice Department and point them towards the most elite criminals. This crisis, the losses just to homeowners are $11 trillion--that's with a t. A trillion is a thousand billion--$11 trillion losses. The savings and loan crisis, which was widely described at the time as the worst financial scandal in US history, was $150 billion. In other words, in terms of just this subset of losses, this crisis is 70 times larger. And we have, count them, ten corporate insiders who have been convicted of fraud, all from a single case, none of them remotely elite Wall Street types.JAY: Right. So to sum up?BLACK: Savings and loan crisis, 1,000 FBI agents. This crisis, as recently as 2007, 120 FBI agents, all of them looking at little people instead of big people. So to sum it up, Holder needs to be fired. We need to completely reorient the FBI to investigate the elite frauds. Geithner, who is pushing to try to get immunity for the criminals, needs to be fired three years ago, replaced with someone who will protect Americans, protect the 99 instead of the 1 percent. We can make the effective prosecutions, but we need new leaders and we need new--many more FBI agents working the cases, and they have to be reoriented to going after the elite criminals.JAY: Thanks for joining us, Bill.BLACK: Thank you.JAY: Thank you for joining us on The Real News Network.
End of Transcript
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