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  September 20, 2012

The Black Financial and Fraud Report

Bill Black: Top Justice official tells Wall St. how to avoid prosecution
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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 back to The Real News Network. I'm Paul Jay in Baltimore.

And now's time for the Bill Black Financial and Fraud Report for this week. Bill now joins us. Bill is a professor, associate professor of economics and law at the University of Missouri–Kansas City, a white-collar criminologist, a former financial regulator, and author of the book The Best Way to Rob a Bank Is to Own One. Thanks for joining us again, Bill.


JAY: So what have you got for us this week?

BLACK: Well, Lanny Breuer, who is head of the U.S. criminal division at the Justice Department, gave a speech to the New York bar—in other words, the primarily defense lawyers up there—in which he gave them a roadmap of how they should pitch him when they're representing a large corporation and they don't want him to indict. But he gave his audience a stern warning: he said that when they made this pitch about how they had to protect innocent workers from losing their jobs, if this—you know, the place was indicted, he said you won't always be successful.

JAY: I'm sure they were heartbroken. So what induces him to do this?

BLACK: You know, he was attempting to say—in this speech he says, I have a huge priority as head of the criminal division, and that's taking on elite white-collar crime. It's—you know, when you're not in fact prosecuting it, you might as well give lots of speeches about it, I guess. But, you know, it's still—we're almost to the end of the first term of the Obama administration, and the score is still—actually, they upped the number of losses caused by this crisis to over $12 trillion, and not a single elite Wall Street leader who caused this crisis through their fraud [has been] prosecuted, much less convicted.

JAY: I guess what's happening now is this is exactly when they're going to these elite Wall Street leaders and asking them for money for the election campaign.

BLACK: It is. And, you know, the money has swung. The Wall Street money is what put President Obama over the top in his primary contest with Hillary Clinton. Really quite remarkable. You know, a very junior senator who had never much had anything to do with finance goes in, in some ways, to the Clintons' own house, 'cause they're the conservative wing of the Democratic Party, very tight with finance and such, and comes out of it with by far the biggest contributions, wins the Democratic primary. And then again his leading contributor in the general election was finance. But now it has swung and it's something like over 65 percent of Wall Street money is going to Mitt Romney. And the word on the street is that they are—they, Wall Street, are furious that Obama called them a fat cat or fat cats.

JAY: Not a time they want to be talking about convicting or charging any of the Wall Street leaders. What else you got for us this week, Bill?

BLACK: Well, we have, of course, the famous statement revealed by Mitt Romney. And this statement, what I was focusing on is this is really Charles Murray successfully convincing the Republican Party that it needs to be really, really nasty to poorer people.

So Murray was the guy who was one of the two authors of The Bell Curve, about how other racial minorities were inferior in terms of IQ. And he's come up with a new book. To try to avoid that controversy, he only studies whites. But he says America is tearing itself apart. He does say that the elite, the 1 percent, no longer lives with us, talks with us, has anything to do with us as a general society.

But his real focus is on what he considers the underclass. And he complains that the plutocrats are no longer getting right in the face of the underclass and basically telling them that they're the scum of the earth, that the problem isn't economics, it isn't a lack of jobs, it is that they're just lazy bums who refuse to work and refuse to get married and such, and so we have to change this culture. And the only way to change the culture is to have the successful people, who he defines as the rich people, lead this charge. And he says that because Romney is rich, he should have been a sure thing in terms of being elected president of the United States, because after all, who could possibly be a better representative of the leading capitalist nation in the world than a leading capitalist like Romney?

So, you know, intellectuals like Murray can go writing their stuff, with people ignoring them a great deal, but the elite plutocrats have really—they really loved this message when Murray came out with it.

JAY: Maybe they can start chanting "47 percent, 47 percent." Bill, what did you make of Bernanke's announcement, the head of the Federal Reserve, that they're going to do what they call a quantitative easing three, but with no end date in sight? He says, we're—the Feds are going to keep buying assets from the banks—in other words, transferring cash to the banks—until the job numbers get better, unemployment goes down. And who knows how long that will be? That was followed by the European Central Bank, the Japanese central bank, who began their own new stimulus programs. Do you think any of this is going to be effective? And why are they all doing it now?

BLACK: I don't think it's likely to be very effective. I think they're doing it now because they're all desperate now. But in some sense, you know, I'm a very severe critic of Bernanke, but here he's showing bravery, because the Republicans hate this. And Romney has made it very clear that Bernanke will not be reappointed, because of this, if he wins. So you don't expect to see Bernanke, who was definitely a Republican, going and trying to do a stimulus late in the election cycle, where if it succeeded, it would be most beneficial to the incumbent, who is a Democrat in this case.

The general answer as to why they're desperate is monetary policy is not very effective in getting you out of a really severe recession. You've got to do some things on the monetary side to make it possible to have the recovery. But it's not just—it's simply not a good, strong engine to take you into recovery, historically.

So, (A) the central bank heads, all the ones you mentioned, are very frustrated that the treasury types have not—in their parliaments and Congress, have not used fiscal policy to get a recovery; and second, they're experimenting, so they don't—this is all new grounds. They're hoping that by announcing that they're going to have very long-term policy of deliberately keeping interest rates extremely low on longer-term investments—that's the kicker, longer-term investments—that they can change people's view and drive down long-term interest rates, which are already very low, to even lower levels. And then the general theory is—interest rates act like sort of a hurdle when you're investing as a business: you've got to be able to get a return that gets you over at least that hurdle of the interest rate. So if you lower the hurdle a lot, then more investment should get over it and you should get a stronger recovery. That's their hope, at least.

JAY: And that—in theory, why wouldn't that already have worked better than it has? 'Cause interest rates have been low for quite some time. The banks are sitting on, what, $1.5 trillion cash, and they're making very few loans, and I guess because there's still no real demand, purchasing-power demand in the economy and nobody wants to build anything new.

BLACK: Well, that's our take on it, as you know. Their take on it is similar, but they add, well, maybe people are not convinced that the interest rates will stay very low for long time. And if you're not convinced, then why do an investment that has—you know, you expect to earn 3 percent, if you fear that interest rates might be raised to 5 percent five years from now? Then, you know, you'd have a really crummy investment. So the claim is, hey, what's different this time is this—we're going to stay the course, guys, we're going to keep these rates down.

JAY: So you can plan on these low rates for, like, the rest of the decade or something.

BLACK: Yeah. Now, of course Bernanke can't really promise that. And as I said, he will be out of a job if Romney comes in as soon as Bernanke's term ends.

JAY: Do you think this is also about something else, which is that it's not primarily about jobs—or maybe that's part of the issue—but a bigger issue being that they're very afraid of another big banking financial crisis, some other potential collapses, and they're putting into place a mechanism where they can just pour money at this without having to go through Congress or anything else, so, you know, they're getting ready for a kind of bailout preemptively?

BLACK: Well, as I said, they're very frustrated on the fiscal side, which is Congress—this is spending and taxation—that they have gridlock and insanity, you know, like the fiscal cliff and such, that would push the nation back into a European-style second recession. That's certainly true.

And yes, they're very worried about the banking system. They know how fragile it is even today. So, yeah, they feel that they have an obligation to get ready on their side and to create the safest environment they can in terms of reducing the risk of these bank failures going forward.

But, again, we don't really know in economics how this will work. Traditionally, central banks have tried to affect almost exclusively short-term rates. And this is really different, when you try to change a rate for an instrument that's going to be out there for 20 years or even 30 years.

JAY: Alright. Thanks for joining us, Bill.

BLACK: Thank you.

JAY: And thank you for joining us on The Real News Network. And if you'd like to see more of this, there's a "Donate" button over here, 'cause if you don't click on it, we can't do this.


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