Bank Profits Soar, Wages Suffer Sharpest Decline in 60 Years
Bill Black: The economy is recovering - unless you work for a paycheck. - 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 the latest edition of The Black Financial and Fraud Report with Bill Black, who now joins us from Kansas City, Missouri. Bill 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 he's the author of the book The Best Way to Rob a Bank Is to Own One.Thank you for joining us, Bill.BILL BLACK, ASSOC. PROF. ECONOMICS AND LAW, UMKC: Thank you.NOOR: So, Bill, what can you tell us about this latest news from the first-quarter? Bank profits soared to record levels while wages suffered their sharpest decline since 1947.BLACK: What it all adds up to, of course: it is a very good time and a very good country to be a plutocrat, because the rich are getting richer at a staggering rate and poor people are actually getting poorer, just like the same saying goes. So we've got a series of news that it has just come in this week. One thing shows that we have the largest decline in wages. Boy, that's a big win. And that follows--that's for the first quarter of 2013. And that follows what was a huge quarter for income in the fourth quarter, in other words the last three months of 2012. But, of course, there's a footnote on that. And that huge quarter at the end of last year was to beat the tax increase. So that was the massive payment of bonuses to the wealthiest Americans. So they made sure the wealthiest Americans got their money before the tax increases kicked in. And what happened as soon as we got back to the regular economy? Well, wages haven't simply stalled; they've actually gotten negative. And productivity is up, which is supposed to mean that wages are up, but wages have gone in the opposite direction. So that's the news on the wages front.On the bank profit front, hey, we've got the highest reported profits ever for the first quarter of this year. Now, the twist in all of this is that the statistics, when you look at them closely, show the banks weren't all that profitable in their regular operations, because, of course, they're not making all that much in the way of loans and such. They're mostly sitting on their money.So how did the banks report record profits, but when they were doing their day-to-day business they weren't earning all that much in the way of super profits? And the answer to all of that is that they reversed out a whole bunch of reserves for future losses, which is the same game they played leading up to the crisis. So reserves for those massive future losses, they've made them lower and lower. At the end of 2006, they had gotten to the lowest level of reserves against future losses in history since the savings and loan debacle. And we all know how disastrously this ended. Well, guess what? We're at the record low again in 2007.And this is how the accounting works. Every dollar they take out of reserves for future losses is an additional dollar they can pay in bonuses to the top executives. So the wealthier are getting wealthier at a record rate in banking as well. So what else is happening? Well, we have record stock market appreciation. In fact, there's a neat headline that says that when you disregard inflation--which of course you can't--the losses that people suffered in the Great Recession have now been made back. It took a lot of years to do it, but they've made it back. But, of course, there's a footnote, and the footnote says this: well, regular people haven't, but people who own stock have made out like bandits. They've had a recovery measured by $1.5 trillion, and 80 percent of that gain goes to the 20 percent of richest Americans. So, hey, stock market--great news for the wealthy. Well, but there was also some potential good news. So housing prices have finally started to go upwards. And that's good news for all kinds of Americans who own their homes. But, again, there's a little hitch in all of this, 'cause it turns out that for the first time in American history, a huge portion of these gains are going to massive corporations and investment firms and hedge fund types, and they are because they're making massive purchases of homes at distressed prices to serve as what we call in the trade vulture funds and to sell it back to regular folks when those housing prices have appreciated. So a lot of this gain in housing prices is not going to regular people; it's going to go to the hedge fund executives, who are already the wealthiest people in the world.And how does all of this sum it up? Well, I did a paper recently on the Nobel Prize awarded to Mr. Myerson. Dr. Myerson got this award in 2007 when the world was blowing up, and he got the award for proving that fraud couldn't exist in the financial sector. And he proved this by assuming that fraud couldn't exist. And his mechanism for assuming that fraud doesn't exist is plutocracy. And indeed he says the great advantage of the market system compared to socialism is that we have billionaires, and he says that people who are not that rich, in other words, ordinary multimillionaires who are CEOs, if they act rationally--that's his word--will loot their corporations. And so the only safe thing we can do is to make some segment of Americans billionaires--in fact, probably multibillionaires--so they can run our largest corporations and made--be made into mega-billionaires. So you get a Nobel Prize for creating a system that leads to recurrent intensifying financial crises that caused $10 billion in losses in the United States and the loss of $10 million jobs. And we are told that we're supposed to be happy and bless the system because it creates plutocrats who have incomes in the multibillion dollars who, when there is a crisis--in the words of Myerson in another article, people who are poor should pay taxes to bail out billionaire bankers, because that will be good for the poor people. That's the status of economics in the modern era.NOOR: So, Bill, it would seem like the dominoes are in a row for another massive financial meltdown. Would you disagree?BLACK: No, that's exactly what they're putting in place. And they're going to make the folks wealthy on both ends, right? We're told that they have to be made billionaires so that they can invest prudently during the expansion phase of the bubble. And as soon as they destroy the economy, we're told that we have to bail them out and make them ever wealthier. And the way we do all of these things increases the rewards to fraud and reduces the penalty to fraud, and especially in the modern era where you can dilute with impunity under the administration's too-big-to-prosecute-or-even-indict standard.NOOR: And finally, Bill, where are the movements that are challenging these policies?BLACK: Well, they're certainly not in either of the major parties. There are, of course, progressives within the Democratic Party, and they do some things, but in truth, both parties' leadership are heavily dependent on funding from the largest banks and from other plutocrats. You've just seen the the Obama administration put a Pritzker in a cabinet position where the Pritzkers have a terrible reputation. And you saw that the Republicans, who usually block anyone that Obama nominates, were more than happy to have one of those wealthy folks, who is one of their kind, in a cabinet position. So the dissent remains on places that are not typically found in the mainstream media, the Occupy movements and such. And, you know, it's going to be the next crisis before there's any serious chance of serious reform.NOOR: Thank you for joining us, Bill.BLACK: Thank you.NOOR: And thank you for joining us on The Real News Network.
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