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Former financial regulator Bill Black says Holder’s legacy on “too big to fail” is “too big to jail”

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SHARMINI PERIES, EXEC. PRODUCER, TRNN: Welcome to The Real News Network. I’m Sharmini Peries, coming to you from Baltimore.

The resignation of Attorney General Eric Holder was announced on Thursday afternoon by the White House. Mr. Holder was among Obama’s first nominees to the cabinet. The president-elect announced his selection on the same day he announced Hillary Clinton’s appointment as secretary of state, at a time when Guantanamo Bay closure, the torture of prisoners, and regulatory failure on Wall Street after the 2008 financial crisis was all looming in the air.

While his track record in the mainstream press today has been kind to him, painting him as the liberal voice in the Obama administration, his track record is less desirable. Mr. Holder signed off on the National Security Agency’s authority to sweep up the phone records of millions of Americans not charged with any crime. We remember him for the relentless pursuit of whistleblowers such as Chelsea Manning and Edward Snowden and Aaron Swartz. While these whistleblowers were upholding our constitution and the people’s right to know, he was not. He authorized the subpoena directed at journalists and approved the CIA killing of Anwar al-Awlaki, an American citizen working with al-Qaeda, instead of just having him arrested and giving him his day in court.

Now joining us from Kansas City to talk about Eric Holder and his record is Bill Black. Bill is associate professor of economics and law at the University of Missouri-Kansas City. He is a white-collar criminologist and a former financial regulator and author of The Best Way to Rob a Bank Is to Own One.

As always, thank you for joining us, Bill.


PERIES: So what raced through your mind as you heard the news this morning about Eric Holder’s resignation?

BLACK: Well, I’ll focus on the areas I know about. And in your introduction, the war on whistleblowers will be the most relevant part, along, of course, with the complete strategic failure, the greatest strategic failure in the history of the Department of Justice, which I once worked at, against elite white-collar crime epidemics.

And so Eric Holder has surprised me. I always predicted that he would at least find one token case to prosecute some bank senior executive for crimes that led to the creation of the financial crisis and the global Great Recession.

PERIES: Why did it surprise you, Bill?

BLACK: Well, he’s actually going to leave without even a token conviction, or even a token effort at convicting. So, in baseball terms, he struck out every time, batting 0.000, but he actually never took a swing. So he was called out on strikes looking, as we would say in baseball. And I couldn’t believe that he would leave without at least having one attempted prosecution against these folks. So he hasn’t done the most–he never did the most elementary things required to succeed. He never reestablished the criminal referral process, which is from the banking regulatory agencies, who are the only ones who are going to do widescale criminal referrals against bank CEOs, because, of course, banks won’t make criminal referrals against their own CEOs. Holder could have reestablished that criminal referral process in a single email on the first day in office to his counterparts in the banking regulatory agencies, and he’s going to leave never having attempted to do so.

On top of that, if you’re not going to have criminal referrals from the agencies, the only other conceivable way that you’re going to learn about elite criminal misconduct of this kind is through whistleblowers. And as you mentioned, this administration, and Eric Holder in particular, are known for the viciousness of their war against whistleblowers. What the public doesn’t know–and it doesn’t know because of Eric Holder–is that in the three biggest cases involving banks–again, none of them, not a single prosecution of the elite bankers that drove this crisis–all three of those cases, against Citicorp, against JPMorgan, and against Bank of America, were made possible by whistleblowers. Eric Holder was the czar at the Department of Justice press conferences in each of these three cases, and he and the Justice Department officials, the senior Justice Department officials, at those press conferences, never mentioned the role of the whistleblowers–never praised the whistleblowers and never used those press conferences as a forum for asking whistleblowers to come forward. And so your viewers should take a look at the Frontline special on this, where the Frontline producers made clear that as soon as word got out that they were investigating the area, dozens of whistleblowers came forward, and each of them had the same story: the Department of Justice had never contacted them.

So, instead of going after the big guys–by the way, they didn’t go after the small CEOs either. I keep talking about elite CEOs, for obvious reasons: they cause far greater damage. But there are all these CEOs of the not very big mortgage banks who are not prestigious, who are not politically powerful, and Eric Holder refused to prosecute them as well. What did he do instead? Well, he prosecuted several hundred mice. And so the saying in the savings and loan industry is true again: Holder was chasing mice while lions roam the campsite.

And most disgraceful of all, the official position of the Justice Department and the FBI, as I’ve written and quoted from their annual reports on mortgage fraud, is that mortgage fraud is largely supposedly an ethnic crime, with particular disfavored ethnic groups, like Russian Americans. This is (A) not true and (B) an obscenity, for the Department of Justice in particular, which is, after all, charged with preventing this kind of discrimination. Not only is the Justice Department and the FBI spreading this absolute lie about ethnic guilt, but they’re following through, and they are disproportionately prosecuting folks of disfavored minorities. And that is a particular evil and disgusting thing that will be on the tombstone of Eric Holder when historians write about him.

PERIES: Bill, one of his biggest failures is that he refused to go after the big banks. And he was very quick to come to negotiated settlements instead of prosecutions.

BLACK: Yeah. The negotiating strategy ensured that the top bankers had to win the negotiations. So they came into the negotiations knowing that Holder believed in too-big-to-fail and too-big-to-jail. And that means that, by definition, any civil fine cannot be all that serious compared to the size of the institution, because they’re scared to death of doing anything that could render the capital of that bank insufficient. So you know the fine is going to sound large, but it’s going to be small relative to your capital and no big problem.

The other thing you know is you have to make sure, as the CEO, that you take care of the little people as well, because if they start pleading guilty, then they seek deals with the prosecutors in which they get immunity and they rat out people above them, and that could eventually lead to you. So you want to make sure not only that you don’t get prosecuted; you want to make sure that even low-level officers don’t get prosecuted. And with Holder being primarily interested in dollar size, he was quite willing to trade off. So you’re the CEO. You control the corporation. And you can trade off a slightly larger fine for complete immunity from prosecution, not only from you, but all of the officers. That makes sure you don’t get prosecuted. But you can also trade off to make sure that the government doesn’t what we call claw back the bonuses and such that you got because of the fraud. So, instead, all of the loss goes to the bank, which of course is borne by the shareholders, not by the senior officers. So the Justice Department is happy. Holder declares victory because he gets a significant dollar number. But what does the market do? The market says, great! And indeed the share price of these banks increases immediately after they announce their settlements. So Holder has been skinned alive in these negotiations. Unfortunately, that means the United States of America has been taken to the cleaners in all of these negotiations. He’s been played for a fool very successfully by the top bankers.

PERIES: So the taxpayers have been failed once again.

BLACK: That and the shareholders. So the shareholders got it, because these fraud schemes largely steal from shareholders and creditors and make the officers wealthy. So that was bad. And then they spend literally, in some cases, collectively, billions of dollars on the lawyers on the defense, and the shareholders pay that. And then they agree on a fine that’ll be paid entirely by the shareholders, and not a penny of it, typically, by the senior officers who became wealthy from the frauds, and the senior officers get to keep the fraud proceeds. So that’s the third whammy on the shareholders. And as you say, in many cases it’s been a whammy to the federal treasury as well.

PERIES: Well, Bill, who is likely to be appointed as the attorney general next?

BLACK: No one better.

PERIES: Thank you so much for joining us, Bill.

BLACK: [crosstalk] Eric Holder is reflecting administration policies, and Treasury was far worse than the attorney general.

PERIES: Alright, Bill. Thank you so much for joining us.

BLACK: Thank you.

PERIES: And thank you for joining us on The Real News Network.


DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.

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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.