
Joseph Fichera’s op-ed in the New York Times shows the full depravity of Wall Street’s resistance to regulation, says white collar criminologist Professor William Black.
Story Transcript
SHARMINI PERIES, EXEC. PRODUCER, TRNN: This is The Real News Network. I’m Sharmini Peries, coming to you from Baltimore. And also welcome to this edition of the Bill Black report, who’s our next guest. He recently authored a blog titled “Zero Prosecutions Aren’t Few Enough–Wall Street Wants SEC Sanctions Reduced to DMV Points”.
Now joining us to discuss this is Bill Black. He’s an associate professor of economics and law at the University of Missouri-Kansas City. He’s a white-collar criminologist and a former financial regulator. He’s the author of The Best Way to Rob a Bank Is to Want One.
As always, thank you so much for joining us, Bill.
BILL BLACK, ASSOC. PROF. ECONOMICS AND LAW, UMKC: Thank you. Good to be back.
PERIES: Bill, what are you blogging on this week?
BLACK: So Joseph Fichera is a head of a Wall Street advisory firm. And he’s one of the sometimes good guys, that is, for example, warned about auction rate securities as a dangerous scam and criticized major investment banks for derivatives that they’ve sold to cities. So he’s easily in the top 10 percent of the distribution of Wall Street CEOs. But even he–and that’s sort of the point–has just come out on November 6 and said, we’re treating Wall Street too harshly.
Now, Wall Street, as we’ve talked about, has zero convictions of any of the senior officers who actually led the fraud epidemics that caused the crisis. But that’s not sufficiently weak for Fichera. He says that the Securities and Exchange Commission should not have the power to remove an investment bank’s license to sell securities, for example, just because it’s committed a massive fraud. Instead, frauds should have a schedule of points, like the Department of Motor Vehicles has in many states. And so for one active appraisal fraud that could actually be thousands of acts, maybe you’d get four points. And over the course of six years, if you’ve got–he doesn’t give the number, but maybe 16 points, then and only then could your license be removed.
So this is the idea that fraud is really just like driving without your seatbelt. You know, there’s no moral element at all to defrauding other people of tens of billions of dollars, and that you actually have a right if you’re in finance (but only if you’re in finance) to a certain number of felonies before anything can happen seriously. And he explicitly says that the Securities and Exchange Commission should have no power to remove your license if you’ve only committed one series of felonies. And remember, this series of felonies could be 10,000 people that you defrauded or indeed millions of people that you defrauded. But like every dog gets its bite, every corporation that issue securities would get its massive fraud. And if it didn’t get caught again within the next six years, well, then, like DMV, your points would be eliminated and you could commit your new fraud with impunity.
On top of that, he says, well, you know, we really have to believe in this too-big-to-jail and too-big-to-sanction stuff for the Securities and Exchange Commission, ’cause he says that there’s a real contradiction between the principles of financial regulation and the principles of justice. In other words, if we want to insist on justice, we’re going to have bad regulation, because we’re going [to sanction] big firms, and then those firms will fail, and therefore we’ll have financial crises. And so the answer is to leave the frauds in power, and not only to not prosecute them, but to make it very, very hard to take any serious enforcement action against them as well.
PERIES: Bill, is Fichera serious? Is this being taken seriously, such as a proposal?
BLACK: He is absolutely dead-on serious. And as I said, he’s actually within the valley of the morally blind, the one-eyed king type of thing. He’s not one of the worst people in Wall Street by a very long margin. And this tells you how deep the rot is in Wall Street, that somebody that is, as I said, certainly in the best 10 percent of Wall Street CEOs has such an absurd proposal in mind.
Your viewers who know the old Roman maxim in Latin Fiat justitia ruat caelum, “let justice be done, though the heavens fall”, now, that might sound naive, but the best way to keep the heavens from falling is to insist on justice, particularly when the people who are trying to escape accountability are immensely wealthy and politically powerful. So the best way to destroy a financial system is to leave the frauds in charge. That is going to produce what we call a Gresham’s dynamic, in which bad ethics drives good ethics out of the marketplace.
And he, Fichera, actually admits that the repeal of Glass-Steagall, which separated commercial investment banking, was a disaster, and he admits that moving away from what was the rule for hundreds of years, that things like investment banks were owned as partnerships and you had as a general partner what’s called joint and several liability–that remains means you’re responsible for all the debts of the company, whether you caused them and not. And, of course, under that system, you as a partner in one of these investment banks had an overwhelming incentive to police your fellow partners and making sure that they didn’t screw up and take advantage of people, and you had an enormous incentive not to make new partners who didn’t have the highest level of integrity, because when they screwed up, again, you could lose your entire wealth.
So, as I said, this is not a crazy person, or at least is not normally considered a crazy person, who admits the problems and then wants to makes them worse.
PERIES: Right. And what is the SEC’s response to something like this?
BLACK: Well, the SEC is not responding officially to this, but the broader point, of course, is it’s not just the Justice Department that has not held people accountable. It is largely the SEC that has failed to hold people accountable as well, and in particular the folks that they don’t hold accountable are the most powerful Wall Street CEOs who led the fraud epidemics that caused the financial crisis.
PERIES: And we know self-regulation, or even demerit points of this sort, doesn’t really work. What are some of the solutions you think that might work besides prosecutions?
BLACK: Well, the two things that would work really well are precisely what he talked about. We should bring back Glass-Steagall, and we should bring back real partnerships with joint and several liability. And both of those things would be enormously beneficial, and so you would get–there’s no tension between good financial regulation and the principles of justice. Good financial regulation is impossible unless you hold the most powerful people in Wall Street responsible, both criminally and to the best of your civil and enforcement powers, when they commit these kinds of violations.
So the best things to do are those things that create the right incentive structures, so that people never screw up in the first place. And the big three things that you want to do are bring back Glass-Steagall, bring back joint and several liability in terms of partnerships, and fix modern executive and professional compensation, which is extremely criminogenic. And then the fourth thing would be to end the international race to the bottom of financial regulation, in which big banks try to put nations in competition with each other for who is willing to offer the weakest regulation.
PERIES: Bill, I think it would be wonderful if you would come back and we can dig into each one of your four recommendations further and discuss what this really means in terms of being able to address them.
BLACK: Absolutely. We can have a real recipe for how you fix things.
PERIES: Okay. Great. Great. Thank you so much for joining us Bill.
BLACK: Thank you.
PERIES: And thank you for joining us on The Real News Network.
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