By William K. Black.

I was doing an unrelated search when I stumbled across a series of articles by “Citizen K” discussing me.  K explained the purpose of K’s January 26, 2013 column as:  “debunk[ing] Black’s self-promotion and right wing political idea that in the virtuous past justice prevailed.”  When pressed on this by a commenter, K explained:

“Yes it’s right wing to push the Bush admin as an exemplar of moral values. Libertarian fairy tales about how Capitalism used to be so moral in the good old days are right wing.

[Name deleted by me to protect his privacy] is not in the same ballpark as Black. He’s a very smart guy and pretty illuminating.”

To this point, I am “right wing,” “libertarian,” a promoter of “fairy tales” about “capitalism” and its virtues, and not a “very smart guy.”

But I get worse, and more confusing.  On May 29, 2013, K described me as one of his despised trio of “privileged liberal[s].”

“On the other hand, this imaginary normal is a standard part of the privileged liberal line. Mat[t] Taibbi told us that the failure to prosecute bankers called into question the normal, fair and equal rules of property that used to exist in America before the evil Obama era. Jeremy Scahill regularly pretends that civilians were never harmed by US overseas military actions before January 2009 when the US began to violate “International Law”. William Black has made a career out of pretending that high level Wall Street bankers were prosecuted for financial crimes during the Reagan administration! We are constantly being told that the ‘rule of law’ is being shockingly violated in a country where the gross racial and class injustices of the system of law must require a huge effort of imagination to pretend away.”

What does “privileged” mean?  It’s code.  On June 18, 2013, K explained the code for K’s readers.

“Oh, I was going to explain why Harper[’]s editors and so many of their readers and fellow Obama critical colleagues find Mr. Greenwald so convincing. After all, that’s a well-educated, literate, learned group many of whom have probably even read Foner or Dubois. Well, for most of them, I imagine it’s that orthodox American problem: reluctance to accept a black supervisor.”

The context of the article was K’s rage that Glenn Greenwald’s articles criticizing the Obama administration’s electronic surveillance programs were receiving substantial support among progressives.  There could be only one explanation for the progressives’ concerns about government surveillance – racism.

“Most” Harper’s editors and readers and Obama critics who are “well-educated, literate, and learned” (and have often read Eric Foner and W.E.B. Dubois about topics such as slavery and Reconstruction) find Greenwald’s columns about the National Security Agency’s electronic surveillance programs “convincing” because President Obama is “black” and they are “reluctan[t] to accept a black supervisor.”

I confess to reading Eric Foner and W.E.B. Dubois.  I confess to being unable to discern any logic chain by K about why concern for privacy and government surveillance makes one a racist or what reading Foner and Dubois has to do with any of this.  K’s self-description is:  “self-appointed intellectual cop,” so it is reassuring to know that K labels over 10 million people who overwhelmingly voted (three times – the primaries and both elections) for Obama as racists based on the “fact” that K “imagine[s]” it is true for no reason K can articulate.  I will not attempt to argue with someone who imagines “facts” and thinks that doing so produces an “intellectual cop.”  K and K’s imagination are self-appointed.  I also confess that I find it ironic for K, a blogger who chooses to write anonymously to protect K’s privacy, to assert that only racists care about their privacy.

K Imagines more Facts about Me

K’s imagination provides the basis for K’s criticisms of me.

“Yes it’s right wing to push the Bush admin as an exemplar of moral values. Libertarian fairy tales about how Capitalism used to be so moral in the good old days are right wing.”

I never “push[ed] the Bush admin as an exemplar of moral values” or told “right wing” “libertarian fairy tales about how Capitalism used to be so moral….”  These things exist only in K’s imagination.  K has not read my book or articles or has substituted K’s imagination for any of my articles that K has read.  Here are some examples of my views of the performance of key appointees of Presidents Reagan and Bush.

YouTube video

Keating Economics (the Obama campaign video filmed primarily in our living room in Kansas City), its impact, and my follow-up interview on NPR.

YouTube video

My oral testimony about the role of the Fed in Lehman’s collapse in 2008 (see also my written testimony).

Bush’s Role in Corporate Fraud

The Moral Quandaries of a Government Whistleblower

Keeping the SEC on a Starvation Diet

How Elite Economic Hucksters Drive America’s Biggest Fraud Epidemics

May 29, 2013 |

K’s “imagines” statements that I never made and ascribes them to me.

“William Black has made a career out of pretending that high level Wall Street bankers were prosecuted for financial crimes during the Reagan administration! We are constantly being told that the ‘rule of law’ is being shockingly violated in a country where the gross racial and class injustices of the system of law must require a huge effort of imagination to pretend away.”

First, my career was not made by any of the things K claims.  My regulatory career is the focus of three works by academic experts in public administration: Chapter 2 of Professor Riccucci’s book Unsung Heroes (Georgetown U. Press: 1995), Chapter 4 (“The Consummate Professional: Creating Leadership”) of Professor Bowman, et al’s book The Professional Edge (M.E. Sharpe 2004), and Joseph M. Tonon’s article:  “The Costs of Speaking Truth to Power: How Professionalism Facilitates Credible Communication” Journal of Public Administration Research and Theory 2008 18(2):275-295.

Second, I never “pretend[ed] that high level Wall Street bankers were prosecuted for financial crimes during the Reagan administration.”  I have provided the facts on prosecutions of elite S&L executives (and others) during the S&L debacle under Presidents Reagan, Bush, and Clinton.  Third, the rule of law is violated when elite bankers controlling the systemically dangerous institutions (SDIs) are treated as too big to prosecute.  We are not, however, warned against that violation by the Bush (II) or Obama administrations.  Fourth, K’s “imagination” goes into a self-contradictory loop by complaining about “gross racial and class injustices” in prosecutions which are “pretend[ed] away.”  Matt Taibbi and I emphasize the role of class and race in the failure to prosecute the elite CEOs that drove our financial crises.

“In the elite white collar crime context we have been following the opposite strategy of that recommended under ‘broken windows’ theory. We have been breaking windows. We have excused those who break the windows. Indeed, we have praised them and their misconduct. The problem with allowing broken windows is far greater in the elite white collar crime context than the blue collar crime context. The squeegee guys make tiny amounts of money and are hated and politically powerless. The mediocre financial CEO who engages in accounting control fraud because it is a ‘sure thing’ [George Akerlof and Paul Romer 1993] causes the bank to report record (albeit fictional) profits and becomes wealthy and politically powerful. He uses his wealth to make charitable and political contributions that make him far harder to sanction. He claims that any crackdown on him is ‘class warfare’ by ‘neo-Bolsheviks.’ Incredibly, the Wall Street Journal continues to serve as the cheerleader and apologist for those who become wealthy by breaking windows, communities, and economies.

[James Q.] Wilson warned of blue collar ‘super predators.’ He called them ‘feral’ – wild animals. These criminals are in fact dangerous, but they are odd candidates for the title of ‘super predators.’ Wilson noted that they were disproportionately black and that they were confined almost entirely to the poorest neighborhoods in America where their pickings are poor. Accounting control frauds occupy Wall Street and other financial centers – the richest neighborhoods in the world. Their ‘take’ from fraud is extraordinary. The blue collar criminals that occupied Wilson’s attention late in his career were politically and socially powerless. The fraudulent CEOs that drive our recurrent, intensifying financial crises are wealthy and socially and politically dominant.

Wilson had a fabulous career and added greatly to the policy debate about how to respond to blue collar crime. Our most fitting tribute to him and contribution to his legacy would be to apply his ‘broken window’ theory to the elite white collar crimes and criminals that drive our financial crises. The troubling paradox is that the strongest proponents of “broken windows” theory and policies in the blue collar crime context are the strongest opponents of applying analogous policies in the elite white collar crime context. The Wall Street Journal is the most prominent example of this class-based incoherence.”

Elite U.S. white-collar financial frauds are members of higher social classes and are overwhelmingly white.  K implies that our criticism of the Bush and Obama administration for failing to investigate and prosecute these frauds means the opposite of what we actually argue and demonstrates that we ignore the failure to prosecute elite whites for their crimes.  K’s “imagination” displays the logical incoherence typical of the best daydreams.

Focus on K’s imagined causality (“must be why”) in the sentence immediately following K’s self-contradictory imagination that white-collar criminologists (members of a discipline that defined its field of study based on the critical role played by class) “pretend away” the importance of class and race:

“And that must be why ‘liberals’ who have hardly noticed Eric Holder’s heroic efforts to bring back the Department of Justice’s civil rights enforcement from the grave where Bush buried it are so vigorously defending the ‘right’ of the Republican Party, I mean, Fox News, to solicit open violations of the Espionage Act and sabotage US intelligence operations.”

It was good that Attorney General Holder restored civil rights enforcement.  It was not “heroic.”  It was his job and doing his job required no heroism.  He had the strong support of the President, rank and file Justice Department attorneys, the Democratic Party, and Democratic elected officials.  He had universal support from progressives for the restoration.

K claims that Fox News “solicit[ed]” “open violations of the Espionage Act and [the] sabotage of US intelligence operations.”  K also claims that “liberals” supported Fox News’ treason.  K attacks those who criticize Obama or Holder.  K quickly dashes off a response based on K “imagination” as to what terrible trait “must have led” the critic to commit such an outrage.  K’s imagination always supplies a dastardly motive – Obama and Holder’s critics must be right-wing libertarians.  Confusingly, the same right-wing critics transmute into racist liberals.  Fox News reporters are traitors.  No one needs to receive vigorous criticism more than the President of the United States – any U.S. President – but K treats criticism of Obama and the “heroic” Holder as akin to blasphemy.

K spins even more out of control in claiming that the S&L felony convictions (over 1,000 in cases designated as “major” by the Department of Justice) were actually trivial because the fraudulent S&Ls were much smaller than our largest banks.  K thinks S&Ls were mom & pop operations.  Financial institutions were smaller in the 1980s, but the S&L industry had over $1 trillion in liabilities.  When I was first a regional regulator for S&L located in California, Arizona, and Nevada, the California S&L industry’s total assets were larger than the California banking industry’s – which included Bank of America and Wells Fargo.

Lincoln Savings, the most infamous S&L control fraud that was controlled by Charles Keating, caused greater losses to the government than any bank failure in U.S. history up till this crisis.  Keating bragged about spending $50 million to counter our examination of Lincoln Savings.  S&Ls had greater national political power than did the large banks.  S&Ls were popular because they made loans to people, while banks were seen as entities that did not loan to individuals.  Some political scientists ranked the S&L trade association as the third strongest in America.  By contrast, the banking lobby was weakened greatly by the hostile split between large and small banks that often led to cancelling out banks’ overall political influence.

The S&L control frauds were numerous, often large, and growing at an exceptional rate (50% annually) before our reregulation restricted growth.  The entry of new, often fraudulent, S&Ls was enormous.  But for our reregulation and resupervision of the industry and our enforcement actions, civil suits, and criminal referrals the S&L debacle would have become a National catastrophe.

The political power of the industry, and the control frauds, was sufficient to ensure that Federal Home Loan Bank Board (Bank Board) Chairman Ed Gray got zero of his requests for increased regulatory powers approved by Congress and the “recapitalization” of the insurance (FSLIC) fund was delayed by Congress until he was out of office (to prevent him from using the funds to close additional frauds).  Keating was able to get a majority of the House of Representatives to co-sponsor a resolution calling on us not to go forward with reregulation, to recruit the five Senators who became known as the “Keating Five” to meet with the regulators to try to prevent us from taking an enforcement action against the largest violation in the agency’s history, to recruit Speaker of the House James Wright, Jr. to ally with Keating, and to convince the Reagan administration to appoint two individuals chosen by Keating to be “Members” of the Bank Board.  The agency only had three Members, so this would have given the most infamous of the S&L felons control over his regulator.  Stop and consider how massively losses would have grown if this had happened.

On a personal note, Keating hired private investigators twice to investigate me, sued me for $400 million in my individual capacity, worked with Wright to try to get me fired, tried to bar me from any meeting with Lincoln Savings, had our office’s jurisdiction over Lincoln Savings removed when we refused to back off our recommendation to take over Lincoln Savings, and wrote his infamous directive about me.  Don Dixon, who led the control fraud at Vernon Savings (“Vermin” to its regulators) and Thomas Gaubert, who led the control fraud at Independent Savings had enough political juice to induce Speaker Wright to hold the FSLIC Recap bill hostage to extort special regulatory favors.  All three CEOs were convicted of felonies.  K, however, imagines that these folks were hapless hicks because Dixon loved bling:  “Dixon actually stole a lot of money, but was this guy in the power elite?  Yes, he was.  He flew Wright on the Vermin plane, wined and dined him on the Vermin yacht, and got him to extort Gray not to close Vermin when it was massively insolvent.  Gaubert was even more connected than Dixon.  The Democrats made him the Treasurer of the DCCC and were looking to make him the Treasurer of the DNC.  The Treasury of the DNC, if the Dems win the Presidency, is likely to get a cabinet level position.

K complains that not all the S&L officials and their co-conspirators who were convicted of felonies were social elites.  I never said they were all elites.  There were over 1,000 felony convictions in S&L cases designated as “major” by the Department of Justice (DOJ) – and there were roughly an additional thousand S&L convictions of less elite parties.

What K misses completely is that we, the regulators, constantly pushed DOJ to prioritize the most important cases and made enormous efforts in our criminal referrals to explain to DOJ and the FBI which cases should have the highest priority from our perspective.  We made over 30,000 criminal referrals against the S&L frauds.  In the current crisis, our same agency (OTS) and its sister agency for banks (OCC) made zero criminal referrals.

But this greatly understates the degree of prioritization of elite prosecutions during the later years of the S&L debacle.  K is correct that the FBI and DOJ received Congressional and media criticism about the mounting backlog of our referrals that had never been investigated.  DOJ responded by working with us on the “Top 100” list.  This was a serious process in which the highest priority 100 fraud schemes were identified and ranked.  The fraud schemes were committed by officials at roughly 300 S&Ls and there were roughly 600 individuals that were the subjects of the investigations.  Nearly all of these elites were prosecuted and DOJ’s success rate was 90 percent.  That is extraordinary for such defendants have the world’s best criminal defense lawyers and will spend money like water to try to escape conviction.  These prosecutions are complex and difficult.

K’s response to these facts is to complain that we didn’t have a 100 percent conviction rate.  K complains that Bill L. Walters, a business associate of President Bush’s son Neil, won a bankruptcy action and that Neil was not prosecuted and settled his civil suit with us.  That is true, but Neil Bush did not, to our knowledge, commit a crime during the S&L debacle.  Note that we brought a civil action and an enforcement action against the son of the President of the United States and an action against several of Neil Bush’s business associates.  We did not back off when the White House indicated its displeasure with our administrative action against Neil Bush.  Tim Ryan, the head of our agency (appointed by the first President Bush) made an ethics referral when the White House’s intermediary asked him to get rid of the case.  (All of this is discussed in my book, including my mystification that this never became a political scandal.) We took legal actions against some of the most politically powerful elites in America over the active opposition of the Republican White House and the Democratic Speaker of the House, obtained the greatest prosecutorial success against elite white-collar criminals in history, and had a huge backlog of criminal referrals in the pipeline to be prosecuted when the Clinton administration decided to change its white-collar prosecution authorities from financial institution fraud to health care fraud.

K’s criticism is that we only won about 90% of our criminal cases against the elite S&L frauds.  K has a view of history that makes sense only if one assumes that it is illegitimate to criticize Obama.  When we cite data demonstrating that we can successfully prosecute complex control frauds K claims that we are presenting an “imaginary normal.”  Again, K cannot have read any of my detailed explanations of what it took to produce the most successful prosecution of elite white-collar criminals in history.  By definition, that best ever success cannot be the historical “norm.”  Interested readers can read my extensive, multiple Congressional testimonies to see that I explain in detail that there was nothing “normal” about what we did, but that it is replicable because we have worked out what is critical for success.  The thing that drives us to distraction about Obama and Holder is the same thing that drove us to despair when the Bush administration was in power – both administrations refused to take the steps that experience has proven are essential to and successful in prosecuting an epidemic of control fraud

K missed entirely my consistent message.  We did not achieve this record success in reregulating, re-supervising, and prosecuting the frauds because of the Reagan and Bush (I) administrations.  We achieved this record success over the active opposition of the Reagan administration and despite the inconsistent efforts of the Bush (I) administration.  Some Democrats and some Republicans were helpful.  Most, from both parties, were harmful.  My book gives the details.

I can tell you one fact that should offer optimism.  I do not claim that the fact is “normal,” but I do know that good leaders can be chosen to replicate it.  I worked closely for years with the three regulatory colleagues who I joined to meet with the “Keating Five.”  To this day I do not know what, if any, political affiliation they have.  We understood the reality of politics and each of us still has the scar tissue where powerful politicians and their allies gouged us, but we never made a regulatory decision based on politics or the fear of politicians.  We did not consider that strange or worthy of comment.  We can restore the rule of law and end the disgrace of “too big to prosecute.”

K has imbibed too deeply of historical Zinnicism.  (Yes, I confess to also reading Howard Zinn.)  Our history contains much to be ashamed of, but it also has many actions that deserve to be emulated.  We should emulate them regardless of whether they were “normal.”  Indeed, the desirability of consciously implementing successful policies we can be proud of is greater if those successes were “abnormal” and will be unlikely to be repeated unless we consciously seek to replicate them.  We all know of the famous warning about failing to learn from the mistakes of the past, but one can learn from past mistakes and still make new mistakes because there are often dozens of alternative policies one could choose that would also fail.  The greater tragedy is to fail to learn from the successes of the past, for those successes (if replicable) make it vastly more likely one will avoid the worst errors.  K’s claim that it is illegitimate to look for policy successes we could replicate because they occurred during Republican administrations has no logic.

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