Finance Bill mostly window dressing Pt2

May 26, 2010

William Black: There are obvious things that should have been in the bill

William Black: There are obvious things that should have been in the bill



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Story Transcript

William Black Interview (Part 2 of 2)

PAUL JAY, SENIOR EDITOR, TRNN: Welcome back The Real News Network. I’m Paul Jay in Washington. And joining us again in Kansas City, Missouri, is Bill Black. He’s a former financial regulator under the Reagan and Bush and a little bit of the Clinton administration, and he’s an associate professor of economics and law at the University of Missouri in Kansas City. Thanks for joining us again, Bill.

WILLIAM BLACK, PROF. ECONOMICS AND LAW, UMKC: Thank you.

JAY: So let’s say somebody from the House calls you, and they say, okay, we’ve got to go in and negotiate with the Senate what this bill is going to look like; we have our own bill, but what should this bill look like? So give us four or five things you think are critical. And how do they compare to what’s in the Senate bill?

BLACK: Well, I mean, the fundamental problem is, if it isn’t in either the House or the Senate bill, you can’t simply put it there in conference committee. So there’s a mechanical problem saying what the bill ought to become. But the one thing you could clearly do that would be very helpful is take the Marcy Kaptur amendments that propose a dramatic increase in hiring of white-collar crime specialists by the FBI and additional prosecutors as well. That would address one of the fundamental causes of this crisis, which is this epidemic of accounting control fraud. The second thing that you need to do is to change the accounting. The third thing you need to do is take on the systemically dangerous institutions. The fourth thing that you need to do is deal with executive compensation. And the fifth thing you need to do is to close the derivatives loophole. You could close the derivatives loopholes under conference rules. It wouldn’t be, perhaps, wholly kosher, but there are many precedents for adopting provisions that aren’t formally in or aren’t explicitly in either the House or the Senate bill. And that would be very good, because the loopholes left on derivatives sound small and are deliberately designed to sound small but are in fact—you know, pick your metaphor about freight trains or something like that that you could drive it through. So the things that are really a problem on derivatives will pretty much continue under the new House or Senate bill unless we change it dramatically in conference.

JAY: So it doesn’t sound, from what you’re saying, that what’s being about to be passed from either bill, Senate or House, is really going to stop this too-big-to-fail, even if they limit the size of a particular bank. And where does that stand right now, in terms of actually limiting how big banks can get?

BLACK: They’re not. What they’re going to do, if it survives—and it’s under tremendous attack, including from the administration, which tells you, unfortunately, a lot about the administration—is having higher capital requirements for the largest banks. Now, that’s not a bad idea, but it won’t work. And the reason it won’t work is because they’re not fixing the accounting. So again they’re going to pretend that they have a higher capital requirement—you’re going to be able to read a statute, and it’s going to have a higher capital requirement. But since capital depends on accounting principles and since they gimmicked the accounting principles to create fictional capital, you’re not going to have a real restraint.

JAY: So there’s nothing really to stop another speculation binge. There’s going to be another bubble in some area. These guys are going to go back and bet on it again. If there’s a hole in the derivatives trading and they can start this whole game of betting on synthetic investments again, which is essentially just going to a horserace, why aren’t we—are we just looking at this all happening again? And is this mostly window dressing?

BLACK: Yes, it’s mostly window dressing. And, again, it’s not betting; it’s a sure thing. Accounting fraud is a sure thing. You will report record profits, and you will create record losses. We’ve seen it time and again. Since last we talked I went to Iceland at the request of folks from that government, and the report there on their three big banks shows massive accounting fraud. There’s a report out by the Irish authorities showing tremendous insider abuse at their institutions. And there’s a devastating new report that investigative reporters of Huffington Post put together that shows that two of our federal regulatory agencies ceased doing criminal referrals entirely, apparently for this entire decade. So they have not simply deregulated and de-supervised; they have decriminalized our financial sector and created an extraordinarily criminogenic environment. And what is our massive reform in response to what the FBI warned was an epidemic of fraud, warned in 2004? Essentially nothing to deal with any of the underlying causes, nothing to deal with the fraud, nothing to deal with the executive compensation, next to nothing to do with the professional compensation, nothing to do with the accounting abuses, no effective steps against the systemically dangerous institutions or the financial derivatives.

JAY: So in the first part of the interview I asked you is there a few good things in this bill, and you described what they were. And to the audience, if you want to see that, make sure you go back and watch part one if you haven’t seen it. So if you’re in Congress and the bill more or less is like what you’ve seen coming out of the Senate and the House, would you vote for it?

BLACK: Yes, but then I would immediately introduce legislation to deal with the five real problems, the ones I just went through, none of which are effectively addressed by the bill.

JAY: Thanks very much for joining us, Bill.

BLACK: Thank you.

JAY: And thank you for joining us on The Real News Network. And don’t forget, up here or up here is a Donate button. Or if you’re on your mobile phone, you can text at 85944 the word "NEWS"—that works if you’re in the United States. And if you’re not, you can go back to the Donate button. Thanks again for joining us on The Real News Network.

END OF TRANSCRIPT

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