JESSICA DESVARIEUX, TRNN PRODUCER: Welcome to The Real News Network. I’m Jessica Desvarieux in Baltimore. We’re continuing our conversation with Bill Black.
Bill is an associate professor of economics and law at the University of Missouri-Kansas City. And he’s also a regular contributor to The Real News.
Thanks for joining us again, Bill.
BILL BLACK, ASSOC. PROF. ECONOMICS AND LAW, UMKC: Thank you.
DESVARIEUX: So, Bill, in our last segment we were discussing how systematically dangerous these too-big-to-fail banks that are now much bigger are.
So can you–let’s talk a little bit about the speech that Massachusetts senator Elizabeth Warren gave. She charged Washington as failing to take adequate measures to wind down too-big-to-fail banks. During her speech, she accused regulators of missing important deadlines, implementing regulations that would stem too-big-to-fail banks. Do you think Senator Warren will get a receptive audience in Congress and the regulatory bodies?
BLACK: No, but over time she may get a more receptive audience. First, Dodd-Frank has nothing in it that would end the systemically dangerous institutions. So even if the regulators implemented all the rules that affect systemically dangerous institutions, none of them are designed to force them to do what needs to be done to shrink to the point where they’re no longer systemically dangerous.
DESVARIEUX: Okay. That’s fair enough. And in our last interview, you mentioned the three de‘s as to why we are actually less safe. And there was an article in The Economist, last week’s Economist, arguing that the global financial markets are safer now than they were in 2005. I can suspect that you wouldn’t agree with that, with that case.
BLACK: Well, it’s actually sort of a trick question. The markets are still not in the same kind of bubbles that they were right before the crisis, at least the markets in the United States and Europe. So in that sense they are safe safer. But there’s nothing to prevent them from going back into that, and they will eventually. And so we’re more exposed to an even bigger crisis, and we have none of the three de‘s in place to stop it. In other words, we haven’t put the rules back. We haven’t regulated. We’ve still got with deregulation. We haven’t put supervision back. We’re still with desupervision with very weak supervisor leaders. And, of course, we haven’t prosecuted anybody who was elite as a banker who caused the crisis. So there’s no deterrence in that regard. So we’re very bad in terms of not fixing the three de‘s, and that means that we’re exposed to an even bigger crisis down the road.
DESVARIEUX: Interestingly enough, in that article also they mentioned what made the global financial structure less safe was the fact that there was no guarantee that the government taxpayers really would bail out these banks. What do you make of that?
BLACK: Well, taxpayers don’t really bail out banks, but governments do. And that is something that we don’t want to be doing. We want to avoid the crisis in the first place. And so that article, you know, basically acts like, well, you know, crises come and go. Well, no.
The key to the three de‘s is shaping an intensely criminogenic environment. When you do that, you produce these epidemics of accounting control fraud that hyperinflate bubbles and cause financial crises. So the focus needs to be on ending the three de‘s and ending the systemically dangerous institutions.
Now, I’ve mentioned that we haven’t ended the systemically dangerous institutions, but it’s far worse than that, because think of the big entities in the United States that failed. So that would be Wachovia, Washington Mutual, Merrill Lynch, Countrywide, Bear Stearns, those types of entities. Every single one of those that I mentioned was acquired by a bank that was already systemically dangerous. And this made them much larger.
And in the initial piece, you gave statistics on what a massive percentage of the global GDP these banks are. But here’s the bad news. That’s only talking about–that figure you gave was only based on the banks’ assets and the banks’ reported assets. The banks’ reported assets do not include, in general, massive positions on financial derivatives. And those positions on financial derivatives are not a 58 percent of the world’s GDP; they are more like five times the GDP of the world. And they are growing massively and they are overwhelmingly concentrated in just a few of the largest banks.
The further bad news is: even when we caught the systemically dangerous institutions in just unbelievably egregious fraud after fraud after fraud, murderous frauds, you know, doing the money laundering for one of the most violent drug cartels in Mexico for an entire decade to the tune of over $1 billion–that was HSBC, one of the largest banks in the world, and not a U.S. bank, right? So, politically you would have thought that would have been the great opportunity to cut one down to size and say, you must shrink to the point that you no longer pose a systemic risk. They not only didn’t do that; they didn’t prosecute HSBC, they didn’t prosecute a single officer of HSBC, and they even refused to prosecute former officers of HSBC.
So Elizabeth Warren is actually more right than she knows. The circumstances are far worse than she posited.
DESVARIEUX: Bill, it’s always a pleasure having you on. Thank you for joining us.
BLACK: Thank you.
DESVARIEUX: And thank you for joining us on The Real News Network.
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