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Inquiry Doesn’t Call Crisis Systemic Fraud

Michael Hudson: Financial Crisis Inquiry Report fails to call for criminal prosecutions against Wall Street

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PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay in Washington. And on Thursday in Washington, the Financial Crisis Inquiry Commission reported. Now joining us from Forest Hills, New York, to discuss this is Michael Hudson. Michael is a former Wall Street economist. He’s now a distinguished research professor at the University of Missouri – Kansas City. And he also runs a website called Michael-Hudson.com. Thanks for joining us, Michael.

MICHAEL HUDSON, RESEARCH PROF., UMKC: Thank you very much.

JAY: So, Michael, what do you make of this, the report?

HUDSON: It’s not surprising one bit and seems to put the blame on the past. It blames Alan Greenspan. He’s out of the picture. It blames Ben Bernanke. He’s still head of the Fed. It doesn’t blame Obama’s major campaign contributors for fraud. It doesn’t say, throw his campaign contributors in jail because they’ve organized a systemic financial fraud, as explained by my UMKC colleague William Black and is explained in the leaks that have come out in the last few days about how Bear Stearns people were packaging what they in their emails said was–this is shit, how do we sell them to others? They didn’t focus on what really caused the collapse, and that is companies like Bear Stearns packaging junk mortgages that they knew would go bad, selling them to their clients, insuring them through capital insurance companies like AIG, selling the insurance companies short, knowing that the frauds would get them. And then, after the defaults came on 80 percent of the fraudulent loans, they then asked for a reimbursement from the original originators, for the money back, pocketing the money, not passing it on to their clients, so their clients had to go to AIG and other companies, driving them bankrupt. They didn’t say that the whole process was one of crooks and that the crooks are the major contributors to the Obama campaign, and that these guys all should be thrown in jail.

JAY: Now, just a reference–you made a reference to Bill Black, and we’ve interviewed him many times. So if people want to see some of the more detailed drill-in to how this all took place, you can do a search for Bill Black’s name on our website and you’ll find our interviews. Now, the other side of the argument will be that they were operating within the law, that if the law allowed all these shenanigans, why shouldn’t they play it? So then the blame is on the lawmakers, not the shenanigan-doers.

HUDSON: This is what is wrong with the Angelides Commission. It wasn’t within the law. They were breaking the law. There are laws against fraud. There are laws against deceptive reporting. There are laws against cheating people. The laws were not supported. Then, if you don’t say that, then you pretend that it was all just an accident and you don’t learn a thing. If you don’t say that the financial sector has been criminalized, or as Black says, criminogenic, then you’re not going to get to the root of things. Nobody is expecting Attorney General Holder to actually prosecute any of these people for fraud. There are civil suits where none of the investment banks, whether it’s Citibank or Bank of America or the others, they all pay the penalties to the SEC or to other government agencies without admitting criminal fraud, so that the real victims, the clients, can’t sue them for triple damages. The fact is that all of these things were done as a racket. The definition of the racketeering laws, the RICO laws, for triple damages say that there has to be a predicate injury. The predicate injury is in organizing the fraud systemically. And what the banks did on Wall Street, the investment bankers worked with the crooked brokers, the crooked appraisers, the crooked ratings agencies, all to put together a fraud. They should pay triple damages. What did the administration do? It bailed out the banks for the fact that it lost some money on some of the people it tried to cheat. Some of the losers couldn’t pay their debts. This is like going after Las Vegas losers, bailing out Las Vegas when some of the whales come in, lose a bet, and can’t pay. The government says, well, we need Las Vegas to be the root of our financial system, so of course we have to bail out the casinos over there.

JAY: So what’s an example of something that qualifies as fraud, versus working within such loose regulations that you can get away with this without it being called criminal?

HUDSON: Well, let’s look at the regulations. New York state has a wonderful law on the book since colonial times, the law of fraudulent conveyance (fraudulent contains the word fraud). It defines a fraudulent loan as one in which a lender makes a loan to a debtor without any understanding of how the debtor can repay the loan in the normal course of business. That makes most of the subprime mortgage loans fraudulent. There’s no prosecution of this. Nobody’s even brought it up.

JAY: The–that’s actually fairly straightforward, that that would be criminal. Now, that’s common law? Or that’s a piece of legislation [inaudible]

HUDSON: That’s legislation [inaudible] when the states, the colonies, joined the Union, they kept the state laws on the books. And this law, fraudulent conveyance, was cited as recently as the 1980s during the junk bond takeover movement, when companies that were targets of corporate raiders bring up this and say, wait a minute, they’re loading us down with debt so that they can carve up the company, declare bankruptcy, cheat the laborers, the workers, employees out of their pensions. This is fraud. So of course it’s still on the books. When you have ratings agencies giving AAA as if who would have known that the material we were given was wrong? the fact is anybody in America can go onto the website, look at any address they want in the book for property values, and they can get an estimation of the property value for any address in the country. You have people’s income all–you can get your credit rating score publicly available. The credit rating agencies carefully avoided getting anybody’s credit rating score, carefully avoided checking on any property. They were complicit in this crime of wilful misrepresentation. Loans were made to whole buildings on empty blocks to fictitious individuals, all–. When you make a fictitious individual name, that’s fraud. I mean, that’s just obvious cheating, as anyone over the last few centuries would recognize, and there have been no prosecutions at all. That is multiplied by millions of millions of times. That’s why we have the financial breakdown we have today. The Angelides Commission did not go into this, nor did Mr. Obama mention this in his speech, that he’s going to direct Attorney General Holder to prosecute fraud, to throw enough fraudsters in jail to make sure that this doesn’t happen again. Instead, he said we have to cut payments to the real economy in order to bail out the fraudsters and give them even more, so they can make what they expected to make on the fraud.

JAY: Clearly, ’cause so much of the current deficit came from bailouts to Wall Street. Thanks very much for joining us, Michael.

HUDSON: Paul, thank you.

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

End of Transcript

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