Black: So many shoes to fall from this crisis it will be like Imelda Marcos closet after an earthquake


Story Transcript

PAUL JAY, SENIOR EDITOR, TRNN: Welcome back to The Real News Network. I’m Paul Jay in Washington, DC. And joining us now from Amherst, Massachusetts is William K. Black. He’s an associate professor of economics and Law at the University of Missouri-Kansas City. He’s a former financial regulator, has a doctorate in criminology and white-collar crime, and he’s the author of the book The Best Way to Rob a Bank Is to Own One. Thanks for joining us again, Bill.

WILLIAM K. BLACK, PROF. ECONOMICS AND LAW, UNIV. MISSOURI-KANSAS CITY: Thank you.

JAY: Let’s pick up on the last segment of the interview and talk about what might come next. So, first of all, describe the nature of the continuing problem in terms of the hiding of losses. And to what extent has this been covered up by throwing money at it, and that we’re going to see a bigger continuation of this crisis?

BLACK: It’s overwhelmingly been covered up not by throwing money at it, which means it’s still out there festering, but by simply refusing to acknowledge that the losses exist, by gimmicking the accounting rules, which, by the way, was done at the start of savings and loan crisis and helped turn that into a debacle. So one of the things we cleaned up as regulators in the savings and loan crisis was the accounting to stop these accounting scams. Well, instead of learning the right lessons from the prior crises, we’re doing just what Japan did, which is to cover up the losses. And that produced what is called the “lost decade” in Japan, but is really now the two lost decades, because markets can’t recover if you lie about asset quality. So that’s the fundamental thing we did, and it was from pure political power an intimidation of the accounting profession, and that’s an outrage.

JAY: We know under the Bush administration there was a major shift of resources within the FBI from white-collar crime to investigating potential terrorism. Has anything changed on the Obama administration?

BLACK: No, and that’s really disappointing, because one of the very good things that this at the time not particularly well-known senator from Illinois did was propose legislation to increase the number of FBI agents. That was of course Senator Obama of Illinois. So as president he could get this done without any new real legislation. Just, you know, he controls the Office of Management and Budget. We could put it in the budget, and then, you know, what Republican is going to vote against having more FBI agents? This is something that a year in hasn’t been improved. So if you look—this is really astonishing, but the numbers from the Justice Department show that it’s true. We have less than one-sixth the resources of FBI agents and prosecutors working this epidemic of fraud than we had working the savings and loan crisis. This crisis is at least 30 times greater than the savings and loan crisis, and we have less than one-sixth the resources. It’s no accident that there are not even indictments, much less convictions, of the senior insiders who drove these liars loans. We are doing nothing to deter future crises. We’re doing nothing to have accountability.

JAY: Now, what about the legislation that’s in front of Congress now? Is there anything there that would stop all this or undo all this?

BLACK: It’s not in the administration bill. That’s incredible, right? The administration bill. I mean, this is something that Senator Obama has gotten correct but President Obama has largely forgotten. It is being pushed right now by—Marcy Kaptur has a bill to hire a thousand FBI agents to work on white-collar crime. And I hope that your viewers will support that effort, you know, by indicating their support for the Kaptur bill. But remember, this is just one portion of this crisis. There are so many shoes yet to fall, it’s going to be like being in Imelda Marcos’s closet during an earthquake.

JAY: What do you make of the legislation before the various finance committees, Barnie Frank’s committee? Is there anything in the other kinds of financial regulations, that they’re talking about trying to stop proprietary trading, where Goldman Sachs type companies make their own direct investments, not just on behalf of clients? There was some talk of a regulation where banks would actually have to put the interests of their clients ahead of their own profit-making. I mean, does any of this look real or effective?

BLACK: There’s very little that has survived that’s meaningful in the administration bill. So we talked about the fact that there was nothing in it effective for criminal justice answer [sic]. The big thing that was in it was the consumer protection bill, and the Senate is seeking to make a mockery of that. The first—this is again this insanity of bipartisanship, as the Senate and the Obama administration view it. So the supposed bipartisan compromise was first to put the consumer protection bill in the Treasury—the Treasury, which hates consumers and loves bankers—and where it wouldn’t be an independent agency at all. Now, that lasted all of one day, not because it was a terrible substantive idea, but because the politics changed and the Republicans demanded the next day Treasury wasn’t bad enough for them They insisted that the agency—which would no longer be an agency; it’d just be a bureau—to be put within the Federal Reserve. You know, somebody there has really malicious sense of humor, ’cause this is such a sick joke, because the only entity in government that hates consumers and loves banks more than the Treasury is the Federal Reserve. So the idea that the Federal Reserve, which has always refused to protect consumers, would suddenly be the advocates for consumers would be hilarious if it weren’t so nasty.

JAY: Talk a bit about the role of the Republicans in this debate. They get to appear as if they’re the critics and not part of all of this.

BLACK: Well, yes, and here it’s brilliant: they get to appear to take credit for passing legislation to protect consumers—and, you know, some consumers might actually believe that and reward them with their votes, but everybody in the industry is laughing uproariously, thinking what a brilliant way to destroy consumer protection. And so the industry will reward all the people that propose and support this compromise with huge political contributions. It is the greatest win-win. Of course, it’s just completely terrible public policy and completely cynical.

JAY: Well, in the next segment of our interview, what would Bill Black say to Barack Obama if he ever asked? Please join us on The Real News Network with William Black.