Root cause of our current financial crisis

[David Farber <dave () farber net>]

Begin forwarded message:

From: Tobin Maginnis <ptm () pix cs olemiss edu>
Date: August 9, 2009 5:53:38 PM EDT
To: David Farber <dave () farber net>
Subject: Root cause of our current financial crisis

Hi Dave,

Have a nagging feeling that you cannot put your finger on the root  
cause of our current financial crisis? Well, here is a refreshing  
breeze of clarity.

It comes from William K. Black who is the former litigation director  
for the Federal Home Loan Bank Board during the S&L crisis and author  
of the book: The Best Way to Rob a Bank is to Own One: How Corporate  
Executives and Politicians Looted the S&L Industry, 2005.

Black explains the current economic crisis at its most basic level and  
that is simply - fraud. The fraud begins at the CEO-level where risky  
and more and more risky loan originations are pursued in the name of  
profits. Black invokes Gresham's law and uses the term "Control Fraud"  
to explain how CEOs use their companies as a weapons to "crowd out"  
ethical behavior.

The CEOs suborns CFOs and other executives through "performance  
bonuses" which results in loan officers originating ninja (no income,  
no job or assets) or outright lier loans. Then the CEOs captured the  
three rating agencies with overpaid fees so these toxic assets  
(fraudulent loans) could be packages by the shadow (investment)  
banking system. He provides this literal quote from one CEO demanding  
AAA rating without verification (the tapes).

"Any request for loan level tapes is TOTALLY UNREASONABLE!!! Most  
investors don't have it and can't provide it. [W]e MUST produce a  
credit estimate. It is your responsibility to provide those credit  
estimates and your responsibility to devise some method for doing so."

Black says that approximately 10% of the S&L CEOs were fraudulent; but  
today it appears that 30-50% of the bank CEO were engaged in some form  
of fraudulent banking. Individual banks such as Indymac and AIG have  
losses as great as the entire S&L industry fraud.

Well, the most of the fraud has stopped; not because of regulation,  
but because the bankers no longer trust one another. Meanwhile, it is  
clear the government has been captured by the banksters! The same CEOs  
are still holding their jobs; Paulson and Geithner have convinced  
President Obama to continue the cover up; secret payments to banks  
continue; and there is strong evidence of government intervention in  
the markets.

Today's banks are hiding a minimum $2 trillion in losses which is in  
addition to the $800 billion authorized in the Bush administration. If  
the banksters have their way, then taxpayers will eventually pay the  
missing $2 trillion in fraudulent loans.

But here is the thing I do not understand -- Why does nobody care? Why  
did we let something that was completely preventable happen? Why are  
we not for asking honest people to lead the Treasury and the Federal  
Reserve? Why are we not asking that the "Prompt Corrective Action" law  
mandating that ailing banks be put into receivership? Why are we not  
asking for the facts and just the facts?

Regards,
Tobin Maginnis

References:
BILL MOYERS JOURNAL | William K. Black | PBS
http://www.youtube.com/watch?v=Rz1b__MdtHY
http://en.wikipedia.org/wiki/Gresham's_law
http://en.wikipedia.org/wiki/Prompt_Corrective_Action_Law
http://www.huffingtonpost.com/william-k-black/the-two-documents-everyon_b_169813.html
http://www.chrismartenson.com/blog/fed-buys-last-weeks-treasury-auction/23880
http://pix.cs.olemiss.edu/econ/gUTMarketManipulation.pdf




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