Moyers talks about the Great Bank Robbery of 2008-2009

[David Farber <dave () farber net>]

Begin forwarded message:

From: dewayne () warpspeed com (Dewayne Hendricks)
Date: April 5, 2009 10:39:42 AM EDT
To: Dewayne-Net Technology List <xyzzy () warpspeed com>
Subject: [Dewayne-Net] Moyers talks about the Great Bank Robbery of  
2008-2009

[Note:  This item comes from reader Randall.  Worth reading!  Even  
better, watch the video!  DLH]

From: Randall <rvh40 () insightbb com>
Date: April 4, 2009 8:22:35 PM PDT
To: johnmacsgroup () yahoogroups com, Dewayne Hendricks <dewayne () warpspeed com 
>
Subject: Moyers talks about the Great Bank Robbery of 2008-2009

[[BILL MOYERS: So, you're saying that people in power, political  
power, and financial power, act in concert when their own behinds are  
in the ringer, right?
WILLIAM K. BLACK: That's right. And it's particularly a crisis that  
brings this out, because then the class of the banker says, "You've  
got to keep the information away from the public or everything will  
collapse. If they understand how bad it is, they'll run for the  
exits."]]


<http://www.pbs.org/moyers/journal/04032009/transcript1.html>

BILL MOYERS: Welcome to the Journal.

For months now, revelations of the wholesale greed and blatant  
transgressions of Wall Street have reminded us that "The Best Way to  
Rob a Bank Is to Own One." In fact, the man you're about to meet wrote  
a book with just that title. It was based upon his experience as a  
tough regulator during one of the darkest chapters in our financial  
history: the savings and loan scandal in the late 1980s.

WILLIAM K. BLACK: These numbers as large as they are, vastly  
understate the problem of fraud.

BILL MOYERS: Bill Black was in New York this week for a conference at  
the John Jay College of Criminal Justice where scholars and  
journalists gathered to ask the question, "How do they get away with  
it?" Well, no one has asked that question more often than Bill Black.

The former Director of the Institute for Fraud Prevention now teaches  
Economics and Law at the University of Missouri, Kansas City. During  
the savings and loan crisis, it was Black who accused then-house  
speaker Jim Wright and five US Senators, including John Glenn and John  
McCain, of doing favors for the S&L's in exchange for contributions  
and other perks. The senators got off with a slap on the wrist, but so  
enraged was one of those bankers, Charles Keating — after whom the  
senate's so-called "Keating Five" were named — he sent a memo that  
read, in part, "get Black — kill him dead." Metaphorically, of course.  
Of course.

Now Black is focused on an even greater scandal, and he spares no one  
— not even the President he worked hard to elect, Barack Obama. But  
his main targets are the Wall Street barons, heirs of an earlier  
generation whose scandalous rip-offs of wealth back in the 1930s  
earned them comparison to Al Capone and the mob, and the nickname  
"banksters."

Bill Black, welcome to the Journal.

WILLIAM K. BLACK: Thank you.

BILL MOYERS: I was taken with your candor at the conference here in  
New York to hear you say that this crisis we're going through, this  
economic and financial meltdown is driven by fraud. What's your  
definition of fraud?

WILLIAM K. BLACK: Fraud is deceit. And the essence of fraud is, "I  
create trust in you, and then I betray that trust, and get you to give  
me something of value." And as a result, there's no more effective  
acid against trust than fraud, especially fraud by top elites, and  
that's what we have.

BILL MOYERS: In your book, you make it clear that calculated  
dishonesty by people in charge is at the heart of most large corporate  
failures and scandals, including, of course, the S&L, but is that  
true? Is that what you're saying here, that it was in the boardrooms  
and the CEO offices where this fraud began?

WILLIAM K. BLACK: Absolutely.

BILL MOYERS: How did they do it? What do you mean?

WILLIAM K. BLACK: Well, the way that you do it is to make really bad  
loans, because they pay better. Then you grow extremely rapidly, in  
other words, you're a Ponzi-like scheme. And the third thing you do is  
we call it leverage. That just means borrowing a lot of money, and the  
combination creates a situation where you have guaranteed record  
profits in the early years. That makes you rich, through the bonuses  
that modern executive compensation has produced. It also makes it  
inevitable that there's going to be a disaster down the road.

BILL MOYERS: So you're suggesting, saying that CEOs of some of these  
banks and mortgage firms in order to increase their own personal  
income, deliberately set out to make bad loans?

WILLIAM K. BLACK: Yes.

BILL MOYERS: How do they get away with it? I mean, what about their  
own checks and balances in the company? What about their accounting  
divisions?

WILLIAM K. BLACK: All of those checks and balances report to the CEO,  
so if the CEO goes bad, all of the checks and balances are easily  
overcome. And the art form is not simply to defeat those internal  
controls, but to suborn them, to turn them into your greatest allies.  
And the bonus programs are exactly how you do that.

BILL MOYERS: If I wanted to go looking for the parties to this, with a  
good bird dog, where would you send me?

WILLIAM K. BLACK: Well, that's exactly what hasn't happened. We  
haven't looked, all right? The Bush Administration essentially got rid  
of regulation, so if nobody was looking, you were able to do this with  
impunity and that's exactly what happened. Where would you look? You'd  
look at the specialty lenders. The lenders that did almost all of  
their work in the sub-prime and what's called Alt-A, liars' loans.

BILL MOYERS: Yeah. Liars' loans--

WILLIAM K. BLACK: Liars' loans.

BILL MOYERS: Why did they call them liars' loans?

WILLIAM K. BLACK: Because they were liars' loans.

BILL MOYERS: And they knew it?

WILLIAM K. BLACK: They knew it. They knew that they were frauds.

WILLIAM K. BLACK: Liars' loans mean that we don't check. You tell us  
what your income is. You tell us what your job is. You tell us what  
your assets are, and we agree to believe you. We won't check on any of  
those things. And by the way, you get a better deal if you inflate  
your income and your job history and your assets.

BILL MOYERS: You think they really said that to borrowers?

WILLIAM K. BLACK: We know that they said that to borrowers. In fact,  
they were also called, in the trade, ninja loans.

BILL MOYERS: Ninja?

WILLIAM K. BLACK: Yeah, because no income verification, no job  
verification, no asset verification.

BILL MOYERS: You're talking about significant American companies.

WILLIAM K. BLACK: Huge! One company produced as many losses as the  
entire Savings and Loan debacle.

BILL MOYERS: Which company?

WILLIAM K. BLACK: IndyMac specialized in making liars' loans. In 2006  
alone, it sold $80 billion dollars of liars' loans to other companies.  
$80 billion.

BILL MOYERS: And was this happening exclusively in this sub-prime  
mortgage business?

WILLIAM K. BLACK: No, and that's a big part of the story as well. Even  
prime loans began to have non-verification. Even Ronald Reagan, you  
know, said, "Trust, but verify." They just gutted the verification  
process. We know that will produce enormous fraud, under economic  
theory, criminology theory, and two thousand years of life experience.

BILL MOYERS: Is it possible that these complex instruments were  
deliberately created so swindlers could exploit them?

WILLIAM K. BLACK: Oh, absolutely. This stuff, the exotic stuff that  
you're talking about was created out of things like liars' loans, that  
were known to be extraordinarily bad. And now it was getting triple-A  
ratings. Now a triple-A rating is supposed to mean there is zero  
credit risk. So you take something that not only has significant, it  
has crushing risk. That's why it's toxic. And you create this fiction  
that it has zero risk. That itself, of course, is a fraudulent  
exercise. And again, there was nobody looking, during the Bush years.  
So finally, only a year ago, we started to have a Congressional  
investigation of some of these rating agencies, and it's scandalous  
what came out. What we know now is that the rating agencies never  
looked at a single loan file. When they finally did look, after the  
markets had completely collapsed, they found, and I'm quoting Fitch,  
the smallest of the rating agencies, "the results were disconcerting,  
in that there was the appearance of fraud in nearly every file we  
examined."

BILL MOYERS: So if your assumption is correct, your evidence is sound,  
the bank, the lending company, created a fraud. And the ratings agency  
that is supposed to test the value of these assets knowingly entered  
into the fraud. Both parties are committing fraud by intention.

WILLIAM K. BLACK: Right, and the investment banker that — we call it  
pooling — puts together these bad mortgages, these liars' loans, and  
creates the toxic waste of these derivatives. All of them do that. And  
then they sell it to the world and the world just thinks because it  
has a triple-A rating it must actually be safe. Well, instead, there  
are 60 and 80 percent losses on these things, because of course they,  
in reality, are toxic waste.

BILL MOYERS: You're describing what Bernie Madoff did to a limited  
number of people. But you're saying it's systemic, a systemic Ponzi  
scheme.

WILLIAM K. BLACK: Oh, Bernie was a piker. He doesn't even get into the  
front ranks of a Ponzi scheme...

BILL MOYERS: But you're saying our system became a Ponzi scheme.

WILLIAM K. BLACK: Our system...

BILL MOYERS: Our financial system...

WILLIAM K. BLACK: Became a Ponzi scheme. Everybody was buying a pig in  
the poke. But they were buying a pig in the poke with a pretty pink  
ribbon, and the pink ribbon said, "Triple-A."

BILL MOYERS: Is there a law against liars' loans?

WILLIAM K. BLACK: Not directly, but there, of course, many laws  
against fraud, and liars' loans are fraudulent.

BILL MOYERS: Because...

WILLIAM K. BLACK: Because they're not going to be repaid and because  
they had false representations. They involve deceit, which is the  
essence of fraud.

BILL MOYERS: Why is it so hard to prosecute? Why hasn't anyone been  
brought to justice over this?

WILLIAM K. BLACK: Because they didn't even begin to investigate the  
major lenders until the market had actually collapsed, which is  
completely contrary to what we did successfully in the Savings and  
Loan crisis, right? Even while the institutions were reporting they  
were the most profitable savings and loan in America, we knew they  
were frauds. And we were moving to close them down. Here, the Justice  
Department, even though it very appropriately warned, in 2004, that  
there was an epidemic...

BILL MOYERS: Who did?

WILLIAM K. BLACK: The FBI publicly warned, in September 2004 that  
there was an epidemic of mortgage fraud, that if it was allowed to  
continue it would produce a crisis at least as large as the Savings  
and Loan debacle. And that they were going to make sure that they  
didn't let that happen. So what goes wrong? After 9/11, the attacks,  
the Justice Department transfers 500 white-collar specialists in the  
FBI to national terrorism. Well, we can all understand that. But then,  
the Bush administration refused to replace the missing 500 agents. So  
even today, again, as you say, this crisis is 1000 times worse,  
perhaps, certainly 100 times worse, than the Savings and Loan crisis.  
There are one-fifth as many FBI agents as worked the Savings and Loan  
crisis.

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