Below is the text of the interview.
PBS Video: Bill Black with Bill Moyers -- April 23, 2010
On Thursday, April 22, President Barack Obama made the case for
increased regulation of the financial industry in a televised speech at
Cooper Union in New York City. It was widely billed as President
Obama's chance to harness the momentum behind reforming Wall Street and
move forward the bills being considered in the House and Senate. Those
measures face stiff opposition from most of the Republican Party and an army of lobbyists from Wall Street who
have the ear of members of Congress on both sides of the aisle.
William K. Black thinks President Obama didn't acknowledge a key
component in the financial crisis that the bills before Congress won't
address — fraud. A former regulator who helped crack down on massive
fraud during the savings and loan crisis in the 1980s, Black tells Bill
Moyers on THE JOURNAL that, despite evidence of fraud at the top banks,
prosecutions seem far away.
- "If you go back to the savings and loan debacle, we got more than a thousand felony convictions of the elite. These are not, you know, tellers or something. We today have zero convictions, zero indictments, zero arrests of any of the elite, non-prime lenders that, through their fraud, drove this crisis."
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BILL MOYERS: Welcome to the JOURNAL. We'll get to
two big battles in Washington in just a moment -- financial reform and
the future of the internet. But first, I want to thank those of you who
wrote after you heard me say last week that the JOURNAL will come to an
end with next Friday's broadcast. It's true, and all of us here were
touched by your messages of regret.
I will miss the virtual
community of kindred spirits that has grown up around this broadcast --
viewers like you, as we say, whose unseen but felt presence reminds me
of why I have kept at this work so long. But it has been a long time,
and that's why I can assure you that my departure is entirely voluntary.
Many of you wrote to say you were alarmed at the possibility that we
are being pushed off the air -- that higher ups or dark powers pointed
to the door and said, "Go."
You can relax; it didn't happen.
I'm leaving for one reason and one reason alone: it's time. Believe me,
it wasn't an easy decision: I like what I do, cherish my colleagues and
enjoy your company. But I'll be 76 in a few weeks, and there are some
things I want to do that the deadlines and demands of a weekly broadcast
make impossible. So for me, it's now or never. I informed public
television of my decision more than a year ago, intending to leave back
in December. But my colleagues at PBS asked me to extend the series four
more months to give them time to prepare a new public affairs series.
More on that next week.
Now to the big rumble of this week --
and I'm not talking about that volcano in Iceland. I'm talking about the
fight to reform our financial system.
PRESIDENT BARACK
OBAMA: There is no dividing line between Main Street and Wall
Street.
BILL MOYERS: You probably heard the President
speaking in New York yesterday, stumping for more regulation of Wall
Street:
You've also probably heard about the government's
charge that Goldman Sachs committed a highly sophisticated fraud. The
claim is that this kingpin of Wall Street made a bundle by packaging
mortgage debt as exotic investments some in the firm knew would fail.
That word "fraud" pops up more and more as we dig deeper into Wall
Street's outrageous behavior during the run up to the great collapse of
2008. We heard it right here on the Journal, one year ago.
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: That was Bill Black, who's no stranger
to bank investigations. He was a senior regulator for the Federal Home
Loan Board who cracked down on banking during the Savings & Loan
crisis of the 1980s.
Just this week, he was on Capitol Hill
testifying about another failed financial firm, Lehman Brothers.
WILLIAM
K. BLACK Lehman's failure is a story in large part of fraud.
And it is fraud that begins at the absolute latest in 2001.
BILL MOYERS: Bill Black is with me now. One of the
country's leading experts on crimes in high places he teaches economics
and law at the University of Missouri-Kansas City, and wrote this book,
THE BEST WAY TO ROB A BANK IS TO OWN ONE.
Welcome back to the
JOURNAL.
WILLIAM K. BLACK Thank you.
BILL MOYERS: What did you think of the President's
speech late this week?
WILLIAM K. BLACK It's
a good speech. He's a very good spokesman for his causes. I don't think
substantively the measures are going to prevent a future crisis. And I
was disappointed that he wasn't willing to be blunt. He used a number of
euphemisms, but he was unwilling to use the F word.
BILL MOYERS: The F word?
WILLIAM
K. BLACK The F word's fraud in this. And it's the word that
explains why we have these recurrent, intensifying crisis.
BILL MOYERS: How is that? What do you mean when you
say fraud is at the center of it?
WILLIAM K. BLACK
Well, first, when you deregulate or never regulate, mortgage bankers
were never regulated, you effectively have decriminalized that industry,
because only the regulators can serve as the sherpas, that the FBI and
the prosecutors need to be able to understand and prosecute these kind
of complex frauds. They can do one or two or maybe three on their own,
but when an entire industry is beset by wide scale fraud, you have to
have the regulators. And the regulators were the problem. They became a
self-fulfilling prophecy of failure, because they, President Bush
appointed people who hated regulation. I call them the anti-regulators.
And that's what they were.
BILL MOYERS: This hearing that, where you testified
this week, looking into the bankruptcy at Lehman Brothers, had something
on this.
TIMOTHY GEITHNER: And tragically,
when we saw firms manage themselves to the edge of failure, the
government had exceptionally limited authority to step in and to protect
the economy from those failures.
BEN BERNANKE:
In September 2008, no government agency had sufficient authority to
compel Lehman to operate in a safe and sound manner and in a way that
did not pose dangers to the broader financial system.
ANTON
VALUKAS: What is clear is that the regulators were not fully
engaged and did not direct Lehman to alter the conduct which we now know
in retrospect led to Lehman's ruin.
BILL MOYERS:The regulators were not fully engaged. I
mean, this is an old story. We all know about regulatory capture where
the regulated take control of the regulators.
WILLIAM K.
BLACK Yeah, but this one is far worse. That's not very candid
testimony on anybody's part there. The Fed had unique authority. And it
had it since 1994 to regulate every single mortgage lender in America.
And you might think the Fed would use that authority.
And you
might especially think that, if you knew that Gramlich, one of the Fed
members, went personally to Alan Greenspan and said, there's a housing
bubble. And there's a terrible crisis in non-prime. We need to send the
examiners in. We need to use our regulatory authority. And Greenspan
refused. Lehman was brought down primarily by selling liar's loans. It
was the biggest seller of liar's loans in the world.
And when
we look at these liar's loans, we find 90 percent fraud. 90 percent. And
we find that most of the frauds are not induced by the borrower, but
they're overwhelmingly done by the loan brokers.
BILL MOYERS: And liar's loans are?
WILLIAM
K. BLACK A liar's loan is we don't get any verified
information from you about your income, your employment, your job
history or your assets.
BILL MOYERS: You give me a loan, no questions asked?
WILLIAM K. BLACK No real questions asked.
Certainly no answers checked. In fact, we just had hearings last week
about WaMu, which is also a huge player--
BILL MOYERS: Washington Mutual--
WILLIAM
K. BLACK --in these frauds. Washington Mutual, which used to
make, run all those ads making fun of bankers who, because they were
stuffy and looked at loan quality before they made a loan. Well, WaMu
didn't do any of that stuff. And of course, WaMu had just massive
failures. And who got in trouble at WaMu? Who got in trouble at Lehman?
You got in trouble if you told the truth. They fired the people who
found the problems. They promoted the people that caused the problem,
and they gave them massive bonuses.
BILL MOYERS: I watched the testimony where you were
present the other day in the Lehman hearings. And there was a very
moving moment with a former vice-president of Lehman Brothers who had
gone and tried to blow the whistle, who tried to get people to pay
attention to what was going on. Take a look.
MATTHEW
LEE: I hand-delivered my letter to the four addressees and
I'll give a quick timeline of what happened, May 16th was a Friday, on
the Monday I sat down with the chief risk officer and discussed the
letter, on the Wednesday I sat down with the general counsel and the
head of internal audit, discussed the letter. On the Thursday I was on a
conference call to Brazil. Somebody came into my office, pulled me out,
and fired me on the spot with out any notification. I stayed, sorry.
BILL MOYERS: Matthew Lee, vice-president of Lehman
Brothers, fired because he tried to blow the whistle. What does that
say to you?
WILLIAM K. BLACK Well, it tells me
that they were covering up the frauds, that they knew about the frauds
and that they were desperate to prevent other people from learning.
BILL MOYERS: Matthew Lee told the accounting firm
Ernst & Young what was going on. Isn't the accounting firm supposed
to report this, once they learn from somebody like him that there's
fraud going on?
WILLIAM K. BLACK Yes, they're
supposed to be the most important gatekeeper. They're supposed to be
independent. They're supposed to be ultra-professional. But they have an
enormous problem, and it's compensation. And that is, the way you rise
to power within one of these big four accounting firms is by being a
rainmaker, bringing in the big clients.
And so, every single
one of these major frauds we call control frauds in the financial sphere
has been-- their weapon of choice has been accounting. And every single
one, for many years, was able to get what we call clean opinions from
one of the most prestigious audit firms in the world, while they were
massively fraudulent and deeply insolvent.
BILL MOYERS: I read an essay last night where you
describe what you call a criminogenic environment. What is a
criminogenic environment?
WILLIAM K. BLACK A
criminogenic environment is a steal from pathology, a pathogenic
environment, an environment that spreads disease. In this case, it's an
environment that spreads fraud. And there are two key elements. One we
talked about. If you don't regulate, you create a criminogenic
environment because you can get away with the frauds. The second is
compensation. And that has two elements. One is the executive
compensation that people have talked about that creates the perverse
incentives. But the second is for these professionals. And for the lower
level employees, to give the bonuses. And it creates what we call a
Gresham's dynamic. And that just means cheaters prosper. And when
cheaters prosper, markets become perverse and they drive honesty out of
the market.
BILL MOYERS:You also wrote that the New York Federal
Reserve knew about this so-called three-card monte routine. But that,
the man who led it, at the time, Timothy Geithner, now the treasury
secretary, testified that there was nothing he could do.
TIMOTHY
GEITHNER: In our system the Federal Reserve was a fire
station, a fire station with important, if limited, tools to put foam on
the runway, to provide liquidity to markets in extremis. However, the
Federal Reserve, under the laws of this land was not given any legal
authority to set or enforce limits on risk-taking by large financial
institutions like the independent investment banks, insurance companies
like AIG, Fannie and Freddie, or the hundreds of non-bank financial
firms that operated outside the constraints of the banking system.
BILL MOYERS:Now, what I hear is the gentleman who
was then chairman of the New York Fed, saying, I, we had this job to do,
but we didn't have the authority to do it.
WILLIAM K.
BLACK Yeah.
BILL MOYERS: We were the fire truck, but we didn't
have any water in our hose.
WILLIAM K. BLACK
Yeah, this was pretty disingenuous, because other portions of his
testimony, he explained why there was this gap. And he said it was
because we repealed Glass-Steagall. Well, the Fed pushed for the repeal
of Glass-Steagall.
BILL MOYERS: Glass-Steagall was the act that was
repealed in the late nineties that separated regular banks from
investment banks, right?
WILLIAM K. BLACK
Correct. So this is a deliberately created regulatory black hole,
created by the Fed. And then the Fed comes into the hearing, eight years
later, and said, we were helpless. Helpless to do anything, because of a
black hole we designed.
BILL MOYERS: Well, it doesn't stop there, because as
I listened the other day, I heard that the Securities and Exchange
Commission knew that Lehman was repeatedly ignoring its own risks, but
it did nothing. Here's what the new chairman of the SEC, Mary Schapiro,
had to say the other day, about why the commission fell down on the job.
Take a look.
MARY SCHAPIRO: The SEC didn't
have the staff, the resources, or quite honestly, in some ways, the
mindset to be a prudential regulator of the largest financial
institutions in the world. It was such a deviation from our historic
disclosure-based and rules-based approach to regulation to come in and
be a prudential supervisor. The staff was never given the resources.
This program peaked at 24 people for the entire universe of the five
largest investment banking firms in the world.
WILLIAM
K. BLACK Well, this is another example, the self-fulfilling
failure. This wasn't done under Mary Shapiro's watch.
BILL MOYERS: Right--
WILLIAM K.
BLACK This was Chris Cox, who was Bush's appointment. And he's
the one who decided, we're only going to send 24 people to deal with all
of the largest investment banks in the world. Now that's a farce. And
everybody knows it's a farce. He didn't want effective regulation. We
both spent time, considerable time, in Texas. And you know, the joke,
one riot, one ranger, right?
BILL MOYERS: Texas ranger, right.
WILLIAM
K. BLACK Treasury Secretary Geithner testified that in the
circumstances they were dealing with at Lehman, "We were on the brink of
the destruction of the entire global financial system." And then
Chairman Bernanke testified how many people the Fed sent to Lehman to
prevent us on the brink of global collapse.
BILL MOYERS: And how many?
WILLIAM
K. BLACK Two. They have a staff of thousands. This is criminal
negligence except, because he's a federal employee, we can't charge him
with a crime.
BILL MOYERS:Let's talk a moment about the
government's allegations against Goldman Sachs. I mean, I get dizzy just
reading about it. But the Wall Street Journal reporters did a terrific
job this week of trying to sort it out. And they say, "It centers on a
deal Goldman Sachs crafted, so that the hedge fund king, John Paulson,
could bet on a collapse in housing prices." Is that your reading of it?
WILLIAM
K. BLACK Yes, I mean, the complaint actually focuses on lying
to investors. So it's a very traditional securities fraud complaint.
BILL MOYERS: Not about Paulson, by the way. He's
not mentioned in the complaint.
WILLIAM K. BLACK
No, but that's really interesting. And as to whether he will be
mentioned eventually in this complaint, because Paulson has lots of
potential liability on this one. John Paulson was allowed by Goldman,
indeed encouraged by Goldman, to create a "Most Likely to Fail" list. So
he took, within a particular category, the absolute worst stuff,
because he wanted to bet that the stuff would fall in value. And they
were certain to fall in value in terms of the economics.
BILL MOYERS: Wasn't he betting that people wouldn't
be able to pay their mortgages?
WILLIAM K. BLACK
Not even necessarily that, because most of these are liar's loans,
again. And they will not pay, right? It's not an issue of liar's loans,
will it work or will it not work. It's only when will it blow up. A
liar's loan will blow up. If housing prices keep going up for three
years hugely, then they will blow up in the fourth year.
But
they will blow up. So he was betting against something that he knew was
going to blow up. He didn't necessarily know the timing, but he proved
to be right about the timing, because we know from the SEC complaint
that he was in a rush to get this. He knew that the housing collapse was
imminent. And he had to get this deal done right away. And Goldman
Sachs felt the same thing. So they went and they got themselves a dupe,
ACA. And they told the -- ACA is a group that puts together and
supposedly checks the quality of mortgages. Not very well, as it turned
out, of course. An investor would obviously want to know that this
portfolio was picked to fail. Instead, they were told, according to the
SEC complaint, "No, no, no, no. There's no John Paulson out there.
There's only ACA, and it's in your corner. And it's picking a portfolio
most likely to succeed." Now if John Paulson knew that Goldman was
making those representations, then John Paulson knew those
representations were false. And that could make him an aider and
abettor.
BILL MOYERS: So tell me where the fraud might be in
there, if the government proves its case.
WILLIAM K.
BLACK Well, the fraud is, I'm representing to you, the
potential investor, that a competent professional independent firm, ACA,
looking after your interests, has picked this portfolio because they
believe it's most likely to succeed. When in fact, the portfolio was
selected overwhelmingly by Paulson and was selected because it was
deliberately chosen to fail.
BILL MOYERS: The complaint names only one person,
Fabrice Tourre, if I get the name correct.
WILLIAM K.
BLACK That is correct.
BILL MOYERS: Who was 27 at the time. Would he have
been acting without supervision on a deal of that enormity?
WILLIAM
K. BLACK Oh, not even close. And this was-- this was part of a
package of about 18 deals as well. So as big as this package was, and
it was huge, the overall package was absolutely the type of thing that
received personal attention of the leaders, the absolute top leaders at
Goldman Sachs. So it's very curious to me that the SEC has failed to
name the higher-ups.
BILL MOYERS: Why did it take so long for the
Securities and Exchange Commission, the SEC, to kick into gear on this? I
mean, have they kicked into gear?
WILLIAM K. BLACK
Well, they haven't kicked into gear fully, or they'd be naming
Blankfein and other senior leaders of Goldman. And they've, as you just
mentioned, they've only gone after a junior person. And there would be,
if they were really in gear, there would be criminal charges here. And
if they were really in gear, there'd be a broad investigation, not just
of Goldman, but of all of these major entities.
In the last
three weeks, we have finally done a half-baked investigation, mind you.
Not -- nothing like we did in the Savings & Loan days -- of
Washington Mutual (WaMu), Citicorp, Lehman, and Goldman. And we have
found strong evidence of fraud at all four places.
And we have
looked previously at Fannie and Freddie and found the same thing. So the
only six places we've looked, at really elite institutions, we've found
strong evidence of fraud. So where are the other investigations? Why
are there no arrests? Why are there no convictions?
BILL MOYERS: Well, Bill, where are the other
investigations? Why have there been no arrests? Why have there been no
convictions?
WILLIAM K. BLACK Because we
have still Bush's wrecking crew in charge of the key regulatory
agencies. Why are they still in place? They have abysmal records as
major causes of this crisis.
BILL MOYERS: You talk about the Bush appointees
still being there, but Goldman's former lobbyist, his treasury
secretary, Timothy Geithner's chief of staff, the head of the Commodity
Futures Trading Commission, Gary Gensler, who may soon have new power
over derivatives, worked for Goldman.
So did the deputy
director of the White House National Economic Council, the under
Secretary of State is a former Goldman employee. Goldman's hired Barack
Obama's recent chief counsel from the White House on his defense team. I
mean--
WILLIAM K. BLACK Don't forget Rubin.
BILL MOYERS: Robert Rubin, whose influence is all
over the place, who used to be--
WILLIAM K. BLACK
It's his protégés that are in charge of economic policy, under Obama.
BILL MOYERS: So is this administration, which still
has some Bush holdovers in it, and now has a lot of Goldman people in
it, is this administration going to be able to pass judgment on Goldman
Sachs?
WILLIAM K. BLACK Well, so far, they
haven't been able to do it. They can't even get themselves to use the
word fraud.
There's a huge part that is economic ideology.
And neoclassical economists don't believe that fraud can exist. I mean,
they just flat out -- the leading textbook in corporate law from law and
economics perspective by Easterbrook and Fischel, says -- I'll get
pretty close to exact quotation. "A rule against fraud is neither
necessary nor particularly important." Right?
Notice how
extreme that statement is. We don't need laws. We don't need an FBI. We
don't need a justice department. We don't even need rules like the SEC.
The markets cleanse themselves automatically and prevent all frauds.
This is a spectacularly naïve thing. There is enormous ideological
content. And it fits with class. And it fits with political
contributions.
Do you want to look at these seemingly
respectable huge financial institutions, which are your leading
political contributors as crooks?
BILL MOYERS: TheHill.com website says Goldman Sachs
is uniquely positioned to fight this case, that it spent $18 million
over the last decade lobbying members of Congress, and put millions more
in their campaigns. I mean, you've said elsewhere. That's smart
business, right, to invest in the politicians who are going to be
investigating you?
WILLIAM K. BLACK I would
tell you, the Savings & Loan crisis, our phrase was, "The highest
return on assets is always a political contribution."
BILL MOYERS: Well, all right. You're a member of
Congress. The Supreme Court has said, "Goldman Sachs can spend all it
wants in November to defeat you." Are you going to take them on?
WILLIAM
K. BLACK Absolutely, but I would never be elected to Congress
because of that. So let me -- in terms of that Supreme Court decision,
if corporations are going to be just like people, let me tell you my
criminologist hat. Then let's use the three strike laws against them.
Three strike laws, you go to prison for life, if you have three
felonies. How many of these major corporations would still be allowed to
exist, if we were to use the three strike laws, given what they've been
convicted of in the past?
And in most states, they remove your
civil rights when you're convicted of a felony. Well, let's take away
their right to make political contributions that they're found guilty of
a violation.
BILL MOYERS: Bill, are you describing a political
culture, that is criminogenic?
WILLIAM K. BLACK
It's deeply criminogenic. And this ideology that both parties are
dominated by that says, "No, big corporations wouldn't cheat. Fraud
can't happen. Market's automatically excluded," is insane. We now have
the entitlement generation as CEOs. They just plain feel entitled to
being wealthy as Croesus with no responsibility, no accountability. They
have become literal sociopaths. So one of the things is, you clean up
business schools, which right now are fraud factories at the senior
levels, right?
They create the new monsters that take control
and destroy massive enterprises and cause global economic crises, cause
the great recession. And very, very close to causing the second Great
Depression. We just barely missed that. And there's no assurance that
we've missed it five years out.
BILL MOYERS:This brings us back to what the
president said this week. He said the crisis was born of a failure of
responsibility from Wall Street to Washington. You've just described
that. That brought down many of the world's largest financial firms and
nearly dragged our economy into a second Great Depression. But he didn't
name names. He doesn't say who specifically was responsible. You have.
But the president doesn't name names.
WILLIAM K. BLACK
No, and one of the most important things a president has is the bully
pulpit. We have not heard speeches by the president demanding that the
frauds go to prison. We have not heard speeches from the attorney
general of the United States of America, Eric Holder. Indeed, we haven't
heard anything. It's like Sherlock Holmes, the dog that didn't bark.
And that's the dog that is supposed to be our guard dog. It must bark.
And it must have teeth, not just bark.
BILL MOYERS: Bill Black, thank you for being back on
the Journal.
WILLIAM K. BLACK Thank you.
End Video Interview.
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