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Bill Black and the Banksters, Heirs to Capone

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Bill Moyers’ interview with Bill Black, author of, The Best Way to Rob a Bank Is to Own One, is here. Jane Hamsher and Glenn Greenwald dealt with it earlier today. They also did the essential work of putting Mr. Black’s comments in the context of the massive taxpayer-funded bail-out.

These are interview highlights. Short versions of a few of Mr. Moyers’ questions are in bold, of Mr. Black’s answers are in normal typeface. [My comments are bracketed in italics]:

What’s Fraud, What’s an example?

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." …there’s no more effective acid against trust than fraud, especially fraud by top elites.

Big banks heavily promoted massive lending to unqualified borrowers. In fact, liars loans, where lenders never ask and don’t want to know about income or assets, were sold to qualified and unqualified borrowers alike.

[Mixing normally separate pools of assets with different risks, which allowed banks to charge higher prices both to those who didn’t have good credit and those who didn’t have time or good records.] One lender, Indy Mac, booked and securitized $80 billion in liars loans in 2006.

The heart of most large corporate frauds is in boardrooms and CEO offices?

Absolutely. For example, Wall Street made bad loans because they paid better. That permitted rapid, highly-compensated growth. The expense side of the ledger is that it involved using Ponzi-like schemes and lots of borrowed money, leverage. Record profits were guaranteed, as were future disasters.

Why didn’t elaborate checks and balances stop it?

Those who check and balance report to the CEO. Corrupt CEO’s corrupt the checks and balances. They don’t just sidestep them, they use them to advance the fraud, just as they did outside ratings agencies, whose AAA-ratings turned junk into gold.

How would I find the culprits?

You’d have to start looking. Bush never did. Barack Obama doesn’t want to start.

Were complex instruments deliberately used so that swindlers could exploit them?

Absolutely. By big institutions, not just Bernie Madoff. He was a piker.

Why is the fraud hard to follow with criminal prosecutions or civil suits?

Because no one was looking until last year. The FBI warned about the potential for massive fraud in 2004, even though it had only a fifth of the agents working on this as it had devoted to the 1980’s S&L scandal, which was tiny in comparison.

What was AIG’s role?

AIG sold hedges on bad loans. It charged a lot of money for this "insurance". Buyers paid it because it covered their knowing high-risk behavior. They hoped that would be the end of it. Thanks in part to lobbying by Summers and Rubin ten years ago, hedging is unregulated. There are no standards, no capital requirements. Rating agencies knew it. AIG made book with little capital to pay out winners. Its solution? To default on them all unless the US taxpayer bailed them out. They’re still doing it.

[AIG also sold bets to anyone. There was no requirement, as in a regulated insurance business, that the buyer have an interest in the underlying transaction. This free-for-all wildly enlarged the market and the potential for short-term profit taking. US taxpayers are bailing out parties to transactions and speculators alike.]

Why the disparate treatment between Big Auto and Big Banks?

The Beltway is closer to Big Banks. They both deal in paper, not machines. And because if the government actively looked at the lenders it is buying, like AIG, it would find massive fraud and bigger problems. It doesn’t want to find them. You can’t be blamed for failing to fix problems you don’t know about.

[As Glenn Greenwald pointed out, this exactly parallels Obama’s treatment of Bush’s felonious domestic spying and torture.]

Obama is helping to cover this up?

Yes. His response is bad policy, it lacks integrity and it violates the rule of law,

Why might he do it?

He’s scared to death of a collapse. His people, Summers and Geithner, are panicking because they don’t trust the public to act responsibly, even though the truth is out there.

What happens now?

Banks and players like AIG stay weak for a long time and it costs US taxpayers more money. We should stop hiding the losses. We should find out what they are and hire effective managers, not the current failures, to fix them. We should determine a way to re-introduce laws that will prevent them in future.

What keeps you going?

An old saying from when the Dutch were fighting for independence from Spain, the greatest continental European power of their day [and which might have been adopted by Eliot Ness]:

It is not necessary to hope in order to persevere.

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