Eric Holder is no darling of the Left

Here are two strong critques from the left of Eric Holder's term as Attorney General:

Financial frauds had a friend in Holder

By William K. Black

September 26, 2014 | Al Jazeera

URL: http://america.aljazeera.com/opinions/2014/9/eric-holder-resignationjusticefinancialcrisisfraud.html

Eric Holder was the worst Attorney General for the press in a generation. We deserve better.

By Trevor Timm 

September 26, 2014 | Freedom of the Press Foundation

URL: https://freedom.press/blog/2014/09/eric-holder-was-worst-attorney-general-press-generation-we-deserve-better

Black: Conservatives should back Glass-Steagall

My man Bill Black explains why real conservatives should support re-instituting Glass-Steagall.  Bottom line: if President Obama is against it, they ought to be for it!

Conservatives and Libertarians should Support the Return of Glass-Steagall

By William K. Black

July 21, 2013 | New Economic Perspectives

Glass-Steagall prevented a classic conflict of interest that we know frequently arises in the real world.  Commercial banks are subsidized through federal deposit insurance.  Most economists support providing deposit insurance to commercial banks for relatively smaller depositors.  I am not aware of any economists who support federal “deposit” insurance for the customers of investment banks or the creditors of non-financial businesses.

It violates core principles of conservatism and libertarianism to extend the federal subsidy provided to commercial banks via deposit insurance to allow that subsidy to extend to non-banking operations.  Absent Glass-Steagall, banks could purchase anything from an aluminum company to a fast food franchise and (indirectly) fund its acquisitions and operations with federally-subsidized deposits.  If you run an independent aluminum company or fast food franchise do you want to have to compete with a federally-subsidized rival?

Deposit insurance is a material federal subsidy, but it pales in comparison to the implicit federal subsidy we provide to systemically dangerous institutions (SDIs) (so-called “too big to fail” banks).  The SDIs are precisely the banks most likely to purchase non-commercial banks. The general creditors of SDIs are protected against all loss so they funds to SDIs at a substantially lower interest rate than smaller competitors.  The largest SDIs are commercial banks that get both the explicit subsidy of federal deposit insurance and the larger subsidy unique to SDIs.

No conservative or libertarian should want the SDIs to maintain their political and economic dominance.  The SDIs’ dominance comes about not due to their efficiency but their size and the size of their lobbying wallet and force that allows them to extort greater federal subsidies than their rivals.  If conservatives and libertarians have any uncertainty about their position on Glass-Steagall they should consider these facts: (1) President Obama opposes ending the SDIs, (2) has done nothing effective to end the large federal subsidy provided to the SDIs, and (3) opposes bringing back Glass-Steagall and removing the explicit federal subsidy to banks that indirectly provides a competitive advantage to their commercial affiliates.

Black: Lenders & appraisers hyper-inflated housing bubble

Once again, two-fisted ex-regulator Bill Black takes a baseball bat to the kneecaps of the myth that "stupidity" and "greed" were to blame for the mortgage crisis.  And if that doesn't work, let's blame it all on the FMs.

Fraud.  We don't say it, you certainly won't hear it in the mainstream media, but it's there, and it remains unpunished and undeterred.

Two Sentences That Explain the Crisis and How Easy It Was to Avoid

By William K. Black

July 9, 2013 | Huffington Post

URL: http://www.huffingtonpost.com/william-k-black/two-sentences-that-explai_b_3566112.html

Black: Fraud 'pervasive' at 'most reputable' banks

Bill Black has been vindicated by a new study of global financial institutions:

The central point we have been arguing for years is now admitted -- and treated as a universally known fact: "mortgage originators were told to do whatever it took to get loans approved, even if that meant deliberately altering data about borrower income and net worth." The crisis was driven by liar's loans. By 2006, half of all the loans called "subprime" were also liar's loans -- the categories are not mutually exclusive (Credit Suisse 2007). As I have explained on many occasions, we know that it was overwhelmingly lenders and their agents (the loan brokers) who put the lies in liar's loans.

The incidence of fraud in liar's loans was 90 percent (MARI 2006). Liar's loans are a superb "natural experiment" because no entity (and that includes Fannie and Freddie) was ever required to make or purchase liar's loans. Indeed, the government discouraged liar's loans (MARI 2006). By 2006, roughly 40% of all U.S. mortgages originated that year were liar's loans (45% in the U.K.). Liar's loans produce extreme "adverse selection" in home lending, which produces a "negative expected value" (in plain English -- making liar's home loans will produce severe losses). Only a firm engaged in control fraud would make liar's loans. The officers who control such a firm will walk away wealthy even as the lender fails. 

And let's repeat: not a single officer of a major bank has been prosecuted or gone to jail for control fraud. 

'Pervasive' Fraud by Our 'Most Reputable' Banks

By William K. Black

February 28, 2013 | Huffington Post

URL: http://www.huffingtonpost.com/william-k-black/mortgage-fraud_b_2780896.html

Bill Black: Loan fraud caused the Great Recession

Sorry, I hate to be that guy who keeps bringing up stuff that happened, like, six years ago, but getting the history right on the financial crisis that caused the Great Recession matters, 'cos this is gonna happen again.

I'm just going to quote two-fisted regulator Bill Black verbatim, because there is only so much condensing I can do:

The ultra brief version is (1) by 2006 roughly 40 percent of total mortgage loans originated were "liar's loans," (fyi, roughly half of all loans called "subprime" were also liar's loans -- the categories are not mutually exclusive, (2) the incidence of fraud among liar's loans is 90 percent, (3) an honest real estate lender would not make pervasively fraudulent loans because doing so would inevitably cause the firm to fail (absent a bailout), (4) liar's loans, however, are optimal "ammunition" for "accounting control fraud", (5) investigations (and logic) have confirmed that it was overwhelmingly lenders and their agents who put the lies in liar's loans, (6) no lender was ever required or encouraged by the government to make or purchase liar's loans -- the opposite was true, the government discouraged such loans and industry documents confirm this fact, (7) liar's loans make an excellent "natural experiment" because even Fannie and Freddie were not encouraged to make these loans -- because they did not aid them in meeting the "affordable housing goals", (8) Fannie and Freddie, eventually, purchased enormous amounts of liar's loans for the same reason that the investment banks (not subject to the CRA or any affordable housing goals did) they created massive (albeit fictional) short-term accounting income, which flowed through to the bonuses of many Fannie and Freddie executives. Let me put these data in another format -- by 2006, lenders were making over two million fraudulent liar's loans annually. Fraudulent liar's loans grew massively because lenders (and purchasers) created perverse incentives to make and purchase massive amounts of these fraudulent loans.

This level of fraud is massively greater than during the S&L debacle, where accounting control fraud never became a dominant national lending strategy. Liar's loans grew so rapidly, and became such a large share of the market that they constituted the loans "on the margin" that hyper-inflated the financial bubble, which drove the Great Recession.

A liar's loan, by the way, is a low-documentation or no-documentation home mortgage loan. This is not the same as a subprime loan, where the lender (usually a bank) knows the borrower has bad credit, sketchy employment history, etc., and therefore gives the borrower a higher rate of interest to compensate the lender for taking such a risk.  

So, the whole line that "lenders were greedy" during the housing bubble is only half true. Mobsters and bank robbers are also greedy, you could say. I'm greedy. You're greedy. Children are greedy with cookies and crayons. The difference is that robbers and banksters are also criminals. Financial fraud and lending fraud are crimes.

Besides the media and of course Wall Street actively covering up this fraud, Dubya and especially Obama deserve the most blame and contempt for referring zero fraud cases to the Justice Department for criminal prosecution. Sums up Black:

One of our mantras in white-collar criminology is: "if you don't look, you won't find." The Frontline documentary begins the process of explaining what those of us who are aware of what a real investigation is and what it requires have been saying for years -- neither the Bush nor the Obama administration has been willing to conduct a real investigation of the elite banksters whose frauds made them wealthy and drove the financial crisis and the Great Recession. This is one of the hallmarks of crony capitalism. It cripples our economy, our democracy, and our integrity.

[...] Any bank that is too big to fail and to prosecute is a clear and present danger that should be promptly shrunk to the point that it can no longer hold the global economy hostage in order to extort immunity from the criminal laws for the controlling officers who became wealthy by being what Akerlof and Romer aptly described as "looters."

The OCC's Tragic Response to the Frontline Expose: The Untouchables 

By William K. Black

January 26, 2013 | Huffington Post

URL: http://www.huffingtonpost.com/william-k-black/frontline-banking-crisis_b_2557146.html

Dems must fight any 'grand bargain' (aka austerity)

As Bill Black notes, it can only be Obama's "vanity" making him promise a "grand bargain" on spending and tax cuts if he is re-elected.  In fact, we are now in a classic period of debt-deflation, the only answer to which is more public spending.

Sadly, it sounds like Obama has swallowed the Republican Kool-Aid that we're facing a fiscal "crisis," and that something must be done now to dismantle or privatize Social Security, Medicare, SNAP and a host of federal agencies, or else somebody's grandchildren will have to pay higher taxes.  

(In fact, the CBO estimates that the Budget Control Act that the Right so desperately wanted will turn about 4.4 percent projected GDP growth in 2013 into a recession in 1H 2013 with measly 0.5 percent GDP growth for the year. Much like what is happening in Europe: see below).  

In other words, Obama seems to have embraced austerity, even though the U.S., which partially embraced fiscal stimulus, has been growing consistently since July 2009 (albeit slowly), and partly because of the stimulus and not despite it.  By contrast, the EU is sadly realizing that austerity has been self-defeating: in the EU, debt-to-GDP ratios are growing; GDP is shrinking; and unemployment is growing.

If you still don't understand how that could be so, read this:

Why is [the EU's] fiscal consolidation so much more damaging now? Under normal circumstances a tightening in fiscal policy would also lead to a relaxation in monetary policy. However, with interest rates already at exceptionally low levels, this is unlikely or infeasible. Moreover, during a downturn, when unemployment is high and job security low, a greater percentage of households and firms are likely to find themselves liquidity constrained. Finally, with all countries consolidating simultaneously, output in each country is reduced not just by fiscal consolidation domestically, but by that in other countries, because of trade. In the EU, such spillover effects are likely to be large.

[...] The result of coordinated fiscal consolidation is a rise in the debt-GDP ratio of approximately five percentage points.  

P.S. - This makes 2001 posts to my blog, all-time, not counting the shit I deleted. So cue Strauss's Sunrise!:  "Buuum-buuum-buuuuuuuuuuum BUM-BUM! Boom-boom boom-boom boom-boom boom-boom boom-boom boom-boom boom!"

Bill Black: Let's test Mitt's 47% myth

Two-fisted ex-regulator William Black is right, as usual, but there's a simpler, purely logical way to disprove Romney's secretly-taped admission of his true feelings about 47 percent of Americans.  Ask yourself: did the 47 percent suddenly get lazier?  Or did the economy suddenly get that much worse?  The answer is self-evident. 

Let's Test Romney's Claims About the 47% by Offering the Unemployed Jobs

By William K. Black

October 1, 2012 | Huffington Post

I have explained how Governor Romney and Representative Ryan have self-destructed because they have followed Charles Murray's demands that the wealthy denounce working class Americans' supposed refusal to take personal responsibility for their lives by refusing to work. Murray is the far right's leading intellectual. Murray's Myth is that the wealthy are rich because they are morally superior to the lazy poor and that the poor are not employed because they are lazy. Murray's explanation for his support for Governor Romney says it all: "Who better to be president of the greatest of all capitalist nations than a man who got rich by being a brilliant capitalist?"

Consider the missing aspect of Romney's famous denunciation of the 47% -- jobs. A careful reading shows that Romney implicitly embraced Murray's Myth.

There are 47 percent of the people who will vote for the president no matter what. All right, there are 47 percent who are with him, who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you-name-it.

That that's an entitlement. And the government should give it to them. And they will vote for this president no matter what...These are people who pay no income tax.

...

[M]y job is not to worry about those people. I'll never convince them they should take personal responsibility and care for their lives.

I propose that America test Murray, Romney and Ryan's claims about the supposed refusal of the 47% to take "personal responsibility." Romney says "I'll never convince them they should take personal responsibility and care for their lives." I think that Murray, Romney, and Ryan's claims that the 47% are unwilling to take personal responsibility are false. I think that the issue has nothing to do with Romney's persuasive abilities. I also know how to test the validity of their claims.

Even Romney knows that his claims about the 47% fail on many levels. First, many of the 47% vote for Republicans.

Second, Romney knows that many of the 47% are in no position to avoid being "dependent upon government." Tens of millions of the 47% are minor children. Tens of millions are elderly and retired. Millions are profoundly disabled -- hundreds of thousands of them injured veterans.

Third, the adult members of the 47% overwhelmingly took personal responsibility for their lives. They paid taxes -- income, social security, sales, and property and corporation taxes. (A word about tax "incidence" -- the people who actually bear the economic cost of a tax frequently differ from the entity that nominally pays the taxes. Economists generally believe that businesses pass on sales taxes to customers, landlords pass on property taxes to their renters, both the employer and employee portions of Social Security are borne by workers, and that corporations generally pass on corporate taxes to their customers in the form of higher prices.) These members of the 47 percent eventually became elderly, sick, disabled, or unemployed.

Fourth, hundreds of thousands of the 47% are "dependent upon government" because they took "personal responsibility" and cared for our lives at the risk of their lives and health. These are the veterans, police officers, and firefighters who were injured protecting the public, and the families of those who died protecting the public. These are the government employees who sacrificed their health or even their lives to protect us. The disabled former government employees are in fact victims, but they generally do not view themselves as victims. Those that die protecting us often leave minor children who are "dependent on government." Many of them will choose to follow in their deceased parent's path and protect us by routinely risking their lives and their health when they become adults.

In his rant against the 47%, Romney implicitly adopted Murray's claim that the unemployed lack jobs not because of the Great Recession, but because they are shiftless and refuse to work and take personal responsibility. (Romney and Ryan often make inconsistent claims that unemployment is caused by regulation, or taxes, or whatever is their complaint de jour against Obama.)

Testing Murray's Myth

We can test the claim that unemployment is high because the unemployed are shiftless. My colleagues at UMKC have detailed how to create a job guarantee program that offers a job to everyone who wishes to work. Our experience is that such jobs prove very attractive to the unemployed. A jobs guarantee program creates many winners. The public gains from the services provided by the newly employed. The unemployed gain not only income but far greater psychological well-being. The government gains greater tax revenue. Businesses see increased demand for their goods and services.

Americans overwhelmingly seek to take personal responsibility for their lives. Indeed, Americans work extraordinary hours. American mothers with young children frequently work outside the home. So let's put the vicious abuse that Murray urged the wealthy to heap on the purportedly shiftless unemployed a rest and actually test his claims through a job guarantee program.

I predict that the Republicans will fight ferociously to prevent us from testing the truth of their abuse of the poor. They cannot allow a test because they know they are slandering many millions of Americans. Their first nightmare is a job guarantee program that leads to television images of millions of Americans eagerly signing up to jobs. Murray's Myth would be destroyed in full public view. Their second nightmare is that the job guarantee would speed the recovery and provide useful projects and services that Americans would love. The slander is despicable, but the fact that they will do anything to prevent a test of Murray's Myth compounds the slander with a toxic mix of cowardice and hypocrisy.

Bill Black: Geithner dismisses fraud as cause of crisis

Too bad there are no Bill Blacks in today's Treasury or the SEC. 

Tim Geithner is still parroting the lie that "stupdity" mixed with "greed" caused the financial crisis.  Never mind that most of Geithner's alleged "stupids" are still in charge at their Too Bigger To Fail Wall Street banks, and whatever that portends for future crises....  What Black can't fathom is how Obama's regulators dismiss, a priori, the possibility of fraud as a cause of the crisis. 

After the S&L debacle, a much less costly financial crisis for America, Black was partly responsible for referring 1,100 cases of fraud to prosecutors.  800 people ended up in jail.  This time, not one senior executive has even been charged with a crime.  That's a crime in itself.

Geithner Channels Greenspan and Airbrushes Fraud out of our Crises

By Bill Black

May 2, 2012 | Capitalism Without Failure

URL:  http://www.capitalismwithoutfailure.com/2012/05/bill-black-geithner-channels-greenspan.html?source=Patrick.net#4597477945260832217

Black: Ireland and Iceland were models to follow?

Black asks if anybody cares to remember how Ireland and Iceland were trotted out by EU and US neo-liberals as great successes to follow in their deregulation, privatization of public assets, and budget cuts, particularly to the social safety net.

And yet budget surpluses and supply-side growth didn't save Iceland or Ireland from the financial crisis.

ECB President Trichet Praised Ireland as the Model for the EU to Follow
By William K. Black
June 7, 2011 | New Economic Perspectives

URL: http://neweconomicperspectives.blogspot.com/2011/06/ecb-president-trichet-praised-ireland.html

More heroic testimony from Rambo-regulator Bill Black

More amazing testimony from former bank regulator Bill Black. You can watch it here:

http://www.pbs.org/moyers/journal/04232010/watch.html

or read the following transcript:

Bill Moyers Journal

Interview with Bill Black

April 23, 2010

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.