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Bill Black Pt 3/9 – The Best Way to Rob a Bank is to Own One

How does a corrupt mortgage scam by brokers in California become a massive national fraud that puts the whole economy into a deep crisis? Bill Black on theAnalysis.news with Paul Jay.

Transcript

Paul Jay

Hi, I’m Paul Jay. Welcome to theAnalysis.news. Please don’t forget there’s a podcast at the top of the webpage. If you’re on YouTube, you can hit subscribe and please share this story with everybody you know. This is part three of my series of interviews with Bill Black on what he calls control fraud, please watch the earlier parts as we’re picking up where we left off. The docu-series titled The Con breaks down what happened during the financial crisis of 07/08. Here’s another clip from the trailer of the film.

Excerpt from “The Con”

Addie Polk was specifically targeted for who she was because she was living in a poor area, she didn’t have any direct, you know, any direct descendants, she was widowed and she was a minority.

You can go in mostly poor minority neighborhoods and you would have people canvassing the neighborhood, knocking on doors, putting fliers in your mailbox. Say we can help you. We can get that roof fixed. We can get you new windows and sometimes they would have information on your house that you didn’t give them. They would just look up your house. That was commonplace.

“The weak, the meek, and the ignorant are our best targets.” Those are the words they put on paper to describe those folks. So, that has meant that the quintessential victim, if you wanted a single face, that face would be of an elderly black woman. That’s the quintessential victim of predation in the financial sphere.

Keep in mind, when you had all of these little mortgage companies, these people had to find their victims because they had to keep things going into the pipeline. They had to keep up a certain number. It started in the inner city, but like anything else, when it was getting good and the money was, then it branched out and everybody became fair game. This is why we have to stop seeing each other by color, because if it starts over there, it’s going to come over here sooner or later and so as a result, it’s now a national problem because everybody knows somebody who lost their home.

The system said that the poor and minorities are disposable. The system says that that was simply the cost of doing business. The mortgage company said after Addie shot herself we’ll forgive the loan. You should have never made the loan. You should never have made the loan. We’ll forgive the loan, but she shot herself already. People can say all lives matter. I say black lives matter not because white lives don’t matter, but because traditionally when something like this occur, no one comes to help. Black Lives Matter, Addie Polk matters, and anyone else who has lost their home, who have lost their life, they matter. I hope, I pray that we can come to some sort of common ground. That people need protection from those who are seeking to make profit. People need protection.

Paul Jay

Now joining us to discuss the history and present state of control fraud is Bill Black, who’s in the film The Con and was an adviser to its producers. Bill is an American lawyer, an academic, an author, and a former bank regulator with expertise in white-collar crime and public finance, and other topics in law and economics. As I mentioned, he’s the author of the book The Best Way to Rob a Bank is to Own One, and he’s an associate professor in economics and law at the University of Missouri, Kansas City. Thanks for joining us again, Bill.

Bill Black

Thank you.

Paul Jay

So Addie Polk wasn’t just victimized by some local mortgage brokers. By the time she’s affected this business model has become a business model directed by the senior executives of most of the largest financial institutions on Wall Street. So how do we get from local corrupt mortgage brokers in California, Orange County, to a massive national fraud that puts the whole economy into deep crisis?

Bill Black

That is the great story and the story that has been missed almost entirely about the nature of the con. So super quick reprise of the second phase of the Savings and Loan debacle uses commercial real estate loans. So it’s not predating upon poor black and Latinx folks. It’s mostly going after white guys. By 1990 the new variant of the fraud arises, same basic accounting scam, appraisal fraud added in, but come some new elements. The new elements are the ammunition they’re using for the fraud is no longer big $100 million commercial real estate loans. It’s your home, it’s the loan on your home, and they’re targeting blacks and Latinx households and they’re doing it through loan brokers who they’ve given the absolute worst incentives. Now, in 1990, this is occurring only in Orange County and only in savings and loan. So it’s a tiny little thing and it’s never been seen before, but our examiners, even though it’s completely novel, like Covid, get it right and they get it right right away. They go to and they go, look, we know you’re overwhelmed dealing with this massive fraud scheme with the commercial real estate because California is one of the epicenters, but you’ve got to take some people and take them away from that incredible crisis and reallocate them to this new problem. You’ve got to stamp it out before it becomes a second epidemic of disaster. The bosses at San Francisco, I was one of them, but Mike Petrarca, who was the big boss, so he gets certainly the deserved credit, said, yes, that’s what we’ll do. So from 1990 to 1993, we deliberately drove this new fraud plus predation plus loan broker scheme out of the savings and loan industry entirely such that by 1993 there was only one savings and loan in the nation doing this kind of fraud plus predation scheme, and that was called Long Beach.

Paul Jay

Let me just add one little thing for people that haven’t watched the other episodes at any rate. A quick definition of predation.

Bill Black

OK, so predation in this context means that you’re deceiving people to massively overpay for homes and interest rates that you wouldn’t do to normal people under market terms. This is targeted overwhelmingly at blacks and Latinx folks. So it has a discriminatory.

Paul Jay

And the motivation for someone to sign this is they probably wouldn’t otherwise qualify for the law.

Bill Black

The transaction wouldn’t qualify. It’s not even so much they that’s the focus on the borrower, but this is a multiple fraud scheme, right? One fraud scheme is the appraisal. So they’re extorting when I say the banks are incentivizing the loan brokers to extort the appraisers, to dramatically inflate the value of the home. Now, the bigger the home value that means you can approve transactions you would otherwise not approve, but also the bigger the value, the bigger the fee in terms of the home price, and so this makes sense for all the thieves to inflate the appraisals. It also makes the home look safer and that’s part of the art of the fraud scheme, making a loan that is almost certain to fail, look incredibly safe. So if I inflate the appraisal, it looks like, wow, that’s a real deal, That home is worth four hundred thousand and they only borrowed three hundred and eighty thousand on it. It must be safe.

Paul Jay

But what’s the motivation for the borrower? They must know that this house is way appraised, way higher than their neighbors.

Bill Black

No. Again, the reason you target vulnerable people is that they’re far less likely to understand what the true market value of their home is. Who of us goes and knows there’s an extortion racket by bankers to inflate the value of homes by extorting appraisers and blackballing them, if they’re honest? That wasn’t in the papers anywhere, which of us would have thought? Because we would think it’s crazy, right? Why would a lender? A lender’s great protection against loss is an honest appraisal because these are secured loans secured by the true market value of the home, not whatever the appraiser says. So an honest banker would want a very conservative appraisal not to massively inflate it. So no, normal people don’t think in this way at all. Normal folks and the people that are first-time home buyers they’re the least likely to be able to go, wait a minute, this home is massively overvalued.

So that’s one of the two kinds of frauds, the other key underwriting fraud. Again, this is novel in 1990, and so the industry didn’t yet call it by the name that the industry would soon adopt behind closed doors, they called them “liars loans”. So people have heard that term and they assumed the borrower must be the liar. Right? No. The loan broker knows the magic ratios that you have to hit to get the loan approved. The loan broker knows the magic ratios and I mean debt to income type ratios that also get you a bigger bonus – kickback paid by the bank – and those are kept secret on a term sheet that by contract, can’t be shown to the borrower. Not that the broker wanted to show and inform the borrower in any event. So the lies are put and this is confirmed by the state investigators. It’s the lenders and their agents who put the lies in liars loans. Now, what’s a liar’s loan? It’s where you don’t verify the borrower’s income and it is super simple to verify a borrower’s income even if they’re self-employed, because the United States for decades precisely to make this easy, allows banks to get an agreement under which we authorize the bank to get what’s called a transcript of our taxes, and that just means an easily machine-readable. So for next to no bucks with virtually no delay, and they can charge us a fee if they want to, the bank can get exactly how much income we reported on our tax returns. Here’s a key thing. How many of us inflate our income deliberately on our income tax returns? Not too many for obvious reasons, so it’s a super reliable thing. So it’s absolute BS that liar’s loans were developed for self-employed people, that where you couldn’t verify their income. That is a total lie about all of this.

So these two fraud mechanisms are employed typically simultaneously by the loan broker, and again, if I inflate the borrower’s income and if we go forward in time, there will eventually be statistics on this, the average, inflation was 60 percent or more of the borrower’s income..

Paul Jay

That’s crazy.

Bill Black

No, it’s not crazy because it makes the loan look safer.

Paul Jay

All right. Let me remind people of something you told me about four times until it really sunk in my head because everyone’s thinking, well, why would the banks do this? And your answer was, don’t think banks think the individual scooping up the fees because they don’t mind screwing their own banks.

Bill Black

Oh, no, indeed the famous article by two Nobel laureates in economics is “Looting the Economic Underworld of Bankruptcy for Profit”. You bankrupt your bank as the CEO and it makes you a ton of money. If you want, I can explain why that works and why trying to do it by making good loans doesn’t work as a sure thing. You want that, OK?

Paul Jay

Yeah, sure. Let me just remind people about the title of your book. The Best Way to Rob a Bank is To Own One. Go ahead.

Bill Black

OK, so consider the counterfactual, what if we tried to do the same scam but by making good loans instead of incredibly crappy loans? How many people who have incredibly good credit are unable to borrow money in America? Yeah, comes pretty close to zero.

Paul Jay

OK, pretty close.

Bill Black

So if I want to expand, remember the formula, the recipe, as we called it, this fraud recipe. The first element is grow like crazy, which means typically 50 percent or beyond, right? Literally, there were 300 fraudulent savings and loans growing at a minimum 50 percent annually. Now, the rule of thumb in the industry is 25 percent growth and you die. To give you an idea of how insane this is. Now everybody from Covid understands exponential, right? If you’re growing 50 percent annually, it’s not linear. It goes like a hockey stick up incredibly. Everybody got the hockey stick, even the non-Canadians and non-Michiganders like me. So I want to grow really, really fast, over 50 percent annually. How do I get good loans, say I’m making 500,000 loans and I want to grow 50 percent, I can make 750,000 loans, but I’m trying in this theory to make them good loans, but there aren’t these other 250,000 people who have great credit quality and everything else who have any difficulty getting loans. So what do I have to do? I have to buy market share, as they call it, in business. I have to reduce my price. The interest rate that I charge, is that a very good way of maximizing profits, not so much. Cut your price. But worse, what happens? What will my competitors do? They’ll do the same thing so they don’t lose their best customers. So at the end of the day, is this a great fraud strategy? No, all of us lose money under this strategy. Conversely, I can grow 50 percent a year because there are tons of people, millions, tens of millions of people in a country the size of America that cannot repay their loans. I can charge them a premium rate of interest because they can’t get loans as easily and because statistically, they’re likely to be less financially sophisticated than other people who already own homes and have much higher incomes and all those types of things.

So this is a great thing. As Akerlof and Romer, the two Nobel laureates agreed in this paper on looting. This kind of fraud is a sure thing, and you deliberately make terrible loans that you know, are going to bankrupt the bank, but you, the CEO, are going to walk away wealthy and hundreds of thousands of others are going to walk away wealthy. All the loan brokers, all the officers along the way with that $2 trillion in fees generated by these scams. So that’s why we’re we’re still doing that basic looting strategy when we move from using commercial real estate to using your home, but now we’re going to add this element of predation to the problem. So target them, we drive them out of the industry, and then we get the second greatest compliment of my career.

Paul Jay

All right, hold on, We meaning you, the regulators.

Bill Black

So I happened through weird stuff. I was out in San Francisco as the head of enforcement and litigation for the West Region of the Office of Thrift Supervision and we’re based in San Francisco and we have jurisdiction over Orange County. So I end up Zelig-like right in this thing. So I’m in charge of driving these folks out of the industry and we do. So by the end of around middle to end of 1993, there’s only one left and it’s called Long Beach Savings. Now, as I said, I got these two great professional compliments. One was that Keating the worst fraud of the second stage of the debacle, the one that we’ve described in other things, demanded that I not be allowed to come to meetings because he so feared me.

Paul Jay

Keating the guy who is the head of the bank you’re talking about.

Bill Black

No Lincoln Savings. That’s the one with the five U.S. senators and that’s still commercial real estate type stuff.

Paul Jay

Everyone should watch part two and they’ll get the whole story.

Bill Black

So this second compliment comes from the even bigger sleazes that will turn out in history, though we didn’t know it at the time, he was pissant-type and his name was Roland Arnall and he decided he couldn’t beat us, he couldn’t buy us off, he couldn’t bully us, he couldn’t politically bury us.  So he voluntarily decided in 1994 to give up federal deposit insurance, convert his savings and loan, which we had jurisdiction over, into an unregulated mortgage bank that would be in what will soon be called the shadow financial sector because it was not subject to any meaningful regulation. So, again, he gave up federal deposit insurance for the sole purpose of escaping us, because, without federal deposit insurance we had no jurisdiction over him. Now we make a referral to the Department of Justice as he’s leaving because the Department of Justice still has jurisdiction over the anti-discrimination laws and he’s predating on blacks and Latinx folks, but in 1994, he leaves, he converts to a mortgage bank. He goes to the shadows to escape all regulation. Think of it as a sanctuary. Like allegedly Cambodia was in the Vietnam War and such, where they could amass these troops and he becomes the Johnny Rotten Appleseed of America. That for the next 12 years spreads like a vector like a mosquito spreads malaria throughout all the industry, not just the little pissant industry, but the most sophisticated largest banks in the world. Indeed, ultra-conservative economists, including UChicago economists, describe this, and I swear that what I’m about to say is not irony. They are finance profs, they’re incapable of irony. Their conclusion is there was a substantial amount of fraud at the most reputable U.S. banks. So even when you find substantial fraud, you call them reputable.

Paul Jay

And the poison seed here is the model of shadow banking to get outside of regulation?

Bill Black

Well, this is in our type of jargon we call this creating a criminogenic environment, and that’s a direct steal from science when we talk about pathogenic environments. If you destroy all the sewer systems and foul all the water and such as opposing armies did. Throw dead animals in the wells and things like that, you will make everyone sick or dead who drinks from the well. That’s what a vector does in this kind of environment. It just spreads at epidemic-type levels. That’s what Ameriquest did. It spread this all through originally the shadow [banking system], but then it spread back in, once people like me had left,  into the regulated industry, even where there was deposit insurance. So it reconquered the regulated world once they effectively destroyed regulation. Which is occurring around the same time-period, right? People need to recall that Bill Clinton was, even more than Bush one or Bush two, the great destroyer of financial regulation in the United States of America. That was through the reinventing government mantra in which they ended these kinds of prosecutions. So this is Roland Arnall now who becomes this, as I said, the chief looter of America, and nobody’s doing anything to him. Now, part of it is nobody’s doing anything to him because he’s in the shadow financial sector, but it’s not entirely true because, as I said, we made a referral to the Department of Justice because of the discriminatory lending, the predation against blacks and Latinx and the Justice Department had jurisdiction over that, even though the institution didn’t have deposit insurance.

So they brought a case, and that case was settled, which, is the way of the Department of Justice, and the prosecutor of that case, the senior guy a few years later becomes governor of Massachusetts: Deval Patrick. Not incidentally, he’s black, and not incidentally, he becomes the leading defender of Ameriquest and Roland Arnall, and they buy off some public interest groups as well with contributions and such, and so Ameriquest became famous for its ads. They won all kinds of awards for the ads. Some of them were quite clever. They had two blimps. They owned the Super Bowl halftime show in one of the years and such and they made fun of people who underwrote loans properly like they were old fuddy-duddies type of thing. They became the biggest and the baddest. They grew about 50 percent a year for roughly 12 years, with no one doing anything effective to them, in part with Deval Patrick covering their flanks against their discrimination.

Paul Jay

Who owned it?

Bill Black

Roland Arnall was the primary owner. There’s a wonderful book. If people want to read it, I highly recommend it. The Monster (The Monster: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America – and Spawned a Global Crisis), and it goes through many of the details and many of them are quite gory along the way.

Paul Jay

I was just going to ask did some of the large financial institutions have any ownership stake.

Bill Black

Oh, but of course, but Ameriquest, for example, again, that’s what they changed its name, was famous for its “art department.” The “art department” was, God help me,” I love the smell of napalm in the morning”. Well, for them it was white out. So the “art department” was where they would take the statements, the loan applications that borrowers had filled out honestly and they white out the information and put in false information to be able to get the loan approved and a higher fee. So, yes, it was tied in immediately with oh, let’s see, well, this guy named Michael Milken.

Paul Jay

Haha. A lot of people may not remember or know who Milken is. So quick.

Bill Black

So Michael Milken was the junk bond king, pardoned, of course, by President Trump for a whole series of felonies. He in particular had a stable of captive savings and loans and insurance companies that he used to manipulate price. He effectively ran, though, he never had the title, Drexel Burnham Lambert. Drexel Burnham Lambert was successfully sued and prosecuted by the Department of Justice, but there was a diaspora of the Drexel personnel and wherever they went became a new vector that spread fraud throughout the system. So, yes, Ameriquest, all the biggies tended to buy from Ameriquest huge amounts. Again, it became the largest purveyor, originator of fraudulent loans, specializing in liar’s loans and appraisal fraud that I’ve just described.

Paul Jay

OK, now you just said something which I think is the beginning of the next phase. You say the financial institutions are buying from Ameriquest. So what’s that all about? What are they buying? Why would they buy these things?

Bill Black

OK, so this is again, one of the leading myths about the crisis, that it’s just all about the secondary market. That because you could sell your crappy mortgage to what was called the secondary market, which essentially means Wall Street, you didn’t care about quality, but that doesn’t make any sense at all. You’re selling to the most financially sophisticated people in the world who are going to end up with the losses. You think they can’t figure out that if you have no skin in the game, maybe you might be tempted to do bad things? You think they don’t know about liar’s loans, about appraisal fraud? They were heavily involved themselves. They knew all of those things. The focus, again, as you said, I said it maybe six times, I’ll say it’s another six: never focus on the bank or the corporation, focus on what happens to the banker. From the standpoint of the banker simultaneously, the bankers who were selling the crappy mortgages in the secondary market and the bankers who were buying the crappy mortgages in the secondary market, they both got fees, huge fees. So it was the financial version of don’t ask, don’t tell in all of this. So no the secondary market is not essential to this crisis. The first phase of the savings loan debacle had virtually no sales to the secondary market. Ireland actually ended up with a bubble that relative to GDP, was twice as big – a real estate bubble – that was twice as big as the United States bubble and there were virtually no sales to the secondary market. This is not a necessary element.

Paul Jay

All right. Just really fast. Secondary market means a financial institution on Wall Street buys a whack of these toxic crappy mortgages and then sells it to some pension fund and they get fees in every direction.

Bill Black

Yeah. So usually what happens is they buy and they aggregate. So instead of a bunch of single mortgages, they create a mortgage-backed security (MBS) and that MBS might be backed by the cash flow from 3,000 sometimes 10,000 mortgages. So they would then sell the MBS and then there’s another stage. I’m sorry, I know it’s not super simple, but they would sell the MBS and they would “ag” to somebody else who would aggregate the MBS and create something called a collateralized debt obligation (CDO). Sometimes they would do second and third tranches of those things. Not just tranches, but, CDO-squared, CDO-cubed, and such. You can keep this charade going is the point as long as you can defer the losses, and that’s where I actually left off, if I recall, I was starting to explain the only poetic phrase out of the great financial crisis and the savings and loan debacle. It’s a real saying from the trade: “A rolling loan gathers no loss.” To roll a loan is to refinance a loan, and that’s the key. You’re making crappy loans. Well, what’s the obvious problem with that? They’re going to default. So you want to make the defaults occur much later. How do you do that? You simply refinance the loan, charge new fees, extend even more money. Use the new money to pay off the old money. It’s a variant of a Ponzi scheme at this point.

Paul Jay

I was about to say this is a classic Ponzi scheme. It’s more like when we started part one I talked about the scheme and Moldova, where three banks played this game and some people actually went to jail at the end of it. Nobody ever went to jail here, but it’s the same kind of Ponzi scheme.

Bill Black

That’s the interesting thing because at the very time that this new phase, the third phase of the savings loan debacle, which is this Orange County predation + liar’s loan + appraisal fraud scheme people are already going to prison, while Ameriquest is doing, Long Beach, is doing its things, Rolland Arnall is doing these things, over a thousand executives get convicted and hyper-prioritized. CEOs are going to prison during this thing.

Paul Jay

So why didn’t this dissuade the next generation of fraudsters?

Bill Black

Because they could move to the shadow. Again, these prosecutions are only going to be effective if the regulators make the criminal referral, is Ameriquest going to make a criminal referral against Roland Arnall? I don’t think so. So who’s going to do it? There is no federal regulator in the shadow. There are virtually no state regulators, certainly none meaningful for most of the time in the shadow. Again, conventional economists said the shadow was the ideal sector because it wasn’t besmirched by deposit insurance, and for conventional economists, the great Satan in finance is federal deposit insurance because it supposedly eliminates effective private market discipline.

Paul Jay

Lots of that.

Well, obviously, they’re not disciplining their funding, and they’re funding not a little, they’re funding to the tune of trillions of dollars, and not just that to the tune of trillions in fees off of all of this. So that’s what’s going on, and then I’ll show you the key in how incredibly different it had changed. So Rolan Arnall in our era would have gone to prison.

Paul Jay

Meaning when the regulators are going after SNL.

Bill Black

Right. So in the late 1980s, early 1990s, Roland Arnall would have ended up in prison if he’d continued in the regulated sphere. Here’s what happened instead. First, I got to describe this. It isn’t simply that the federal government didn’t act against the Roland Arnall’s of the world. They actually competed and it was called “a competition in laxity” between the regulatory agencies. Conventional economists thought that was a great thing because regulation is the Great Satan again, anything by the government. So anything that weakens regulation must be good. The first part is obvious, right? How do you have the competition and laxity? You’ve got your rules, your own federal rules, but then they got clever. So the Office of the Comptroller of the Currency and the Office of Thrift Supervision competed for who could most aggressively preempt state investigations and prosecutions. So in the United States, we have this doctrine called preemption, where the federal government can exclude and overwhelm state law in lots of circumstances. Both of the federal regulators said come to our regulatory agency, be a member of our agency, be regulated by us – nothing real is going to happen – and we will not only not regulate you ourselves, we’ll make sure the damn states can’t look at you. They extended this so aggressively that they actually argued – they lost some of this in the Supreme Court – that you shouldn’t, as a state AG (attorney general),  be allowed to even investigate and document frauds by places like Ameriquest.

Paul Jay

This is coming from Congress.

Bill Black

No. This is coming from the two federal regulatory agencies. So let me back up to still another thing. Why this insane competition? Well, some of it is laissez-faire insanity from the people running the agencies, but some of it is just downright preservation. To save money, which is insane we don’t fund the office of the Comptroller of the Currency, and when there was such a thing, the Office of Thrift Supervision through federal tax dollars, we fund them through assessments on the industry members. Well, that sounds good, right? That sounds progressive, but what happens if we put into receivership the biggest places we regulate. We lose all our income because our income comes from fees paid by the industry that we regulate and only by those and they don’t have to stay with our agency, they can go freely, switch between these agencies. So if you do your job properly and put the frauds into receivership, you’re firing yourself. How’s that for an incentive system.

Paul Jay

That’s by design.

Bill Black

That’s by design. So, you had this insanity of, well, to preserve our jobs, we’re not only not going to do our jobs, but we’re going to make sure the damn states can’t do their jobs.

Paul Jay

What year are we in?

Bill Black

So 2000-ish is when it starts really ramping up to an incredible extent. So by again, 1994-2000, growing 50 percent a year is Ameriquest, and again, we’re starting to get real close to the hockey stick part. It’s going to shoot the hell up and it’s going to become the biggest fraudulent lender in the world. It’s a place that most people have never even heard about. So that’s the backdrop on that.

Paul Jay

While all this is going on there, there is such a thing called Congress. There are supposedly committees responsible for oversight of these sorts of things. We’re in the period of the Bush administration, and I’m assuming they’re just.

Bill Black

Which Bush administration?

Paul Jay

Well, this would have been probably both, but right now we’re in the second. This is Bush and Cheney.

Bill Black

But this is my message. This is 1990 and it persists to 2008. This is everybody. Choose your political leader of any party during an immensely long period, and the president is going to look terrible because the president was terrible in these circumstances, of both parties. Clinton cuts the FDIC staff by more than three-quarters. He cuts the Office of Thrift Supervision staff by more than half. They are utterly gutted and then they appoint leaders who literally show up carrying a chainsaw to indicate how much they want to destroy any remaining regulations. A chainsaw is picked because it’s not a precision-cutting instrument.

Paul Jay

So, again, the whole development from the 80s and through the 90s into the 2000s and then to the financial crisis, it’s all a construct by design. It doesn’t just happen.

Bill Black

Yes, but nobody is that smart to be able to foresee all of the implications.

Paul Jay

Yeah, you start and then another set of opportunities arises and you jump on them, then another set of opportunities, but the political class is in on the process.

Bill Black

But it’s a slightly more complicated story, and it’s an interesting story because of that complication. So, in 1994 a miracle occurs and Congress does the right thing. It adopts the Home Ownership and Equity Protection Act of 1994. That act says that the Federal Reserve and only the Federal Reserve can ban all predatory loans, regardless of whether the lender has federal deposit insurance, so the shadow is covered. There’s just one tiny little problem with that. The Fed and only the Fed. Who’s the chairman of the Fed? Alan Greenspan. Alan Greenspan is the answer to virtually every year and why is he the answer to virtually every year? Because President Clinton reappointed him twice. Even though he was a Reagan appointee who was literally part of the Ayn Rand cult, he was actually the trustee of Ayn Rand’s will.

Paul Jay

Jesus, I don’t know if people are going to get my reference, but he’s the Curtis LeMay of finance. Curtis LeMay is the mad man that ran Strat Com (U.S. Strategic Command) and dropped atomic bombs on Japan.

Bill Black

And wanted to drop bombs on everybody.

Paul Jay

On everybody and was appointed by Democrats and Republican presidents one after the other.

Bill Black

And that’s the point. Democrats reappoint. Bernanke, a very Republican Republican was reappointed by President Obama after being a total disaster as the principal regulator. Who was his principal regulatory lieutenant, who was a total disaster? Where’s our banking industry concentrated? Wall Street. Who’s supposed to regulate them? The New York Fed. Who the hell was running the New York Fed in all those years? Tim Geithner. So obviously, as soon as Obama came in, he fired Tim Geithner, right, or induced others to fire him. Oh, no, he promoted him to secretary of the Treasury, and made the old crisis his crisis instead of fixing it. The secretary of the Treasury is also in charge of this thing called IRS. They do taxes. What was famous about Geithner? Oh, I know. That he cheated on his taxes. It isn’t just that he cheated on his taxes when he got caught, because they do a security review and they make you president of the Federal Reserve Bank of New York. When he got caught they also told them, but you’re past the statute of limitations on some of it, and so he refused to pay back the money where it was passed, the statute of limitations.

Paul Jay

You and I are laughing, and some people commented, how come we’re laughing so much? Because what else are you going to do? This is beyond craziness.

Bill Black

I’m serious on many things, but I’m Irish and the Irish decided centuries ago it is slightly less painful to laugh than to cry. That’s my motivations in all of this. So, we got the great statute on a mostly bipartisan basis in 1994, the very year that Ameriquest goes to the shadow, and the Fed at all times has the power to stop in literally one day, Ameriquest fraud and predation schemes, which are incredibly blatant, by the way. Michael Hudson is the author. There are two Michael Hudsons, this is the journalist Michael Hudson, as opposed to the economist Michael Hudson. He wrote The Monster about all of this. So we could have stopped it, but there was no chance that Alan Greenspan was going to stop fraud and Ben Bernanke then refused to use it and then he finally used it after the market had completely shut down liar’s loans and even then, he deliberately delayed the effective date of the rule against liar’s loans for a year and a half. I don’t know why, maybe because there might be some poor schmuck fraudulent lender out there that would be upset.

You can see nobody in the federal government was going to do anything about Ameriquest because only Alan Greenspan and very late in the game Ben Bernanke could do anything and, the world would end, blow up, before those folks would act, but the states eventually went after them and virtually all the states. It was a fifty-one state and territorial AGs and District of Columbia who brought this suit, and they got the largest settlement in history for consumer fraud by the states.

Paul Jay

What year is this?

Bill Black

The suit is 2006. It’s settled plus or minus a year.

Paul Jay

So just before the whole thing really explodes.

You got it. Having been caught red-handed, we jailed Roland Arnall or B made him our ambassador.

Paul Jay

Well, we all know it’s B.

To the Netherlands. We all know it’s B.

Paul Jay

Well, that’s good. Isn’t that where the Dutch disease all comes from.

Bill Black

What did the Dutch ever do to us?

Paul Jay

Sent us too many tulips. So Arnall becomes an ambassador and the criminogenic environment blooms further. Join us for the next segment of our discussion with Bill Black and we’ll get closer to the 07/08 period. Thanks for joining us again, Bill.

Bill Black

Thank you.

Paul Jay

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10 Comments

  1. uring the Great Recession, few recognized that China got paid off first!
    The U.S. elite…its bankers and CEO’s…NEVER cared about it workers. They were “consumers,” given extra credit in the form of credit cards and cheap, often fraudulent, mortgage deals. Homes were made ATM’s, while their jobs were outsourced.

    Guess who made the killing. The guys now in charge of the GOP and the DNC. The real monsters and criminals now run the U.S.A.

    And now those monsters control the U.S. media. Keep the sheep in line ready for the next shearing!

    Mow the grass.

  2. This is a great series but Bill has one thing wrong. I was an Assistant AG in Missouri when the multi-state Countrywide settlement was inked. It was and is a complete sham. There were no actual, mandatory consumer protection requirements imposed on BOA in the deal so there was nothing to enforce with regard to mortgage modifications or otherwise actually helping people who were scammed. BOA paid money to the AGs amounting to a pittance compared to the fraud profits, Geithner and Obama blessed the deal (which was spearheaded by the IL AG, his home state), and it remains business as usual. The states did not ride in to the rescue. The states were simply a mechanism to give an appearance that something was done. Scratch the surface of the monetary amount claimed in AG press releases and it falls apart quickly.

  3. Response to the Bill Black in depth material. Thank you, Paul, and also Bill, for putting light on this historical manipulation that’s so affected where we are today!
    I was witness to all this, as it happened–a licensed RE broker 1975-1988 as well as a dedicated radical in equal rights, counterculture and social empowerment for inner city, rural poor. I later was in administration of programs for rehabilitation for developmentally delayed, mentally ill and substance abuser when Bill Clinton cut staffs to oversight in Dept of Labor (as he’d done in Treasury)–and am personal friends with several other RE and RE Loan Brokers who were sober members of AA while all of this was going on (and some were, indeed, packaging loans.) It wasn’t “invisible” to grass-roots professionals.
    I got poor people into home ownership who otherwise would not have had financing available–and they didn’t abuse this opportunity or default, etc. The banking “red lines” around older (not tract-home era) cities that had been in effect since the Depression were, in effect, exclusionary practices aimed at POC who mostly lived in these communities, so the “loose underwriting” was, indeed, progressive–to those communities and demographics. I’ve been an advocate of the stance “the best way to take over the world is to buy it,” since the 1960s, because, it is property owners who have a measure of access to law–in zoning and in approving infrastructure projects like parks, community centers, rehab and public housing. So, I steered people through these loopholes.
    One of my oldest AA friends, a Mortgage Broker in Orange County, did take full advantage of the “liar’s loans,” to get pretty rich. He’s a S.C. graduate and a Republican who sees nothing wrong at all about screwing over “government,” although he’s also a kind person, one-on-one. It’s a board game, like chess or monopoly to people in the field to whom the Wall Street standards are the shifting sands of the business playing field.
    It was entirely clear to people like myself (my B.S. in in Business Management for NPOs and in community development) that the whole “tranches” horseshit of “rolling loans” and “packages” was fraud. Had the government just paid off all of the liar’s loans (for the borrowers), then all of the default swaps would not have had to be rescued because there wouldn’t have been defaults. Please re-read the above sentence. Twice.
    The $700 billion “bail out” to Wall Street and the Insurance cartels was entirely a fraud, because paying off the underlying debt (liar’s loans) would nave made good the securities (the rolled over loans and all the packages, default swaps, etc.) Foreclosures would not have occurred. Those foreclosed and rendered homeless would not have been stripped of their assets and homes. Hedge funds would not have bought up all those foreclosed properties and kicked up the rents.
    What’s taken over since Nixon-Reagan is a silent coup. Get it? It isn’t invisible to those who deal in tangibles and not just in “media-selected” focus–and, sadly, it still is the practice among those of us who could interact to defer to those who sit on talk-show panels, even while we take issue with this practice.
    I’ve been trying to interact with people like Richard Wolfe, Chris Hedges, Noam Chomsky–going back to when there was a Ramparts Magazine–as a grass-roots intellectual, but– whether because it’s due to my being a female who is not tried into family money or academia or some other “filter”–it’s been impossible to initiate the dialogues.
    Since the middle 1980s, I’ve been an author (Kathleen S. 12-Step recovery, continuously in print, even now, with Random House), in the field of Adult Children programs–self-empowerment combining perspective with insight and discipline, but that, too, is a field of thought that’s “filtered” out of serious consideration in “the public mind” (discussions such as this.) That’s a serious mistake, since individual empowerment is a starting place we all need if we’re going be able to respect each other in a realistic structure that we own collectively, but which tolerates all sorts of differences of outlook. Maybe because the 12-Step programs have gotten so stale or are associated with “spiritual”= “Catholic guilt” mumble-jumble about “we just don’t drink,” a lot of the sane intellectuals discount the underlying structure of AA’s self-help materials. Or maybe it’s because people are afraid it’s a program that’s going to want to tell them not to drink a glass of wine or even to occasionally get potted!
    That’s a mistake.
    These were created during the Depression, just as the New Deal kicked off (1935), largely by individuals who knew democratic socialism as an evolving structural reality, which they employed–without making a big deal about what they were putting into play. That was 86 years ago–still a system “that works if you work it” for self-empowerment and sanity. I saw that, in 1975, when I was referred as “a possible early stages alcoholic.” (I had clinical depression from PTSD in childhood, molested by a teenage relative when I was 2-3 in a family that couldn’t face or deal with the taboo.) I’d been trying to use alcohol to “cure depression”–not an effective approach! But the Steps and the fellowship were an exact fit, for me to regain focus, but also, I saw, toward addressing many, many disempowerment barriers people face, and often blame themselves about. Gabor Mate-style, “It’s the cage.” Politically, AA’s structure provides self-directed, self-paced voluntary mutual support, based on core biologically-based “instinctive needs” common to us, not just as people, but as mammals, as life-forms. So, that’s a baseline. If we survive, we’ll need this sort of common ground that rules out behaviors, not the creatures who behave.

  4. I wonder how Paul Jay can proceed without interrogating Bill Black on the seemingly voluntarist nature of Black’s critique–don’t focus on the bank or institution, but on the banker–as source of systemic breakdown. I think Black might respond to this question by asserting that systemic force behind don’t focus on bank but on banker consists in the too big to fail nature of our monetary system (the “regulatory” system, such as it was, by this time became simply a built-in bought off joke), but I would have expected an interviewer of Jay’s exceptional talent to have followed this line of reasoning further. Thank you for a terrific piece, though: like Jay, this segment has made clear to me an essential strand in Black’s thinking that has remained hitherto elusive to me.

  5. This style of in depth, serialized reporting is a winner, or at least in my mind it is. Lets hope it’s one that will beat the the Gods of Google (and their leash owners, the CIA/permanent state, who in turn are owned by Wall Street ); because they will do their best to keep suppressing it.

    Hope you do another fund raising campaign before years end. I thought I was going to have a quiet retirement, the only kind I can afford. Now I shall have to find employment in my dotage, because it’s the only way to fight back against the evil empire I have left to me.

  6. Simply asking for help to gut punch the socalled Left and the socalled Right isn’t helpful when what every Citizenry needs for contented day to day life is out there beyond politics.

    Yet still within reach there can be a goal of heartfelt values and clear minded understanding of societal Common Good based on collaboration of society and government; although for now “competition” appears to be the only game in town.

    Relentless individual competition and desire to be at war with any team that claims to be an advocate for economic democracy and be in opposition to Ayn Rand– oligarch America’s sweetheart goddess of predatory capitalism.

    Response from either Wing of the political spectrum appears to only be effective with the overt tone of violence and even the actual threat of death or incarceration.

    Avoiding implication of violence and death by turning to the Constitution is to not take in account realities and bury them in fiction — and in the end nothing get’s accomplished except delay to the next crisis, corrupt election, natural disaster, or mass shooting in Biden’s America, Macron’s France, or Johnson’s UK — no hemisphere appears to be exempt.

    The balance of violent and non-violent criminal conduct in Biden’s America in support of the oligarch system in power may be fairly even between the two political parties both of which embrace oligarch financial contributions for their very survival.

    But at least anybody today, in any hemisphere, with a penchant for the Common Good can benefit from the exposures of financial and political debauchery that Bill Black has made a career of lifting above the fog — a valuable contribution to the Common Good cause.

    1. Please read my comment June 2. The materials I cite (AA thinking in 1930s to 1950s) is Jeffersonian democracy-based, like the New Deal approach–that what I see as valuable, at least up-date-able, to be of universal use in building a sustainable polit.

  7. If wonder if others are dismayed, as I am, that the few journalists on the internet who are not tied to the mainstream and are reporters and commentators of integrity, follow Paul Jay’s example of exposing the harm that has been done to the US by its banking sector and liberal politicians ?
    Many do decry the relative parsimony of the aid that has come to the unemployed and the victims of COVID as compared with the handouts to major corporations and banks by the Fed and Treasury, but their reporting focuses on increasing the aid to the needy and not at all on who is hurt by creating fiat dollars. As a consequence, the effective transfer of purchasing power from those who have mostly dollar assets, the working class to the needy is ignored. It is stealing from Peter to pay Paul. The left should be demanding that the dollars be taken from, for example, the military budget.
    Bill Black and Michael Hudson are featured on The Analysis, but few other independent websites exert themselves on the internet to deal with financial robbery and thievery by banks and by political leaders.

    1. What “liberal politicians”? I saw none mentioned,unless, you think Clinton (clearly described as the biggest wrecker of financial regulations) n Obomber(king of drone killing etc)are…liberals? Its way past time to wean ourselves off of the knee-jerk use of archaically outdated and divisive terms like liberals/conservatives etc.

      Now you make a great n valuable point about fiat money policy but then ruin it by assigning the transfer of budgeted money from “our” hugely bloated,wasteful and destructive military to actual positive , constructive use HERE AT HOME to ….”the left”,whatever that is. What does it mean that you deliberately left out mentioning other members of the political spectrum? Don’t they share responsibility in this?

      One of the clearest messages of this series,and thank you Mr. Black and Mr.Jay for this series, is the virtually complete solidarity of “our” government with the banking industry/Wall Street crimminals. This means every official involved,regardless of party affiliation,economic philosophy etc, is guilty of,at the very least, aiding n abetting crimminal activities. Did the banksters n Wall Street fraudsters ask about political or philosophical affiliation before conspiring to commit these morally n ethically bankrupt crimes?

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