Wednesday, March 31, 2010

To rob a country, own a bank

An excellent series of videos, interviewing William K. Black, a senior regulator who prosecuted fraud in an earlier financial crisis, the Savings & Loan debacle.

Professor Black outlines the means by which fraud brought down our financial system, in four successive steps. Here is how top bankers and officers of finance institutions made a killing.

1. Borrow money cheaply to loan out at high interest rates. In other words, ratchet up leverage.

2. Make lots of risky loans (which pay the higher interest rates).

3. Keep inadequate reserves for loan losses. Bank the reserves as profits.

4. Collect huge pay and bonuses on "profits" before the low-quality loans go bad and your company becomes insolvent.

The company will go bust, and investors or taxpayers pick up the wreckage. But CEOs and top company insiders keep their large salaries and bonuses from pre-bust years.

The subprime mortgage crisis was the perfect financial crime, and the American taxpayer has been left with the bill. The Obama administration has done virtually nothing to prosecute those who were most responsible for the biggest losses. Mr. Obama has appointed and promoted those who were architects of the crisis, who could have prevented it.

Though our current banking crisis is 30 times greater than the Savings & Loan crisis, the FBI has only one sixth as many agents investigating it as were involved in working S&L fraud cases. No one cares. The criminals have gone free.

An hour of video well worth watching.