Root Cause of the Depression


William K. Black who is the former litigation director for the Federal Home Loan Bank Board during the S&L crisis and author of the book: The Best Way to Rob a Bank is to Own One: How Corporate Executives and Politicians Looted the S&L Industry, 2005.

Black explains the current economic crisis at its most basic level and that is simply - fraud. The fraud begins at the CEO-level where more and more risky loan originations are pursued in the name of profits. Black invokes Gresham's law and uses the term "Control Fraud" to explain how CEOs use their companies as a weapons to "crowd out" ethical behavior.

The CEOs suborn CFOs and other executives through "performance bonuses" which results in loan officers originating ninja (no income, no job or assets) or outright lier loans. Then the CEOs captured the three rating agencies with overpaid fees so these toxic assets (fraudulent loans) could be packages by the shadow (investment) banking system. He provides this literal quote from one CEO demanding AAA rating without verification (the tapes).

"Any request for loan level tapes is TOTALLY UNREASONABLE!!! Most investors don't have it and can't provide it. [W]e MUST produce a credit estimate. It is your responsibility to provide those credit estimates and your responsibility to devise some method for doing so."

Black says that approximately 10% of the S&L CEOs were fraudulent; but today it appears that 30-50% of the bank CEO were engaged in some form of fraudulent banking. Individual banks such as Indymac and AIG each have losses as great as the entire S&L industry fraud.

Fraudulent loans have stopped; not because of regulation, but because the bankers no longer trust one another. Meanwhile, it is clear the government has been captured by the banksters and another fraud is taking place. The bank CEOs are still holding the same jobs; Paulson, Summers, and Geithner have convinced President Obama to continue the cover up; secret payments to banks continue; and there is strong evidence of government intervention in the markets.

Today's banks are hiding a minimum $2 trillion in losses which is in addition to the $800 billion authorized in the Bush administration. If the banksters have their way, then taxpayers will eventually pay the missing $2 trillion in fraudulent loans.

But here is the thing I do not understand -- why does no one care? Why did we let something that was completely preventable happen? Why are we not asking honest people to lead the Treasury and the Federal Reserve? Why are we not asking for enforcement of the "Prompt Corrective Action" law mandating that ailing banks be put into receivership? Why are we not asking for the facts and just the facts?

BILL MOYERS JOURNAL | William K. Black | PBS's_law