Liar’s Loans Ain’t “Rocket Science”

Posted on October 22, 2014 by | Leave a comment

By William K. Black

In my first column in this two-part series I explained how the Department of Justice’s (DOJ) non-prosecutorial effort against the banksters’ frauds that caused the financial crisis had ended with a pathetic whimper uttered by Deputy Attorney General James Cole during his ritual exit interview with Bloomberg. Cole’s explanation for DOJ’s failure to prosecute a single senior banker for leading the three fraud epidemics that drove the financial crisis was that DOJ was “dealing with financial rocket science.” My first column made the point, which escaped DOJ and Bloomberg that if this were true it would presumably have been modestly important for DOJ to do something about the ability of “rocket scientists” to grow wealthy by leading the frauds that cost the U.S. $21 trillion in lost GDP and 10 million jobs. I also promised this column explaining why it was not true. In light of a reader’s comment I’ll add a third piece on “rocket science” in the financial context.

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Not with a Bang but a Whimper: DOJ Says it Cannot Prosecute “Rocket Science” Frauds

Posted on October 18, 2014 by | 6 Comments

By William K. Black

This is the way the Department of Justice’s (DOJ) greatest strategic prosecutorial failure ends, not with a bang but a whimper that it is too hard to prosecute “rocket science” frauds.  The context is the ritual Bloomberg exit interview with the senior DOJ official going off to make his new fortune.  The lucky fellow this week is Deputy Attorney General James Cole.  This genre of interview is designed to allow the man in the revolving door to announce his great accomplishments as a prosecutor, or in this case, non-prosecutor.  Cole gamely claims that zero prosecutions constitutes a brilliant success because DOJ’s civil cases “have resulted in banks paying huge fines and altering their behavior.”

“Holder today praised Cole as his ‘indispensable partner’ since taking the deputy’s job in January 2011. ‘Jim’s leadership and ingenuity have been critical in attaining historic results on behalf of the American people,’ Holder said in a statement.”

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Krugman’s Bashes Progressives for Criticizing Obama on Grounds that He Criticizes Obama

Posted on October 18, 2014 by | 17 Comments

By William K. Black

Paul Krugman’s admirers would never list modesty as one of his characteristics. He has written a column “In Defense of Obama” that begins by explaining that his criticisms of President Obama were correct, but that unidentified others’ criticisms of Obama constitute “trash talk.”

Specifically, Obama “came perilously close to doing terrible things to the U.S. safety net in pursuit of a budget Grand Bargain.” Obama sought to produce a self-inflicted disaster by desperately trying to reach a “Grand Bargain” with Republicans that would have inflicted austerity on our Nation in 2012, “slash[ed] Social Security and [raised] the Medicare [eligibility] age.” As even Krugman admits, we were saved from this catastrophe “only by Republican greed, the GOP’s unwillingness to make even token concessions” to achieve the Grand Bargain. What Krugman omits in the tale is that it was also a revolt by Democratic progressives against the Grand Bargain that saved Obama and the Nation.

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Deal Book Says Citi “Cannot Afford” to Run an Honest Bank in Mexico

Posted on October 15, 2014 by | 4 Comments

By William K. Black

Deal Book, Andrew Ross Sorkin’s ethics-free paean to painless elite bank frauds – all the wealth and none of the accountability – has plumbed new depths in its coverage of Citi’s latest frauds.  It has literally written that Citi “cannot afford” to run an honest bank in Mexico.

I’ll put aside for another day the obvious point that Citi does not run an honest bank in the U.S. so the authors’ implicit assumption that Citi’s problems arise from a corrupt Mexican culture is false and bigoted.  For purposes of analysis only, I will discuss the logical implications of the Deal Book’s “Blame it on Mexico” thesis. That thesis does not lead the NYT authors to ask Citi’s leaders to discuss which of three options it chose given that it cannot afford to run an honest bank in Mexico.

  • To run an honest bank in Mexico anyway, or
  • To lead a movement to clean up banking and politics in Mexico, or
  • To stop banking in Mexico

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Did Ms. Rousseff’s epiphany come too late?

Posted on October 15, 2014 by | 6 Comments

By Felipe Rezende

If you’ve been tracking the news on Brazil’s presidential election, you already knew that incumbent Rousseff will face Neves in a runoff election for Brazil’s presidency on October 26th. The tight election reflects the perception of a downward trend of the nation’s economic outlook augmented by news that Brazil’s economy has fallen into recession in the first and second quarters of 2014. This really isn’t looking like the election the Workers’ Party expected. Brazil’s unemployment rate has hit record lows, real incomes have increased, bank credit has roughly doubled since 2002, it has accumulated US$ 376 billion of reserves as of October 2014 and it has lifted the external constraint. The poverty rate and income inequality have sharply declined due to government policy and social inclusion programs, it has lifted 36 million out of extreme poverty since 2002. Moreover, the resilience and stability of Brazil’s economic and financial systems have received attention as they navigated relatively smoothly through the 2007-2008 global financial crisis. Brazil’s response to the largest failure of capitalism since the Great Depression included a series of measures to boost domestic demand.

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EU Ideologues “Crowd Out” Sanity

Posted on October 14, 2014 by | 1 Comment

By William K. Black

It is often the small things that best illustrate insanity.  On October 13, 2014, EU Economic and Monetary Affairs Commissioner Jyrki Katainen spoke to emphasize one message:

“[The EU’s leaders] ‘don’t want the [European Investment Bank] EIB crowding out private investment.’  He said the EIB should be used to leverage money from the private sector, ‘and play a part in big infrastructure projects,’ notably ones that have been delayed.”

It’s helpful to situate this smaller example of economic insanity within the broader context of the insanity of austerity inflicted by those same EU leaders.  The general insanity is that the EU politicians are the most economically illiterate and extreme member of the troika.  I just wrote a column explaining that they are bitterly attacking Mario Draghi, the head of the European Central Bank (ECB) for (in their warped interpretation) becoming apostate on the subject of austerity.  The IMF, at least many of its professional economists, left the one truth faith of the austerians long ago when it began publishing research showing that fiscal stimulus was a great success and even its leadership began to warn against austerity. 

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The EU Austerians Attack Each Other

Posted on October 14, 2014 by | 7 Comments

By William K. Black

As things go from bad to worse in the eurozone the putative adults have begun to fight openly in front of the kids.  The putative adults, of course, have refused to act like adults for six years and instead have lived in a fantasy world in which austerity – bleeding the patient – is the optimal response to a recession.  As many of us have been warning for six years, this is a great way to create gratuitous recessions and even the Great Depression levels of unemployment in three nations of the periphery with 100 million citizens.

Italy has been forced by German demands for austerity into a third recession in six years, with France likely to experience the same fate.  Even Germany has stagnated and could fall into recession.  Instead of the four horsemen of the apocalypse, the three horses that make up a troika consist of the European Central Bank (ECB), the International Monetary Fund (IMF), and the European Commission (EC).  The troika combined to force the entire eurozone to inflict austerity in response to the Great Recession.

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Hold Your Wallet When the Swedish Central Bank Prize Rewards “Clever”

Posted on October 13, 2014 by | 2 Comments

By William K. Black

The Swedish Central Bank’s (the “Bank”) prize in economics has gone to Jean Tirole.  It is always good to test such an award by looking at the writings of the recipient in an area in which the reader has particular expertise.  In my case, that would include the Savings and Loan debacle, financial regulation, and control fraud.  Tirole’s book: The Theory of Corporate Finance was published on January 1, 2006 during the heart of the three raging epidemics of accounting control fraud that were hyper-inflating the world’s largest financial bubble and about to create the financial crisis and the Great Recession.

As I have long emphasized and will be explaining at greater length in a book about the failures of economics and economists as exemplified by far too many of the recipients of the Bank’s Prize, economics is the only discipline in which the understanding of the field’s subject of study has gone backwards.  In particular, the praxis recommended by economists has proven highly criminogenic and is the primary explanation for why we suffer recurrent, intensifying crises, the rise of crony capitalism that cripples democracy and ethics, and spiraling inequality and low growth in the regions that suffer the greatest predation by our parasitical financial centers.  Tirole wrote at the ideal time to judge his understanding of corporate finance as it was actively causing these catastrophes.

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What are the Motive Forces for Effective Climate Action?

Posted on October 13, 2014 by | 2 Comments

By Michael Hoexter

If you might want or need something to happen very badly or urgently that was debatably in your power to influence or effect, the chief rational approach you might choose would be to attempt to understand what are the causal forces or conditions that lead that thing to happen.  The alternatives are forms of magical thinking or prayer to assumed-to-be more powerful, perhaps supernatural, beings.   As the domain of effective and timely action on climate is largely within the domain of human beings’ ability to choose and influence others’ choices and such action is considered by increasing numbers of people to be highly desirable, one would think that substantial groups of social scientists would be making their best efforts to figure out how to “make climate action happen”.   Even if you were not an intense partisan of a particular outcome, as the scenario above suggests, if you were just a scientist or seeker of knowledge of some type, you would also want to understand motive forces, so as to predict future outcomes and make your scientific knowledge of some use to human beings.  This is the study of dynamics, how things change over time.

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Beware of Policies and Legislation Based on the Generational Accounting Scam

Posted on October 11, 2014 by | 10 Comments

The Peter G. Peterson Foundation (PGPF) and its allied army of associated deficit hawks want the Congressional Budget Office (CBO), the General Accountability Office (GAO), and the Office of Management and Budget (OMB) to do fiscal gap accounting and generational accounting on an annual basis and, upon request by Congress, to use these accounting methods to evaluate major proposed changes in fiscal legislation. Generational Accounting is an invalid long-range projection method that doesn’t take into account inflation, the projected value of the Government’s capability to issue fiat currency and reserves in the amounts needed to fulfill Congressional appropriations, and re-pay its debts, the projected non-Government assets corresponding to government liabilities, the likely economic impacts of Government spending, surpluses, and deficits, the impact of accumulating errors on projections, and the biases inherent in pessimistic AND contradictory assumptions. It is a green eye shade method that ignores both economic and political reality.

If you want America to end deficit terrorism and austerity, and to have the fiscal policy space it needs to begin to restore the American Dream, then you need to defeat proposed policies or legislation which puts building blocks in place to bias fiscal policy towards austerity and the economic decline it will surely produce for ourselves, our children, and for their children. Proposed policies and legislation of this kind must be defeated for the following seven reasons. Continue reading →

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