William K. Black was the senior regulator during the S&L crisis, and an Associate Professor of Economics and Law at the University of Missouri (bio). Black says that massive fraud is what caused the economic crisis. As one example, he explains that everyone involved knew that the CDOs which packaged subprime loans were not AAA credit-worthy (which means that they are completely risk-free). He also said that the exotic instruments (CDOs, CDS, etc.) which spun the mortgages into more and more abstract investments were intentionally created to defraud investors. Moreover, Black says that the government's entire strategy in dealing with the economic crisis is a massive cover-up: [They] don't want to change the bankers, because if we do, if we put honest people in, who didn't cause the problem, their first job would be to find the scope of the problem. And that would destroy the cover up.... Geithner is ... covering up. Just like Paulson did before him.... These are all people who have failed. Paulson failed, Geithner failed. They were all promoted because they failed.... Until you get the facts, it's harder to blow all this up. And, of course, the entire strategy is to keep people from getting the facts.... [Question] Are you saying that Timothy Geithner, the Secretary of the Treasury, and others in the administration, with the banks, are engaged in a cover up to keep us from knowing what went wrong? [Black] Absolutely.... They're deliberately leaving in place the people that caused the problem, because they don't want the facts. And this is not new. The Reagan Administration's central priority, at all times, during the Savings and Loan crisis, was covering up the losses. [Question] So, you're saying that people in power, political power, and financial power, act in concert when their own behinds are in the ringer, right? That's right. And it's particularly a crisis that brings this out, because then the class of the banker says, "You've got to keep the information away from the public or everything will collapse." http://www.washingtonsblog.com/2009/04/senior-s-regulator-says-government.html
[They] don't want to change the bankers, because if we do, if we put honest people in, who didn't cause the problem, their first job would be to find the scope of the problem. And that would destroy the cover up.... Good quote. Bernanke puts it this way - "extinguish the fire first, and then find who is responsible." This makes no sense if the arsonists are still on the loose, and lighting fires, producing distractions. The sheer gravity of natural human behavior, when people are economically stressed, will make this a source of failure for the rescue. You watch.
Of course it was a crooked game. That is how wall street makes money. you think these guys are better traders to the tune of billions? The sold premium (puts) until they blew up the economy. the mortgages they were selling were essentially puts in CA and in reality partial puts everywhere else. Selling puts for profit. It is game wall street has been playing for years. then they say Oh - our models did not predict the fact we would lose all your money.
here's Black's interview on last Friday's Bill Moyers Journal: http://www.pbs.org/moyers/journal/04032009/profile.html
Good stuff as always, I wish PBS would spend 100% of its resources talking about the banking crisis, haha. Here's a scoop, you and I are not part of the banking country club, we don't get to benefit from their fraud. We either do something and get them out of power, or we all suffer much worse.
I agree with the article. The cover up is in place but do they think the bailout will actually accomplish much? I doubt it, I see the bailout money as just being used as power consolidation for the ruling party... they might actually think the bailout is going to work but when it does not they have to print money...
This country is fucked up and these policy makers are just as fucked up. What a shame that this will be the last prosperious period in this countries history. Time to learn a new lauguage and follow Jim Rogers to Singapore.
Nothing new to see here, move along. If you didn't know this was all a scam on top of a scam on top of a scam , you weren't paying attention.
its unbelievable. I like how the markets are now moving back into bubble reflation mode. Any second now the world is going to be flooded with bad debt to power us to a new ponzi recovery. anything to get us throw the next 24 hours. there is no longterm plan for anything