BILL MOYERS:
I was taken with your candor at the conference here in New York
to hear you say that this crisis we're going through, this economic
and financial meltdown is driven by fraud. What's your definition
of fraud?
WILLIAM K. BLACK:
Fraud is deceit. And the essence of fraud is, "I create
trust in you, and then I betray that 
trust,
and get you to give me something of value." And as a result,
there's no more effective acid against trust than fraud, especially
fraud by top elites, and that's what we have.
BILL MOYERS:
In your book, you make it clear that calculated dishonesty by
people in charge is at the heart of most large corporate failures
and scandals, including, of course, the S&L, but is that
true? Is that what you're saying here, that it was in the boardrooms
and the CEO offices where this fraud began?
WILLIAM K. BLACK:
Absolutely.
BILL MOYERS:
How did they do it? What do you mean?
WILLIAM K. BLACK:
Well, the way that you do it is to make really bad loans, because
they pay better. Then you grow extremely rapidly, in other words,
you're a Ponzi-like scheme. And the third thing you do is we
call it leverage. That just means borrowing a lot of money, and
the combination creates a situation where you have guaranteed
record profits in the early years. That makes you rich, through
the bonuses that modern executive compensation has produced.
It also makes it inevitable that there's going to be a disaster
down the road.
BILL MOYERS:
So you're suggesting, saying that CEOs of some of these banks
and mortgage firms in order to increase their own personal income,
deliberately set out to make bad loans?
WILLIAM K. BLACK:
Yes.
[...]
BILL MOYERS:
So if your assumption is correct, your evidence is sound, the
bank, the lending company, created a fraud. And the ratings agency
that is supposed to test the value of these assets knowingly
entered into the fraud. Both parties are committing fraud by
intention.
WILLIAM K. BLACK:
Right, and the investment banker that - we call it pooling -
puts together these bad mortgages, these liars' loans, and creates
the toxic waste of these derivatives. All of them do that. And
then they sell it to the world and the world just thinks because
it has a triple-A rating it must actually be safe. Well, instead,
there are 60 and 80 percent losses on these things, because of
course they, in reality, are toxic waste.
BILL MOYERS:
You're describing what Bernie Madoff did to a limited number
of people. But you're saying it's systemic, a systemic Ponzi
scheme.
WILLIAM K. BLACK:
Oh, Bernie was a piker. He doesn't even get into the front ranks
of a Ponzi scheme...
BILL MOYERS:
But you're saying our system became a Ponzi scheme.
WILLIAM K. BLACK:
Our system...
BILL MOYERS:
Our financial system...
WILLIAM K. BLACK:
Became a Ponzi scheme. Everybody was buying a pig in the poke.
But they were buying a pig in the poke with a pretty pink ribbon,
and the pink ribbon said, "Triple-A."
[...]
BILL MOYERS:
To hear you say this is unusual because you supported Barack
Obama, during the campaign. But you're seeming disillusioned
now.
WILLIAM K. BLACK:
Well, certainly in the financial sphere, I am. I think, first,
the policies are substantively bad. Second, I think they completely
lack integrity. Third, they violate the rule of law. This is
being done just like Secretary Paulson did it. In violation of
the law. We adopted a law after the Savings and Loan crisis,
called the Prompt Corrective Action Law. And it requires them
to close these institutions. And they're refusing to obey the
law.
BILL MOYERS:
In other words, they could have closed these banks without nationalizing
them?
WILLIAM K. BLACK:
Well, you do a receivership. No one -- Ronald Reagan did receiverships.
Nobody called it nationalization.
BILL MOYERS:
And that's a law?
WILLIAM K. BLACK:
That's the law.
BILL MOYERS:
So, Paulson could have done this? Geithner could do this?
WILLIAM K. BLACK:
Not could. Was mandated--
BILL MOYERS:
By the law.
WILLIAM K. BLACK:
By the law.
BILL MOYERS:
This law, you're talking about.
WILLIAM K. BLACK:
Yes.
BILL MOYERS:
What the reason they give for not doing it?
WILLIAM K. BLACK:
They ignore it. And nobody calls them on it.
[...]
WILLIAM K. BLACK:
In the Savings and Loan debacle, we developed excellent ways
for dealing with the frauds, and for dealing with the failed
institutions. And for 15 years after the Savings and Loan crisis,
didn't matter which party was in power, the U.S. Treasury Secretary
would fly over to Tokyo and tell the Japanese, "You ought
to do things the way we did in the Savings and Loan crisis, because
it worked really well. Instead you're covering up the bank losses,
because you know, you say you need confidence. And so, we have
to lie to the people to create confidence. And it doesn't work.
You will cause your recession to continue and continue."
And the Japanese call it the lost decade. That was the result.
So, now we get in trouble, and what do we do? We adopt the Japanese
approach of lying about the assets. And you know what? It's working
just as well as it did in Japan.
BILL MOYERS:
Yeah. 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?
WILLIAM K. BLACK:
Absolutely.
BILL MOYERS:
You are.
WILLIAM K. BLACK:
Absolutely, because they are scared to death. All right? They're
scared to death of a collapse. They're afraid that if they admit
the truth, that many of the large banks are insolvent. They think
Americans are a bunch of cowards, and that we'll run screaming
to the exits. And we won't rely on deposit insurance. And, by
the way, you can rely on deposit insurance. And it's foolishness.
All right? Now, it may be worse than that. You can impute more
cynical motives. But I think they are sincerely just panicked
about, "We just can't let the big banks fail." That's
wrong.
BILL MOYERS:
But what might happen, at this point, if in fact they keep from
us the true health of the banks?
WILLIAM K. BLACK:
Well, then the banks will, as they did in Japan, either stay
enormously weak, or Treasury will be forced to increasingly absurd
giveaways of taxpayer money.
[...]
WILLIAM K. BLACK:
I don't know whether we've lost our capability of outrage. Or
whether the cover up has been so successful that people just
don't have the facts to react to it.
[...]
Now, going forward,
get rid of the people that have caused the problems. That's a
pretty straightforward thing, as well. Why would we keep CEOs
and CFOs and other senior officers, that caused the problems?
That's facially nuts. That's our current system.
So stop that
current system. We're hiding the losses, instead of trying to
find out the real losses. Stop that, because you need good information
to make good decisions, right? Follow what works instead of what's
failed. Start appointing people who have records of success,
instead of records of failure. That would be another nice place
to start. There are lots of things we can do. Even today, as
late as it is. Even though they've had a terrible start to the
administration. They could change, and they could change within
weeks.
