Monday, November 12, 2012

William K. Black



William K. Black

William K. Black

RSS Feed
GET UPDATES FROM William K. Black
Bill Black is an Associate Professor of Economics and Law at the University of Missouri – Kansas City (UMKC). He was the Executive Director of the Institute for Fraud Prevention from 2005-2007. He has taught previously at the LBJ School of Public Affairs at the University of Texas at Austin and at Santa Clara University, where he was also the distinguished scholar in residence for insurance law and a visiting scholar at the Markkula Center for Applied Ethics.

He was litigation director of the Federal Home Loan Bank Board, deputy director of the FSLIC, SVP and General Counsel of the Federal Home Loan Bank of San Francisco, and Senior Deputy Chief Counsel, Office of Thrift Supervision. He was deputy director of the National Commission on Financial Institution Reform, Recovery and Enforcement. His regulatory career is profiled in Chapter 2 of Professor Riccucci's book Unsung Heroes (Georgetown U. Press: 1995), Chapter 4 (“The Consummate Professional: Creating Leadership”) of Professor Bowman, et al’s book The Professional Edge (M.E. Sharpe 2004), and Joseph M. Tonon’s article: “The Costs of Speaking Truth to Power: How Professionalism Facilitates Credible Communication” Journal of Public Administration Research and Theory 2008 18(2):275-295.

George Akerlof called his book, The Best Way to Rob a Bank is to Own One (University of Texas Press 2005), “a classic.” Paul Volcker praised its analysis of the critical role of Bank Board Chairman Gray’s leadership in reregulating and resupervising the industry:

Bill Black has detailed an alarming story about financial - and political - corruption. The specifics go back twenty years, but the lessons are as fresh as the morning newspaper. One of those lessons really sticks out: one brave man with a conscience could stand up for us all.


Robert Kuttner, in his Business Week column, proclaimed:

Black's book is partly the definitive history of the savings-and-loan industry scandals of the early 1980s. More important, it is a general theory of how dishonest CEOs, crony directors, and corrupt middlemen can systematically defeat market discipline and conceal deliberate fraud for a long time -- enough to create massive damage.


Black developed the concept of “control fraud” – frauds in which the CEO or head of state uses the entity as a “weapon.” Control frauds cause greater financial losses than all other forms of property crime combined and kill and maim thousands. He recently helped the World Bank develop anti-corruption initiatives and served as an expert for OFHEO in its enforcement action against Fannie Mae’s former senior management.

He teaches White-Collar Crime, Public Finance, Antitrust, Law & Economics (all joint, multidisciplinary classes for economics and law students), and Latin American Development (co-taught with Professor Grieco, UMKC – History).

Blog Entries by William K. Black

Will MSNBC Continue to Shill for the Great Betrayal?

(71) Comments | Posted November 12, 2012 | 9:06 AM
The Beltway moved immediately from the election to an obsession with the "Grand Bargain." The discussion about the budget deal is focused almost entirely on the question of how much increased revenue we should obtain from taxes on the wealthy. That is an important question, but it is the least...
Read Post

The Great Betrayal -- and the Cynicism of Calling It a Grand Bargain

(790) Comments | Posted October 30, 2012 | 1:02 PM
Robert Kuttner has written much of the column I intended to write on this subject, so I will point you to his excellent column and add a few thoughts.
Kuttner wrote to warn that Obama intends to seek a "grand bargain" causing the U.S. to adopt the type of...
Read Post

The Vampire Squid Has Feelings and Obama Is No Longer Her BFF

(100) Comments | Posted October 15, 2012 | 10:18 AM
Matt Taibbi famously dubbed Goldman "a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money." Taibbi knew his metaphor worked a deep injustice on Vampyroteuthis infernalis, a small animal that feeds on carrion and excrement (I will...
Read Post

Ryan and Romney's Secret Plan to Cut the Deficit -- and Why Romney Opposes It

(197) Comments | Posted October 14, 2012 | 9:14 PM
My favorite scene from The West Wing is the episode in which the President's press secretary is recovering from a root canal and Josh Lyman decides to handle a press briefing. Lyman is a young whiz kid who believes he is the smartest guy in the room, but the briefing...
Read Post

The Peril of Obama's "Man Crush" on Geithner Is Exposed by the Debate

(44) Comments | Posted October 5, 2012 | 9:57 AM
FDR transformed the nation when he was confronted with the Great Depression and World War II. He famously welcomed the hate of the banksters. President Obama wanted the love (and the contributions) of the banksters. He chose Timothy Geithner to be his pipeline to the banksters because Geithner shared Obama's...
Read Post

Ryan Talks Jobs and Exposes the Lies About the 47%

(88) Comments | Posted October 3, 2012 | 10:16 AM
This Monday, I posted an article titled: "Let's test Romney's claims about the 47% by offering the unemployed jobs."
The article explained the Romney, Ryan, and Charles Murray claim that 47% of Americans receive governmental assistance because they are morally defective and shiftless. It goes through why Romney...
Read Post

Robert J. Samuelson Tries to Create a Moral Panic About Deficits

(33) Comments | Posted October 2, 2012 | 9:58 AM
The Washington Post leads the pack when it comes to generating what scientists term a "moral panic" about budget deficits. As part of that effort they generated the series of myths that Paul Ryan was "serious," "courageous," and "expert" about "solving" the "deficit crisis." The newspaper's theme is that anyone...
Read Post

Let's Test Romney's Claims About the 47% by Offering the Unemployed Jobs

(228) Comments | Posted October 1, 2012 | 9:33 AM
I have explained how Governor Romney and Representative Ryan have self-destructed because they have followed Charles Murray's demands that the wealthy denounce working class Americans' supposed refusal to take personal responsibility for their lives by refusing to work. Murray is the far right's leading intellectual. Murray's Myth is that the...
Read Post

Why Do They Hate Us? (The Republicans, Not Muslims)

(78) Comments | Posted September 19, 2012 | 10:24 AM
I did a web search of usage of the phrase "why do they hate us" over the last week and received over 3,000 hits. A quick perusal suggests the usages virtually all relate to Muslims. Governor Romney's recently revealed Boca Raton speech to his wealthy donors should prompt us to...
Read Post

Romney Dooms His Candidacy by Doing the Full Murray

(978) Comments | Posted September 18, 2012 | 9:49 AM
Charles Murray's newest book, Coming Apart: The State of White America, proves two classic truths. First, it is impossible to compete with self-parody. Second, be careful what you ask for; for you may receive it. Charles Murray asked right-wing plutocrats (he dismissed left-wing plutocrats as disloyal to their class and...
Read Post

Florida A&M and the Death of Accountability and Caring

(18) Comments | Posted September 12, 2012 | 10:20 AM
Florida A&M University (FAMU) has just filed a legal pleading that exemplifies the moral bankruptcy and the shirking of accountability by elites that has become emblematic of the last ten years. The headline of the Los Angeles Times article says it all: "Robert Champion was to blame for...
Read Post

Saletan's Elegy for Paul Ryan's DOA Budget Fantasy

(28) Comments | Posted August 16, 2012 | 1:47 PM
William Saletan has written a column that epitomizes the media's bizarre infatuation with Paul Ryan. Saletan entitles his piece "Why I Love Paul Ryan." His intro summarizes his attraction to Ryan: "He's what a Republican should be: an honest, open-minded, solution-oriented fiscal conservative."
Here is how Saletan attempts...
Read Post

Romney Takes His Political Inspiration From Europe's Worst Mistakes

(736) Comments | Posted August 15, 2012 | 9:42 AM
One of Governor Romney's criticisms of President Obama is that he "takes his political inspiration from Europe...."
Romney never gives specifics on this criticism. The irony is that Romney (and Representative Ryan) "takes his political inspiration from Europe" and that the European policies they embrace have already proven...
Read Post

The Wall Street Journal's Hit Piece on Eric Holder

(223) Comments | Posted June 1, 2012 | 9:33 AM
I am a fierce critic of Attorney General Eric Holder. I have long called for his resignation, and continue to do so, for his failure to investigate and prosecute the elite frauds that drove our financial crisis. So, my response to the Wall Street Journal's editorial denouncing "Holder's...
Read Post

Romney Messes Up, Tells the Truth About Austerity

(1269) Comments | Posted May 25, 2012 | 11:00 AM
Mitt Romney has periodic breakdowns when asked questions about the economy because he sometimes forgets the need to lie. He forgets that he is supposed to treat austerity as the epitome of economic wisdom. When he responds quickly to questions about austerity he slips into default mode and speaks the...
Read Post

The Silver Anniversary of the "Keating Five" Meeting - Speaking Truth to Power

(21) Comments | Posted April 9, 2012 | 11:17 AM
April 9, 2012 is the twenty-fifth anniversary of the most infamous savings and loan fraud, Charles Keating's successful use of five U.S. senators to escape sanction for a massive violation of the law. The senators were Alan Cranston (D. CA), Dennis DeConcini (D. AZ), John Glenn (D OH), John McCain...
Read Post

The JOBS Act Is So Criminogenic That It Guarantees Full-Time Jobs for Criminologists

(91) Comments | Posted March 20, 2012 | 9:39 AM
Co-written with Henry N. Pontell and Gilbert Geis*
As white-collar criminologists (and a former financial regulator and enforcement head) and experts in ferreting out sophisticated financial frauds, our careers and research focus on financial fraud by the world's most elite private sector criminals and their political cronies. Therefore, we write...
Read Post

Newt's Latest Declaration of Independence From Reality

(38) Comments | Posted March 12, 2012 | 11:48 AM
Newt Gingrich's story is that Freddie Mac was so impressed with his skills as an historian that they paid him at least $1.6 million not to lobby, but to serve as their historical muse. Gingrich was, of course, a lobbyist for Freddie Mac, a politically inconvenient fact for a candidate...
Read Post

How Does a Conservative Evangelical Become a Corporate Tool Supporting a System That Coerces Apple's Suppliers' Workers to Have Abortions?

(27) Comments | Posted February 23, 2012 | 4:23 PM
My two prior columns commented on a piece that Forbes' publisher, Rich Karlgaard, wrote to defend Apple against complaints that its suppliers abuses of their workers had led to suicides. His column morphed into a screed about President Obama based on fictions that were the opposite of the...
Read Post

Rich Karlgaard's Lies About Obama

(12) Comments | Posted February 17, 2012 | 2:11 PM
My prior column explained how Forbes' publisher, Rich Karlgaard, turned an attempted defense of Apple's suppliers' driving employees to suicide through brutal, fraudulent, and illegal abuses of the employees into a screed attacking President Obama. Why does Karlgaard hate Obama? Consider the charge he made against Obama in...
Read Post
Posted by at No comments:

The Silver Anniversary of the "Keating Five" Meeting - Speaking Truth to Power


    William K. Black

    Assoc. Professor, Univ. of Missouri, Kansas City; Sr. regulator during S&L debacle

    April 9, 2012 is the twenty-fifth anniversary of the most infamous savings and loan fraud, Charles Keating's successful use of five U.S. senators to escape sanction for a massive violation of the law. The senators were Alan Cranston (D. CA), Dennis DeConcini (D. AZ), John Glenn (D OH), John McCain (R. AZ), and Donald Riegle (D. MI). They became infamous as the "Keating Five." I was one of four regulators who attended the April 9, 1987 meeting. I took the notes of the meeting, in transcript format, that were so detailed and accurate that the senators testified that they were sure I had tape recorded the meeting. I worked closely in the same regional office with my three regulatory colleagues for years, but I do not know their political affiliation (if any).
    Many people know the Friends (Quakers) credo -- "speak truth to power." Michael Patriarca made that credo real at the Keating Five meeting.
    Bank Board Chairman Gray personally recruited the two individuals with the best reputations in the U.S. as effective financial regulators, Joseph Selby and Michael Patriarca, to serve respectively as the top field regulators in our Dallas and San Francisco office, which had jurisdiction over Texas, California, and Arizona -- the epicenters of the S&L fraud crisis. James Cirona, the president of the Federal Home Loan Bank of San Francisco (FHLBSF), strongly supported Patriarca and made the crackdown on the frauds his top priority. The Bank Board in general and the FHLBSF in particular rapidly became far more effective regulators, particularly with respect to frauds like Keating. The four regulators at the April 9 meeting were Cirona, Patriarca, Richard Sanchez (Lincoln's "Supervisory Agent") and me.
    We understood modern finance theory -- and we knew it was false, indeed, absurd. We also called it predictions false in blunt, non-bureaucratic language, particularly the claims that securities markets automatically excluded fraud because the participants' interest in the value of their reputations trumped self-interest. Consider this exchange between Senator DeConcini and Michael Patriarca. (I have edited it slightly for the sake of brevity, but it is important to know that during the exchange Patriarca informed the senators that we were making a criminal referral against Lincoln Savings' senior officers. Patriarca also explained that the S&L's outside auditor, Arthur Young, had given a "clean" audit opinion despite an accounting treatment that allowed an absurd $12 million revenue recognition for a deal that was unwound.)
    McCAIN: Why would Arthur Young say these things about the exam -- that it was inordinately long and bordered on harassment?
    DECONCINI: Why would Arthur Young say these things? They have to guard their credibility too. They put the firm's neck out with this letter.
    PATRIARCA: They have a client.
    DECONCINI: You believe they'd prostitute themselves for a client?
    PATRIARCA: Absolutely. It happens all the time.
    DeConcini phrased his question in a manner designed to force Patriarca to back off his criticism of Arthur Young (AY) -- what regulator would dare tell a group of U.S. senators that AY, one of the most prestigious audit firms in the world, would act as a "prostitute"? I cannot convey to you how startled the senators were. They expected to be leaning on four field regulators. Five U.S. senators against four regional bureaucrats is equivalent to the sending the NBA champions, playing at home, against an NCAA Division III college basketball team. The senators had clearly never seen anything like us. Patriarca was always an outstanding leader, but this was his finest five minutes.
    We will know that an administration is serious about financial reform when it appoints officials like Mike Patriarca as regulatory and enforcement leaders. The key lesson that Gray and Patriarca understood is that it was essential to hire officials willing to tell four senators (Cranston was managing a bill on the floor of the Senate when the exchange happened) that of course some AY audit partners would prostitute themselves for a fraudulent client -- "it happens all the time." Let's hire people as regulators and prosecutors with a track record of success, integrity, and courage. The problem is that recent administrations have preferred to appoint the people with a track record of failure and poor integrity. The reason for that preference is the old accounting joke -- pick the audit partner who responds to the interview question ("what is two plus two") by saying: "what would you like it to be"? The joke, of course, is an admission that professional prostitution is far too common among audit partners.
    I call on President Obama to recognize the hero of the silver anniversary of the Keating Five meeting by appointing Michael Patriarca as head of the Office of the Comptroller of the Currency. We need regulators who will speak truth to power.
    Posted by at No comments:

    Robert J. Samuelson Tries to Create a Moral Panic About Deficits


      William K. Black

      Assoc. Professor, Univ. of Missouri, Kansas City; Sr. regulator during S&L debacle
      2 Nov 2012 8:58 am

      The Washington Post leads the pack when it comes to generating what scientists term a "moral panic" about budget deficits. As part of that effort they generated the series of myths that Paul Ryan was "serious," "courageous," and "expert" about "solving" the "deficit crisis." The newspaper's theme is that anyone who doesn't fall for their effort to create a moral panic is not "serious" and should be ignored. The paper runs a column by Robert J. Samuelson that is devoted to generating a moral panic about the deficit. Like Ryan, his central targets are imposing austerity and cutting Social Security, Medicare, and Medicaid.
      Samuelson's latest column claims that President Obama and Governor Romney are lying to the nation because they have not sufficiently embraced the moral panic as the transcendent campaign issue that will determine America's future. Samuelson demands the candidates implore the American people to urgently adopt austerity and attack Social Security, Medicare, and Medicaid.
      We have known for over 75 years that the key to recovering from a recession is to follow a counter-cyclical fiscal policy that will reduce unemployment. We have long exhibited the wisdom to adopt automatic stabilizers that increase government services and decrease taxes when a recession strikes.
      What would have happened if Obama had adopted austerity as Berlin imposed austerity on the European periphery? It would have prevented any recovery, throwing the U.S. into an even more severe recession. Berlin's austerity demands have thrown the Eurozone back into a gratuitous recession, increasing the budget deficit in many nations and plunging Greece and Spain into depressions. Europe has followed Samuelson's and Ryan's policy advice and the results have been disastrous. Samuelson's and Ryan's austerity policies violate economic theory, economic history, and a natural experiment in Europe with austerity that has proved catastrophic. Samuelson, however, makes bizarre odes to Irish austerity, emphasizing the necessity of "persuading ordinary citizens to tolerate austerity (higher unemployment, lower social benefits, [and] heavier taxes) without resorting to paralyzing street protests or ineffectual parliamentary coalitions."
      Samuelson shares Berlin's belief in the redemptive power of suffering -- by others. He doesn't even feel a need to explain why any rational government would adopt a policy in response to a severe recession which it knew would cause "higher unemployment, lower social benefits, [and] heavier taxes." He admits that Berlin (and Dublin) knew that austerity would make the recession far more severe. He doesn't think that adopting austerity programs known to be self-destructive requires justification or even explanation. Insanity is normal in Samuelson's world.
      Samuelson is most amazing, however, in explaining how the victims of austerity should react to a response to a recession that will make the recession worse. Samuelson's world of insane economic policies requires the victims to be political masochists. Samuelson demands that the victims of austerity suffer in silence without protesting austerity or using their democratic rights to form coalitions to reverse the insane economic policies. Samuelson is not afraid of "ineffectual parliamentary coalitions" -- he is terrified of effectual coalitions that would end the economic insanity of responding to a recession with a pro-cyclical policy of austerity.
      Samuelson, in a column decrying politicians who make misleading statements, suggests that Obama make the following statement to voters about ending the U.S. deficit.
      "Can't we just tax the rich even more? Unfortunately, this won't work either. Third Way -- a liberal group, mind you -- estimated the effects of top income tax rates of 49.6 percent and 41 percent and a top capital gains rate of 38.8 percent. The budget still doesn't balance....
      "Third Way" is not "a liberal group" -- and Samuelson knows it. It claims to be a "moderate" group, but that self-description is misleading. "Third Way" was created by, and is run by Jonathan Cowan, a Pete Peterson devotee. Peterson is a conservative, Republican billionaire who has spent 20 years using his money to create groups that will spread the moral panic about deficits in order to attack Social Security, Medicare, and Medicaid. Samuelson is a Pete Peterson devotee and journalist quoting Cowan's group's paper. Cowan is a fellow Peterson devotee and journalist. Third Way published a paper lauding Ryan's proposals to end public health insurance and denouncing Brad de Long and Paul Krugman's refutation of Peterson's faux moral panic.
      Samuelson deliberately misled his readers in a column devoted to denouncing Obama and Romney for misleading voters. It remains impossible to compete with unintentional self-parody.
      Posted by at No comments:

      Saturday, November 10, 2012

      GOP Fantasyland

      Denial has poisoned the GOP and threatens the rest of the country too.

      (Photo: Christopher Anderson/Magnum Photos/New York Magazine)
      Mitt Romney is already slithering into the mists of history, or at least La Jolla, gone and soon to be forgotten. A weightless figure unloved and distrusted by even his own supporters, he was always destined, win or lose, to be a transitory front man for a radical-right GOP intent on barreling full-speed down the Randian path laid out by its true 2012 standard-bearer, Paul Ryan. But as was said of another unsuccessful salesman who worked the New England territory, attention must be paid to Mitt as the door slams behind him in the aftermath of Barack Obama’s brilliant victory. Though Romney has no political heirs in his own party or elsewhere, he does leave behind a cultural legacy of sorts. He raised Truthiness to a level of chutzpah beyond Stephen Colbert’s fertile imagination, and on the grandest scale. That a presidential hopeful so cavalierly mendacious could get so close to the White House, winning some 48 percent of the popular vote, is no small accomplishment. The American weakness that Romney both apotheosized and exploited in achieving this feat—our post-fact syndrome where anyone on the public stage can make up anything and usually get away with it—won’t disappear with him. A slicker liar could have won, and still might.
      Aall politicians lie, and some of them, as Bob Kerrey famously said of Bill Clinton in 1996, are “unusually good” at it. Every campaign (certainly including Obama’s) puts up ads that stretch or obliterate the truth. But Romney’s record was exceptional by any standard. The blogger Steve Benen, who meticulously curated and documented Mitt’s false statements during 2012, clocked a total of 917 as Election Day arrived. Those lies, which reached a crescendo with the last-ditch ads accusing a bailed-out Chrysler of planning to ship American jobs to China, are not to be confused with the Romney flip-flops. The Etch-A-Sketches were a phenomenon of their own; if the left and right agreed about anything this year, it was that trying to pin down where Mitt “really” stood on any subject was a fool’s errand. His biography was no less Jell-O-like: There were the still-opaque dealings at Bain, and those Olympics, and a single (disowned) term in public service, and his churchgoing—and what else had he been up to for 65 years? We never did see those tax returns. We never did learn the numbers that might validate the Romney-Ryan budget. Given that Romney had about as much of a human touch with voters as an ATM, it sometimes seemed as if a hologram were running for president. Yet some 57 million Americans took him seriously enough to drag themselves to the polls and vote for a duplicitous cipher. Not all of this can be attributed to the unhinged Obama hatred typified by Mary Matalin’s postelection characterization of the president as “a political narcissistic sociopath.”



      As GOP politicians and pundits pile on Romney in defeat, they often argue that he was done in by not being severely conservative enough; if only he’d let Ryan be Ryan, voters would have been won over by right-wing orthodoxy offering a clear-cut alternative to Obama’s alleged socialism. In truth, Romney was a perfect embodiment of the current GOP. As much as the Republican Party is a radical party, and a nearly all-white party, it has also become the Fantasyland Party. It’s an isolated and gated community impervious to any intrusions of reality from the “real America” it solipsistically claims to represent. This year’s instantly famous declaration by the Romney pollster Neil Newhouse that “we’re not going to let our campaign be dictated by fact-checkers” crystallized the mantra of the entire GOP. The Republican faithful at strata both low and high, from Rush’s dittoheads to the think-tank-affiliated intellectuals, have long since stopped acknowledging any empirical evidence that disputes their insular worldview, no matter how grounded that evidence might be in (God forbid) science or any other verifiable reality, like, say, Census reports or elementary mathematics. No wonder Romney shunned the word Harvard, which awarded him two degrees, even more assiduously than he did Mormon.
      At the policy level, this is the GOP that denies climate change, that rejects Keynesian economics, and that identifies voter fraud where there is none. At the loony-tunes level, this is the GOP that has given us the birthers, websites purporting that Obama was lying about Osama bin Laden’s death, and not one but two (failed) senatorial candidates who redefined rape in defiance of medical science and simple common sense. It’s the GOP that demands the rewriting of history (and history textbooks), still denying that Barry Goldwater’s opposition to the Civil Rights Act of 1964 and Richard Nixon’s “southern strategy” transformed the party of Lincoln into a haven for racists. Such is the conservative version of history that when the website Right Wing News surveyed 43 popular conservative bloggers to determine the “worst figures in American history” two years ago, Jimmy Carter, Obama, and FDR led the tally, all well ahead of Benedict Arnold, Timothy McVeigh, and John Wilkes Booth.
      The good news for Democrats this year was that the right’s brand of magical thinking (or non-thinking) bit the GOP in the ass, persuading it to disregard all the red flags and assume even a figure as hollow as Romney could triumph. (Retaking the Senate was once thought to be a lock, too.) The books chronicling what happened in 2012 will devote much attention to the failings of Romney’s campaign and to the ruthlessness and surgical rigor of Obama’s. But an equally important part of this history is the extraordinary lengths to which the grandees of the GOP—not just basket cases like Dick “Landslide!” Morris and Glenn Beck, but the supposed adults regarded by the Beltway Establishment and mainstream media as serious figures—enabled their party’s self-immolating denial of political reality. This was the election in which even George Will (who predicted a 321 Electoral College win for Romney) surrendered to the cult of the talk-radio base and drank the Kool-Aid without realizing it had been laced with political cyanide. If a tea-party voter in Texas was shocked that Obama won, he was no less thunderstruck than the Romney campaign, or Karl Rove. Rove’s remarkably graphic public meltdown on Fox News—babbling gibberish about how his Ohio numbers showed a path for Romney even after the election was lost—marked not just the end of his careers as a self-styled political brainiac and as a custodian of hundreds of millions of dollars in super-PAC money. It was an epic on-camera dramatization of his entire cohort’s utter estrangement from reality.


      The most histrionic indicator of the GOP Establishment’s enlistment in the post-fact alternative universe was the pillorying of Nate Silver, whose FiveThirtyEight statistical model (and accompanying blog) in the Times analyzing all major national and state surveys on a daily basis consistently found Obama a fairly prohibitive favorite in the race. Conservative commentators disgorged thousands and thousands of words to impugn Silver as a liberal hack, accusing him of slanting the facts to fit a political bias. Freud couldn’t have imagined a clearer case study in projection. For backup, the anti-Silver forces turned to the likes of Jay Cost of The Weekly Standard, whose learned, lengthy, and chart-laden explanations of why Silver and the polls were wrong could be considered scientific in the same way creation science is. An even sadder case was Michael Barone, the once-respected co-author of The Almanac of American Politics who in 2008 compared Sarah Palin to FDR and who this year abandoned his fact-based standard for a faith-based standard underestimating minority turnout; he predicted a 315 electoral-vote victory for Romney. Like Rove, Barone called nearly every battleground state wrong. (The professional pollster most admired by the right, the GOP-leaning Rasmussen, didn’t bat much higher.) Silver got all 50 states right.
      Some of Silver’s detractors didn’t bother to concoct their own bogus analyses but just tried to defame and bully him. In the waning days of October, Joe Scarborough of MSNBC’s Morning Joe discounted FiveThirtyEight’s finding that Obama had (then) a 73.6 percent probability of victory by ranting that “anybody that thinks that this race is anything but a toss-up right now is such an ideologue they should be kept away from typewriters, computers, laptops, and microphones for the next ten days, because they’re jokes.” Dean Chambers, a conservative blogger who gained popularity on the right by setting up a junk-science Romney-boosting site called UnSkewed Polls, implied that FiveThirtyEight was skewed by Silver’s sexual orientation. Chambers wrote that Silver is “of very small stature, a thin and effeminate man with a soft-sounding voice that sounds almost exactly like the ‘Mr. New Castrati’ voice used by Rush Limbaugh on his program.” (To which Silver responded with a classic Tweet: “Unskewedpolls argument: Nate Silver seems kinda gay + ??? = Romney landslide!”) Scarborough’s and Chambers’s efforts to discredit FiveThirtyEight mirrored their party’s attempts to demonize the nonpartisan organizations that questioned Romney and Ryan’s voodoo economics as well as Jack Welch’s assault on the Bureau of Labor Statistics. You challenge the imaginary numbers of the post-fact GOP at your peril.
      The GOP’s wholesale retreat from reality perhaps found its ultimate expression in a Peggy Noonan blog at Rupert Murdoch’s Wall Street Journal that may achieve “Dewey Defeats Truman” immortality. Writing on Election Eve, she informed the faithful that “Romney’s slipping into the presidency” and will win. “All the vibrations are right,” she explained, citing such numerical evidence as crowd sizes in Pennsylvania and Ohio (both of which Romney would lose the next day) and yard signs. In Florida, she “saw Romney signs, not Obama ones,” adding that she’d heard tell of similar visitations in both Ohio and “tony Northwest Washington, D.C.”
      Noonan’s revealing summation of her thought process was this: “Is it possible this whole thing is playing out before our eyes and we’re not really noticing because we’re too busy looking at data on paper instead of what’s in front of us? Maybe that’s the real distortion of the polls this year: They left us discounting the world around us.” Thus is the post-fact worldview of today’s GOP boiled down to its essence. It assumes that any “data on paper” must be distorted, and yet doesn’t look at what is in front of its very own eyes either. Otherwise, Noonan might have wondered if the neighborhood in Florida with Romney signs, not Obama ones, was not representative of either Florida or the country but was instead a white enclave. Otherwise, Noonan’s fellow conservative honchos might not have taken until November 6, 2012, to recognize that you can’t alienate every minority group in the country (blacks, Latinos, Asian-Americans, gays)—not to mention the majority group, women—and hope to win a national election. It’s not as if these rapidly changing demographics have been classified information. Bill O’Reilly’s astonished Election Night revelation that “the white Establishment is now the minority” was almost pathetic in its naïveté. Next to him, Rove, and Noonan, even Pat Buchanan was ahead of the curve.


      The rude jolt administered by the election does not mean that the GOP will now depart from its faith-based view of reality—though it will surely heed Laura Ingraham’s postelection call for changing “the language of dealing with Latinos.” (Marco Rubio—¡Él habla español!—is already suiting up to lead the karaoke.) No sooner did Obama win reelection than Charles Kraut­hammer laid down the new party line for denying reality, asserting that the president had “no mandate” despite his large victory in the Electoral College and his clear-cut margin in the popular vote (a victory not achieved by modern presidents as varied as JFK in 1960 and George W. Bush in 2000). Two days after the election, Rove was already blaming the defeat in part on “the anonymous New York Times headline writer” who supposedly twisted Romney’s suicidal stand on the auto-industry bailout and the “hotel employee with a cell-phone camera” who had the gall to capture Romney’s candid take on the “47 percent.”
      Nor, for all the panicked Republican talk about trying to make the party more inclusive and rational, is there any evidence that the GOP base wants to retreat a whit, whether on immigration or gay marriage or reproductive rights or the reinstatement of Jim Crow–era roadblocks to voting in states like Florida and Ohio. Or that any Republican leaders with actual power (as opposed to the out-of-office Jeb Bush) want to, either. The right is taking solace from exit-poll findings that more Americans still label themselves conservative than liberal and still think government does too much. A moderate putsch led by Olympia Snowe in exile, or David Frum, David Brooks, and Michael Gerson from op-ed pages, or Meghan ­McCain on Twitter, is not going to get very far.
      But that’s the Republicans’ plight. The country has a larger problem—“intellectual nihilism,” as the writer Noam Scheiber recently labeled it. Since 9/11, often but not always under the right’s aegis, truth has been destabilized in America. The Bush administration’s contempt for what it dismissed as the “reality-based community” was vindicated when it successfully ginned up a war by convincing Americans that the 9/11 hijackers were Iraqis and that Saddam Hussein had weapons of mass destruction. Our susceptibility to elaborate, beautifully wrought myths remains intact—whether we’re being spun by politicians, captains of finance pumping up a bubble, or sports heroes like Lance Armstrong and Joe Paterno. The news business, which we once counted on to vet hoaxes and fictions, is now so insecure about its existential future that it was cowed to some extent by the Scarboroughs, Noonans, and Roves, with most of the networks, not just Fox, ignoring the statistical data of Silver and others and instead predicting a long, nail-biting Election Night. (In reality, the election was called for Obama at 11:12 p.m. EST on NBC, just twelve minutes after it had been in 2008.) Our remaining journalistic institutions have even outsourced what used to be the very core of their craft, fact-checking, to surrogates relegated to gimmicky sidebars (awarding Pinocchios and “pants on fire”). The fact-checkers have predictably become partisan targets, only further destabilizing the whole notion of what is meant by “news.”


      Daniel Patrick Moynihan might be surprised to learn that he is now remembered most for his oft-repeated maxim that “everyone is entitled to his own opinion, but not his own facts.” Yet today most Americans do see themselves as entitled to their own facts, with one of our two major political parties setting a powerful example. For all the hand-wringing about Washington’s chronic dysfunction and lack of bipartisanship, it may be the wholesale denial of reality by the opposition and its fellow travelers that is the biggest obstacle to our country moving forward under a much-empowered Barack Obama in his second term. If truth can’t command a mandate, no one can.
      This article has been updated since its original publication.
      Posted by at No comments:

      Wednesday, November 7, 2012

      No Net Capital Rule Creates TARP Bailout


      The Reckoning

      Agency’s ’04 Rule Let Banks Pile Up New Debt

        By STEPHEN LABATON
        Published: October 2, 2008
        Enlarge This Image
        Mark Wilson/Getty Images
        Christopher Cox, left, chairman of the Securities and Exchange Commission, and Roel C. Campos at a House hearing in 2007. Mr. Campos was on the commission in 2004 when a decision was made to change the net capital rule for big investment banks.

        The Reckoning

        Loosening the Reins
        Articles in this series are exploring the causes of the financial crisis.
        Previous Articles in the Series »
         Back Story with The Times's Stephen Labaton
        Enlarge This Image
        Dennis Brack for The New York Times
        William H. Donaldson, who announced his resignation from the S.E.C. in June 2005, created a risk management office to watch for future problems.
        “We have a good deal of comfort about the capital cushions at these firms at the moment.” — Christopher Cox, chairman of the Securities and Exchange Commission, March 11, 2008.
        As rumors swirled that Bear Stearns faced imminent collapse in early March, Christopher Cox was told by his staff that Bear Stearns had $17 billion in cash and other assets — more than enough to weather the storm.
        Drained of most of its cash three days later, Bear Stearns was forced into a hastily arranged marriage with JPMorgan Chase — backed by a $29 billion taxpayer dowry.
        Within six months, other lions of Wall Street would also either disappear or transform themselves to survive the financial maelstrom — Merrill Lynch sold itself to Bank of America, Lehman Brothers filed for bankruptcy protection, and Goldman Sachs and Morgan Stanley converted to commercial banks.
        How could Mr. Cox have been so wrong?

        Many events in Washington, on Wall Street and elsewhere around the country have led to what has been called the most serious financial crisis since the 1930s. But decisions made at a brief meeting on April 28, 2004, explain why the problems could spin out of control. The agency’s failure to follow through on those decisions also explains why Washington regulators did not see what was coming.
        On that bright spring afternoon, the five members of the Securities and Exchange Commission met in a basement hearing room to consider an urgent plea by the big investment banks.
        They wanted an exemption for their brokerage units from an old regulation that limited the amount of debt they could take on. The exemption would unshackle billions of dollars held in reserve as a cushion against losses on their investments. Those funds could then flow up to the parent company, enabling it to invest in the fast-growing but opaque world of mortgage-backed securities; credit derivatives, a form of insurance for bond holders; and other exotic instruments.

        The five investment banks led the charge, including Goldman Sachs, which was headed by Henry M. Paulson Jr. Two years later, he left to become Treasury secretary.
        A lone dissenter — a software consultant and expert on risk management — weighed in from Indiana with a two-page letter to warn the commission that the move was a grave mistake. He never heard back from Washington.
        One commissioner, Harvey J. Goldschmid, questioned the staff about the consequences of the proposed exemption. It would only be available for the largest firms, he was reassuringly told — those with assets greater than $5 billion.
        “We’ve said these are the big guys,” Mr. Goldschmid said, provoking nervous laughter, “but that means if anything goes wrong, it’s going to be an awfully big mess.”
        Mr. Goldschmid, an authority on securities law from Columbia, was a behind-the-scenes adviser in 2002 to Senator Paul S. Sarbanes when he rewrote the nation’s corporate laws after a wave of accounting scandals. “Do we feel secure if there are these drops in capital we really will have investor protection?” Mr. Goldschmid asked. A senior staff member said the commission would hire the best minds, including people with strong quantitative skills to parse the banks’ balance sheets.

        Annette L. Nazareth, the head of market regulation, reassured the commission that under the new rules, the companies for the first time could be restricted by the commission from excessively risky activity. She was later appointed a commissioner and served until January 2008.
        “I’m very happy to support it,” said Commissioner Roel C. Campos, a former federal prosecutor and owner of a small radio broadcasting company from Houston, who then deadpanned: “And I keep my fingers crossed for the future.”
        The proceeding was sparsely attended. None of the major media outlets, including The New York Times, covered it.
        After 55 minutes of discussion, which can now be heard on the Web sites of the agency and The Times, the chairman, William H. Donaldson, a veteran Wall Street executive, called for a vote. It was unanimous. The decision, changing what was known as the net capital rule, was completed and published in The Federal Register a few months later.
        With that, the five big independent investment firms were unleashed.
        In loosening the capital rules, which are supposed to provide a buffer in turbulent times, the agency also decided to rely on the firms’ own computer models for determining the riskiness of investments, essentially outsourcing the job of monitoring risk to the banks themselves.
        Over the following months and years, each of the firms would take advantage of the looser rules. At Bear Stearns, the leverage ratio — a measurement of how much the firm was borrowing compared to its total assets — rose sharply, to 33 to 1. In other words, for every dollar in equity, it had $33 of debt. The ratios at the other firms also rose significantly.
        The 2004 decision for the first time gave the S.E.C. a window on the banks’ increasingly risky investments in mortgage-related securities.

        But the agency never took true advantage of that part of the bargain. The supervisory program under Mr. Cox, who arrived at the agency a year later, was a low priority.
        The commission assigned seven people to examine the parent companies — which last year controlled financial empires with combined assets of more than $4 trillion. Since March 2007, the office has not had a director. And as of last month, the office had not completed a single inspection since it was reshuffled by Mr. Cox more than a year and a half ago.
        The few problems the examiners preliminarily uncovered about the riskiness of the firms’ investments and their increased reliance on debt — clear signs of trouble — were all but ignored.
        The commission’s division of trading and markets “became aware of numerous potential red flags prior to Bear Stearns’s collapse, regarding its concentration of mortgage securities, high leverage, shortcomings of risk management in mortgage-backed securities and lack of compliance with the spirit of certain” capital standards, said an inspector general’s report issued last Friday. But the division “did not take actions to limit these risk factors.”

        Drive to Deregulate
        The commission’s decision effectively to outsource its oversight to the firms themselves fit squarely in the broader Washington culture of the last eight years under President Bush.
        A similar closeness to industry and laissez-faire philosophy has driven a push for deregulation throughout the government, from the Consumer Product Safety Commission and the Environmental Protection Agency to worker safety and transportation agencies.
        “It’s a fair criticism of the Bush administration that regulators have relied on many voluntary regulatory programs,” said Roderick M. Hills, a Republican who was chairman of the S.E.C. under President Gerald R. Ford. “The problem with such voluntary programs is that, as we’ve seen throughout history, they often don’t work.”

        As was the case with other agencies, the commission’s decision was motivated by industry complaints of excessive regulation at a time of growing competition from overseas. The 2004 decision was aimed at easing regulatory burdens that the European Union was about to impose on the foreign operations of United States investment banks.
        The Europeans said they would agree not to regulate the foreign subsidiaries of the investment banks on one condition — that the commission regulate the parent companies, along with the brokerage units that the S.E.C. already oversaw.
        A 1999 law, however, had left a gap that did not give the commission explicit oversight of the parent companies. To get around that problem, and in exchange for the relaxed capital rules, the banks volunteered to let the commission examine the books of their parent companies and subsidiaries.
        The 2004 decision also reflected a faith that Wall Street’s financial interests coincided with Washington’s regulatory interests.

        “We foolishly believed that the firms had a strong culture of self-preservation and responsibility and would have the discipline not to be excessively borrowing,” said Professor James D. Cox, an expert on securities law and accounting at Duke School of Law (and no relationship to Christopher Cox).
        “Letting the firms police themselves made sense to me because I didn’t think the S.E.C. had the staff and wherewithal to impose its own standards and I foolishly thought the market would impose its own self-discipline. We’ve all learned a terrible lesson,” he added.
        In letters to the commissioners, senior executives at the five investment banks complained about what they called unnecessary regulation and oversight by both American and European authorities. A lone voice of dissent in the 2004 proceeding came from a software consultant from Valparaiso, Ind., who said the computer models run by the firms — which the regulators would be relying on — could not anticipate moments of severe market turbulence.
        “With the stroke of a pen, capital requirements are removed!” the consultant, Leonard D. Bole, wrote to the commission on Jan. 22, 2004. “Has the trading environment changed sufficiently since 1997, when the current requirements were enacted, that the commission is confident that current requirements in examples such as these can be disregarded?”

        He said that similar computer standards had failed to protect Long-Term Capital Management, the hedge fund that collapsed in 1998, and could not protect companies from the market plunge of October 1987.
        Mr. Bole, who earned a master’s degree in business administration at the University of Chicago, helps write computer programs that financial institutions use to meet capital requirements.
        He said in a recent interview that he was never called by anyone from the commission.
        “I’m a little guy in the land of giants,” he said. “I thought that the reduction in capital was rather dramatic.”
        Policing Wall Street
        A once-proud agency with a rich history at the intersection of Washington and Wall Street, the Securities and Exchange Commission was created during the Great Depression as part of the broader effort to restore confidence to battered investors. It was led in its formative years by heavyweight New Dealers, including James Landis and William O. Douglas. When President Franklin D. Roosevelt was asked in 1934 why he appointed Joseph P. Kennedy, a spectacularly successful stock speculator, as the agency’s first chairman, Roosevelt replied: “Set a thief to catch a thief.”

        The commission’s most public role in policing Wall Street is its enforcement efforts. But critics say that in recent years it has failed to deter market problems. “It seems to me the enforcement effort in recent years has fallen short of what one Supreme Court justice once called the fear of the shotgun behind the door,” said Arthur Levitt Jr., who was S.E.C. chairman in the Clinton administration. “With this commission, the shotgun too rarely came out from behind the door.”
        Christopher Cox had been a close ally of business groups in his 17 years as a House member from one of the most conservative districts in Southern California. Mr. Cox had led the effort to rewrite securities laws to make investor lawsuits harder to file. He also fought against accounting rules that would give less favorable treatment to executive stock options.
        Under Mr. Cox, the commission responded to complaints by some businesses by making it more difficult for the enforcement staff to investigate and bring cases against companies. The commission has repeatedly reversed or reduced proposed settlements that companies had tentatively agreed upon. While the number of enforcement cases has risen, the number of cases involving significant players or large amounts of money has declined.
        Mr. Cox dismantled a risk management office created by Mr. Donaldson that was assigned to watch for future problems. While other financial regulatory agencies criticized a blueprint by Mr. Paulson, the Treasury secretary, that proposed to reduce their stature — and that of the S.E.C. — Mr. Cox did not challenge the plan, leaving it to three former Democratic and Republican commission chairmen to complain that the blueprint would neuter the agency.
        In the process, Mr. Cox has surrounded himself with conservative lawyers, economists and accountants who, before the market turmoil of recent months, had embraced a far more limited vision for the commission than many of his predecessors.

        ‘Stakes in the Ground’
        Last Friday, the commission formally ended the 2004 program, acknowledging that it had failed to anticipate the problems at Bear Stearns and the four other major investment banks.
        “The last six months have made it abundantly clear that voluntary regulation does not work,” Mr. Cox said.
        The decision to shutter the program came after Mr. Cox was blamed by Senator John McCain, the Republican presidential candidate, for the crisis. Mr. McCain has demanded Mr. Cox’s resignation.
        Mr. Cox has said that the 2004 program was flawed from its inception. But former officials as well as the inspector general’s report have suggested that a major reason for its failure was Mr. Cox’s use of it.
        “In retrospect, the tragedy is that the 2004 rule making gave us the ability to get information that would have been critical to sensible monitoring, and yet the S.E.C. didn’t oversee well enough,” Mr. Goldschmid said in an interview. He and Mr. Donaldson left the commission in 2005.
        Mr. Cox declined requests for an interview. In response to written questions, including whether he or the commission had made any mistakes over the last three years that contributed to the current crisis, he said, “There will be no shortage of retrospective analyses about what happened and what should have happened.” He said that by last March he had concluded that the monitoring program’s “metrics were inadequate.”
        He said that because the commission did not have the authority to curtail the heavy borrowing at Bear Stearns and the other firms, he and the commission were powerless to stop it.
        “Implementing a purely voluntary program was very difficult because the commission’s regulations shouldn’t be suggestions,” he said. “The fact these companies could withdraw from voluntary supervision at their discretion diminished the mandate of the program and weakened its effectiveness. Experience has shown that the S.E.C. could not bootstrap itself into authority it didn’t have.”

        But critics say that the commission could have done more, and that the agency’s effectiveness comes from the tone set at the top by the chairman, or what Mr. Levitt, the longest-serving S.E.C. chairman in history, calls “stakes in the ground.”
        “If you go back to the chairmen in recent years, you will see that each spoke about a variety of issues that were important to them,” Mr. Levitt said. “This commission placed very few stakes in the ground.”

        Related Searches

        Posted by at No comments:

        Friday, November 2, 2012

        Mitch McConnell Supress An Economic Analysis of the Top Tax Rates Since 1945

        Summary
        Income tax rates have been at the center of recent policy debates over taxes. Some policymakers have argued that raising tax rates, especially on higher income taxpayers, to increase tax revenues
        is part of the solution for long-term debt reduction. For example, the Senate recently passed the Middle Class Tax Cut (S. 3412), which would allow the 2001 and 2003 Bush tax cuts to expire
        for taxpayers with income over $250,000 ($200,000 for single taxpayers). The Senate recently considered legislation, the Paying a Fair Share Act of 2012 (S. 2230), that would implement the
        “Buffett rule” by raising the tax rate on millionaires.


        Other recent budget and deficit reduction proposals would reduce tax rates. The President’s 2010 Fiscal Commission recommended reducing the budget deficit and tax rates by broadening the tax base—the additional revenues from broadening the tax base would be used for deficit reduction and tax rate reductions. The plan advocated by House Budget Committee Chairman Paul Ryan
        that is embodied in the House Budget Resolution (H.Con.Res. 112), the Path to Prosperity, also proposes to reduce income tax rates by broadening the tax base. 

        Both plans would broaden the tax base by reducing or eliminating tax expenditures. Advocates of lower tax rates argue that reduced rates would increase economic growth, increase saving and investment, and boost productivity (increase the economic pie). Proponents of higher tax rates argue that higher tax revenues are necessary for debt reduction, that tax rates on the rich are too low (i.e., they violate the Buffett rule), and that higher tax rates on the rich would moderate increasing income inequality (change how the economic pie is distributed). This report attempts to clarify whether or not there is an association between the tax rates of the highest income taxpayers and economic growth.

         Data is analyzed to illustrate the association between the tax rates of the highest income taxpayers and measures of economic growth. For an overview of the broader issues of these relationships see CRS Report R42111, Tax Rates and Economic Growth, by Jane G. Gravelle and Donald J. Marples. Throughout the late-1940s and 1950s, the top marginal tax rate was typically above 90%; today it is 35%. Additionally, the top capital gains tax rate was 25% in the 1950s and 1960s, 35% in the 1970s; today it is 15%. The real GDP growth rate averaged 4.2% and real per capita GDP increased annually by 2.4% in the 1950s. In the 2000s, the average real GDP growth rate was 1.7% and real per capita GDP increased annually by less than 1%. There is not conclusive evidence, however, to substantiate a clear relationship between the 65-year steady reduction in the top tax rates and economic growth. Analysis of such data suggests the reduction in the top tax rates have had little association with saving, investment, or productivity growth. However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution. The share of income accruing to the top 0.1% of U.S. families increased from 4.2% in 1945 to 12.3% by 2007 before falling to 9.2% due to the 2007-2009 recession. The evidence does not suggest necessarily a relationship between tax policy with regard to the top tax rates and the size of the economic pie, but there may be a relationship to how the economic pie is sliced.
         For An Economic Analysis click here:
        http://graphics8.nytimes.com/news/business/0915taxesandeconomy.pdf 


                ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

         Congressional Republicans and their party’s presidential nominee have both pushed plans to cut taxes on the wealthiest Americans in hopes that such a move would stimulate the economy and aid the recovery from the Great Recession. A new study, however, indicates that tax cuts for the wealthiest earners fail to generate economic growth at the same pace as tax cuts aimed at low- and middle-income earners.
         
        The study, conducted by Owen M. Zidar, a former staff economist on President Obama’s Council of Economic Advisers and a graduate student at California-Berkeley, examined economic growth in the states with the most high-income earners. Zidar reasoned that “states with a large share of high income taxpayers should grow faster following a tax cut for high income earners” if the tax cuts had the economic effect conservatives claim.
        What he found, though, is that the effect of tax cuts for the rich was “insignificant statistically,” as Reuters’ David Cay Johnston reported:

        “Almost all of the stimulative effect of tax cuts,” Zidar found, “results from tax cuts for the bottom 90%. A one percent of GDP tax cut for the bottom 90% results in 2.7 percentage points of GDP growth over a two-year period. The corresponding estimate for the top 10% is 0.13 percentage points and is insignificant statistically.”

        Zidar’s study provides more empirical backing to what the U.S. has experienced over the last 30 years. Supply-side tax cutting policies have not led to the growth their Republican proponents promised. The Bush tax cuts, for instance, were followed by the weakest decade for economic expansion on record.
        Still, Republicans, some of whom admit that the Bush tax cuts didn’t lead to the desired growth, are sticking to their ideology. Republican presidential nominee Mitt Romney proposed a tax cut that is four times larger than the Bush tax cuts; the GOP has fought efforts to allow the high-income tax cuts expire at the end of the year, arguing that doing so would dampen growth; and Republican governors across the country have pushed tax cut packages aimed at the wealthy even as their states struggle with budget shortfalls.        http://www.defendingthetruth.com/topic/23172-new-study-finds-high-income-tax-cuts-dont-stimulate-economic-growth/

        Posted by at No comments:
        Subscribe to: Posts (Atom)