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Fraud in the financial industry that helped spur the crisis

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Senior Manager
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Joined: 30 Jul 2007
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Location: Europe
Schools: St. Gallen '09
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Fraud in the financial industry that helped spur the crisis [#permalink] New post 04 Apr 2009, 23:40
29 minutes long, but really insightful

http://www.pbs.org/moyers/journal/04032009/watch.html

The financial industry brought the economy to its knees, but how did they get away with it? With the nation wondering how to hold the bankers accountable, Bill Moyers sits down with William K. Black, the former senior regulator who cracked down on banks during the savings and loan crisis of the 1980s. Black offers his analysis of what went wrong and his critique of the bailout

William K. Black suspects that it was more than greed and incompetence that brought down the U.S. financial sector and plunged the economy in recession — it was fraud. And he would know. When it comes to financial shenanigans, William K. Black, the former senior regulator who cracked down on banks during the savings and loan crisis of the 1980s, has seen pretty much everything.

Now an Associate Professor of Economics and Law at the University of Missouri, William K. Black tells Bill Moyers on the JOURNAL that the tool at the very center of mortgage collapse, creating triple-A rated bonds out of "liars' loans" — loans issued without verifying income, assets or employment — was a fraud, and the banks knew it.
And while there is no law against liars' loans, Black points out that there are, "many laws against fraud, and liars' loans are fraudulent. [...] They involve deceit, which is the essence of fraud."

Only the scale of the scandal is new. A single bank, IndyMac, lost more money than the entire Savings and Loan Crisis. The difference between now and then, explains Black, is a drastic reduction in regulation and oversight, "We now know what happens when you destroy regulation. You get the biggest financial calamity of anybody under the age of 80."
Biography

William K. Black, author of THE BEST WAY TO ROB A BANK IS TO OWN ONE, teached 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.

Black 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.

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. 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.
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Re: Fraud in the financial industry that helped spur the crisis [#permalink] New post 05 Apr 2009, 04:44
Outstanding. Another quality post trader1. +1 imaginary kudo :)
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Re: Fraud in the financial industry that helped spur the crisis [#permalink] New post 05 Apr 2009, 18:58
There are a lot of good points in this argument, but it is also somewhat misleading in the presentation of some parts. I think there is a significant difference between explicit, implicit and, for want of a better work, suspected understanding of wrong-doing. I am not certain it goes so high in the NYC banks, and his targeting of Geithner after Indy-Mac is misleading that it would be under his jurisdiction.

A lot of interesting parts though, and I suppose he is a real fire-brand on the topic after the S&L so is probably better known for his position on such situations.
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Senior Manager
Senior Manager
User avatar
Joined: 30 Jul 2007
Posts: 385
Location: Europe
Schools: St. Gallen '09
Followers: 6

Kudos [?]: 56 [0], given: 5

Re: Fraud in the financial industry that helped spur the crisis [#permalink] New post 06 Apr 2009, 22:41
Re: Fraud in the financial industry that helped spur the crisis   [#permalink] 06 Apr 2009, 22:41
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Fraud in the financial industry that helped spur the crisis

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