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Bill Black: The Banks Are Still Insolvent, And Obama Is Not Only Covering It Up, He's Taking Credit!

Bill Black says you're doin' a heck of a job, Mr. President.


A look back at a Bill Black op-ed from last Fall.  Nothing has changed.

As part of their TARP propaganda tour, Obama officials from Tim Geithner to the president himself keep repeating the same lie statistic -- that solving the financial crisis will cost far less than the 2.5% of GDP it took to clean up after the S&L crisis.  In this piece, Bill Black gives withering criticism of Obama for playing extend and pretend with the TBTF banks -- the very same game the S&L regulators played during the 1980's.  It didn't end well back then, and it won't end well this time. 

Regardless, says Black in a new op-ed, the results, are clear:

For reasons that only Summers, Geithner, and Obama can know, they chose to adopt Pratt's disastrous and dishonest anti-regulatory strategy and parrot his dishonest claims of brilliance and success.  Congress passed the Prompt Corrective Action (PCA) law in 1991 for the express purpose of outlawing any repeat of Pratt's refusal to close insolvent banks.  Congress, at the behest of the Chamber of Commerce, the American Bankers Association (ABA), and Chairman Bernanke, successfully (and shamefully) extorted the Financial Accounting Standards Board to change the accounting rules so that banks no longer had to recognize losses on their toxic mortgage paper appropriately until they sold the assets.

Covering up the losses had three real (carefully unstated) purposes: (1) permitting evasions of the PCA [Prompt Corrective Action law], (2) allowing the banks to remove themselves from the strictures of the TARP program even if they are, in reality, insolvent, and (3) allowing insolvent and impaired banks to pay their senior executives huge bonuses on the basis of the (fictional) income that results when a bank does not recognize its losses.

The Bush and Obama administrations have consistently refused to apply any of the successful lessons learned in responding to the S&L debacle - even though the response has been praised by experts in public administration and Treasury Secretaries from both parties for decades. Both administrations refused to even discuss the current crisis with the senior S&L regulators that contained that crisis before it caused a recession. Obama thinks his response to the crisis was brilliant because it did not follow the S&L regulators' much more expensive strategy. Obama cited the comparison to the S&L debacle as the most telling demonstration he could make of why his administration deserves praise.

It's a Miracle!

What Obama does not understand is that his "cover up" strategy and his claims of brilliant success are direct steals from Dick Pratt's playbook. Dick Pratt was the top S&L regulator in 1981-83. When he left (to join Merrill Lynch) he claimed that he had contained the crisis through innovative resolution strategies that slashed the average historic costs (from over 20% to less than 5% of the S&L's assets). Pratt's "resolutions" were accounting scams that did not resolve anything. They did, however, transmute real insolvencies into fake assets and create guaranteed (fictional) accounting income. The scam was so crazy that the more insolvent the S&L acquired, the greater the fictional income that the deal created. Pratt did so many of these scam resolutions that they created so much fictional income and capital that the industry reported it had suddenly returned to profitability.

The reality was quite different. There was no miracle, only the cumulative results of multiple accounting scams. Pratt's resolutions did not resolve failed S&Ls.  They were still insolvent.

Continue reading...



A summary of Black's op-ed from last week:

  • The fraudulent CEOs looted with impunity, were left in power, and were granted their fondest wish when Congress, at the behest of the Chamber of Commerce, Chairman Bernanke, and the bankers' trade associations, successfully extorted the professional Financial Accounting Standards Board (FASB) to turn the accounting rules into a farce.
  • The FASB's new rules allowed the banks (and the Fed, which has taken over a trillion dollars in toxic mortgages as wholly inadequate collateral) to refuse to recognize hundreds of billions of dollars of losses. This accounting scam produces enormous fictional "income" and "capital" at the banks. The fictional income produces real bonuses to the CEOs that make them even wealthier. The fictional bank capital allows the regulators to evade their statutory duties under the Prompt Corrective Action (PCA) law to close the insolvent and failing banks.



Bonus Video:  Ratigan with Black and Inside Job Director Charles Ferguson

Click here for Ratigan's complete interview with Charles Ferguson.

  • "There have been ZERO criminal referrals."
  • “None of that is happening because the people in charge don’t look.”
  • “If you looked you would have seen fraud incidence in these mortgages in the 80% range and they could not have been sold.”
  • “The real losses are being hidden bby the Fed to the tune of trillions of dollars RIGHT NOW.”


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Reader Comments (17)

Credit goes to pitchfork for spotting this op-ed and doing the initial write-up...thank you...as always...
Nov 3, 2010 at 2:37 PM | Registered CommenterDailyBail
This latest piece from Bill Black is just about the most devastating short piece on this topic I've seen. Can you imagine Jake Crapper or someone quoting parts of this and then asking Obama to respond? Nope. I can't either.
Nov 3, 2010 at 3:08 PM | Registered CommenterDr. Pitchfork
This article was priceless.
Black is the ultimate appeal to authority in these matters, and this is the most succinct one-two punch he's delivered yet.
Nov 3, 2010 at 3:55 PM | Unregistered CommenterWil Martindale
“There’s certainly going to be more hearings and more pressure,” said Mark Calabria, a former Republican Senate Banking Committee aide who is now director of financial- regulation studies at the Cato Institute, a policy research group in Washington that favors free markets.


Bernanke Faces Greater Scrutiny After Republican Election Gains
Nov 3, 2010 at 11:13 PM | Registered CommenterDailyBail
The Federal Reserve is going back to Jekyll Island to celebrate the 100 year anniversary of the infamous 1910 Jekyll Island meeting that spawned the draft legislation that would ultimately create the U.S. Federal Reserve. The title of this conference is "A Return to Jekyll Island: The Origins, History, and Future of the Federal Reserve", and it will be held on November 5th and 6th in the exact same building where the original 1910 meeting occurred.

Meanwhile the Federal Reserve is saying "Americans are saving too much money so we need to purposely generate more inflation to get them spending again".

Haven't you "helped" us enough?
Nov 3, 2010 at 11:32 PM | Unregistered CommenterS. Gompers
The Ice-Cream Eater in Chief has cost us at least $6B more because of his illegal war in Libya. As many as 20,000 shoulder-fired, Stinger-like missiles have gone missing since the NATO intervention in Libya. That's right, by preventing a non-existent genocide in Libya (yeah, right), Obama and the girls in the WH have possibly put some very nasty weapons in the hands of Al Qaeda.

Because these missiles can take down airliners, Sen. Barbara Boxer is now proposing that Uncle Same pay to retrofit planes with laser-based anti-missile systems -- at a cost of over $6B. Jackasses.

Sep 27, 2011 at 9:35 PM | Registered CommenterDr. Pitchfork
@Dr. Pitchfork, Jackasses.
When did they get a promotion?

And this should not disturb anyone.

Sep 27, 2011 at 10:01 PM | Unregistered CommenterTR
No, TR, never. Not disturbing at all, that. Why would anyone worry when a member of Congress proposes the indefinite suspension of congressional elections?

What are you, some left-wing twit afraid to get the job done?

Errr, I meant, what are, you? A brownshirt? Someone who adheres blindly to the law in the face of ravenous lizards? Is your middle name "insane"?

Nothing to see here. Carry on.
Sep 27, 2011 at 10:19 PM | Unregistered CommenterCheyenne
Excellent links, thanks TR and Pitchfork.
Sep 28, 2011 at 10:50 AM | Registered CommenterDailyBail
So much could be learned from the S&L scandal, crisis, ongoing co-conspiracy. Not sugar and spice, but oil, banking, and so-called healthcare. The stuff billionaires are made of.
Sep 28, 2011 at 11:12 AM | Unregistered CommenterG Street
Bill Black: More Proof of Obama Policy of Covering Up for Elite Financial Criminals



These charges are exceptionally severe. Senior former regulators are willing to be quoted by name asserting that Obama’s (not Bush’s) financial regulatory leaders are blocking lawsuits against fraudulent financial elites and their anti-regulatory co-conspirators because they fear embarrassment. That would be a disgraceful policy. Indeed, it is hard to think of a worse reason for granting the elite white-collar criminals that caused the crisis and the Great Recession immunity from prosecution. The fact that Obama has no response rebutting this grave charge against his administration’s integrity sounds loud, but not proud.
Jan 11, 2012 at 3:40 PM | Unregistered Commenterjohn
Mar 3, 2012 at 10:21 AM | Registered CommenterJohn
William Black on JP Morgan and the Failure to Regulate Wall Street Fraud


Note: ilene does a nice job with this story.
May 24, 2012 at 6:23 PM | Registered CommenterJohn
Romney Messes Up, Tells the Truth About Austerity



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 truth -- adopting austerity during the recovery from a Great Recession would (as in Europe) throw the nation back into recession or depression. The latest example is his May 23, 2012 interview with Mark Halperin in Time
Jul 17, 2012 at 7:19 PM | Unregistered Commenterjohn
Group Of 30 Blames 'Economic Chaos' On Poor Bank Governance



NEW YORK, April 12 (Reuters) - The Group of Thirty, a private organization of influential regulators, financial executives and academics, has thrown its weight behind reform of corporate governance practices at the world's biggest financial companies, implicating executives, board members, shareholders and regulators for past failures.

"The global economic crisis, with the financial services sector at its center, wreaked economic chaos and imposed enormous costs on society," the G-30's year-old working group on corporate governance wrote in an 81-page report released Thursday by the group's Chairman Jean-Claude Trichet, the former president of the European Central Bank.

The report blamed "pervasive failure of governance at all levels" as a large contributor to the 2008-2009 financial crisis.

Note: "pervasive failure of governance at all levels" That should also include those who govern us.

Here is the report:



Weak and ineffective governance of systemically important financial institutions (SIFIs) has been widely cited as an important contributory factor in the massive failure of financial sector decision making that led to the global financial crisis. In the wake of the crisis, financial institution (FI) gover- nance was too often revealed as a set of arrange- ments that approved risky strategies (which often produced unprecedented short-term profits and remuneration), was blind to the looming dangers on the balance sheet and in the global economy, and therefore failed to safeguard the FI, its customers and shareholders, and society at large. Management teams, boards of directors, regulators and supervi- sors, and shareholders all failed, in their respective roles, to prudently govern and oversee.
Jul 17, 2012 at 8:26 PM | Unregistered Commenterjohn
Here is an absolutely outstanding hour and a half video from archives detailing exactly what happened during the S&L Crisis back in the 80's.

Jul 24, 2012 at 6:19 AM | Unregistered Commenterjohn
Gotta look back.
Mar 13, 2015 at 7:46 PM | Unregistered Commenterjohn

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