The Best Way to Rob a Bank Is to Own One – BILL BLACK (1/9)

Bill Black traces the history of modern American financial fraud starting in this episode with the S&L Banking scandal. Bankers continue to loot their banks, customers, and society to this day. Part 1/9 on theAnalysis.news with Paul Jay.

 

Transcript

Paul Jay

Hi, I’m Paul Jay. Welcome to theAnalysis.news, please don’t forget the donate button and the subscribe button if you’re on YouTube, and be back in a second.

In 2014, a billion dollars disappeared from three Moldovan banks. The Republic of Moldova is a tiny, landlocked country in Eastern Europe. How did a billion dollars do a vanishing act? That’s 12 percent of the country’s GDP.

As the title of Bill Black’s book says, the best way to rob a bank is to own one and that’s more or less what happened in Moldova. The heads of the three major banks created a Ponzi scheme between them, loaning and hiding money with each other, moving it offshore to hide the assets. A carousel borrowing scheme was applied. Loans in one bank were paid off with loans from another. The banking fraud in the United States that led to the crash of 07 and 08 makes the Moldovan scandal look like child’s play.

Here’s the thing, in Moldovia, many of those that were responsible for the fraud went to jail, in the U.S. other than one mid-level trader, it was none that went to jail. Not a single senior executive ever charged in one of the biggest financial frauds ever. Has the situation changed? Could such a scam repeat itself? A docuseries titled The Con breaks down what happened during those years leading up to 2007 08? Here’s a trailer from the docuseries.

Excerpt from The Con

“I’m neither an economist or a scholar. I’m just an average American who lost my home and very nearly my family to foreclosure when the market imploded, and I’ve spent almost every day since trying to find out why. Once the dust settled, it quickly became clear that my story was no different than millions of other Americans. We all thought that we were alone. We all thought that we’d failed, but none of us really knew why. With a gun in her hand, Addie Polk apparently shot herself in the chest as deputies were knocking on her door with eviction papers in hand. This dramatic increase in mortgage fraud cases was the canary in the mine. It was the warning. This was money chasing people. This was not somebody looking for a loan. It was all designed to maximize profits for all of the different players.

The person who sold you a loan made more money if they sold you a higher rate loan. They were sold a lot. They’re selling to their very clients these loans that they know are a disaster. I lost my home not because of money, because of fraud. I don’t believe Addie Polk took out the mortgage on my home. I don’t believe she signed any documents. They just generated all this junk, took home huge bonuses, and then when it collapsed, they said, oh, not us. This notion that the financial crisis was there wasn’t fraud and there wasn’t crime is absolutely wrong. It’s dead.

We were targeting, in many cases, minorities. We were waiting for the leadership to say, go, that never happened. The investigation was suppressed. This was all part of the same puzzle that was falling apart. This is the largest conspiracy of lies in the history of the world. This investigation has just begun.

Paul Jay

Now joining us to discuss the history and present state of what he calls control fraud is Bill Black, who’s in the film and was an adviser to its producers. Bill is an American lawyer, academic, author, and former bank regulator with expertise in white-collar crime, public finance, regulation, and other topics in law and economics. In fact, he’s an associate professor at the University of Missouri, Kansas City in Law and Economics. As I mentioned, he’s the author of the book The Best Way to Rob a Bank is To Own One. Thanks for joining us again, Bill.

Bill Black

Thank you.

Paul Jay

So, let’s start with this term you use, “control fraud’. What is it and when does this start to appear in finance?

Bill Black

Well, it started to appear in finance as soon as there was finance, and it isn’t unique to finance either. It’s obviously an ungainly term. I mean, what the heck is control fraud, and here’s the reason for the ungainliness. The insight we had was that when the people who control a seemingly legitimate entity, whether it’s the government or a nonprofit or a for-profit firm, are able to use that seemingly legitimate entity as a weapon to defraud and predate, and a shield that protects them largely against being held responsible, accountable for their depredations, then you’re going to get massively more harmful forms of fraud and predation. And why control? Because the context we developed it in was the savings and loan debacle and the most notorious fraud there was Charles Keating, and he never held the position with Lincoln Savings, the entity that he was using as his weapon and shield, yet he utterly controlled every aspect of the institution.

Paul Jay

OK, now I assume that a lot of our viewers, especially younger ones, but others as well, have no idea what you’re talking about. What happened during the savings and loan crisis? When was that? And out of that, how did the control fraud appear?

Bill Black

OK, so by the way, as we discuss this, it’s the 30th anniversary of one of the key events in that savings and loan debacle when that Charles Keating, who was the most notorious fraud, Looting his savings and loan, was able to bring together a whole series of senators to try to extort first the head of our agency and then a group of us who were the regional regulators in San Francisco, and they went on.

Paul Jay

What’s the agency?

Bill Black

Well, the agency was called at the time the Federal Home Loan Bank Board, but it was about to change its name to the Office of Thrift Supervision. So that gets a little complicated, and we were in a regional entity that had still another name. So, I’m going to avoid the names so much and describe what they functionally did most of the time in all of this. In any event, we realized that if you controlled the firm first, people wouldn’t believe that you would loot the firm. That seemed crazy to them, but of course, if you think about it, that’s who you can loot with impunity because you know where all the safeguards are. Indeed, you are supposed to be the principal safeguard. It’s like a homeowner who wants to commit insurance fraud, right? You have a code, and you turn off the home alarm system and you take the things out of your house. You can do that very easily. Well, the CEO can do that even more easily, and what we realized was they use seemingly normal corporate mechanisms to do this. They just use accounting to massively overstate earnings, and then under modern executive compensation, that automatically triggers a huge bonus, and the company then pays the CEO and the other officers these huge bonuses.

If you stuck your hand in the till in America as a CEO and took just ten thousand bucks, you’d go to prison for 20 years, but you could take out twenty million, forty million, two billion, through the mechanisms I just explained and never go to jail. This was a really sweet scheme that people had developed, and the way we figured it out is we did autopsies of every failure in the savings and loan debacle. Everybody knew. Everybody told us it’s not fraud, it’s just people “gambling for resurrection”. It was almost a Christian, type of thing, right? The bank was losing money, and so the valiant CEO took high-risk, and sadly, they often lost those high-risk gambles and such. We said no, that doesn’t make any sense, and here are two reasons it doesn’t make any sense. So first, if you were just gambling, you wouldn’t have the pattern of purported success that they were reporting, right? If you’re taking a bunch of high-risk honest gambles, you’d win some big you’d win a few small and you’d lose a lot big. Right.

Paul Jay

Now, the gambles are loans they’re making.

Bill Black

That’s right. The gamble is making riskier loans, went the logic. You would expect to see a pattern like that, some winners, some losers type of thing. Except that everybody that followed this pattern that we identified as actually being looting, looting the savings and loan through accounting fraud, reported winning at first and not just winning, but winning at first, right, and they were literally reporting in places like Lincoln Savings, Vernon’s Savings, which we in the regulatory ranks refer to as vermin. Right, by the time we got through the speaker of the House, Jim Wright’s efforts to prevent us from taking the place over, 96 percent of its loans were in default.

Paul Jay

Give us an idea how many banks were involved and when was this? This is during Reagan.

Bill Black

This is Ronald Reagan. This begins in 1981-ish. So right at the beginning of the Reagan revolution, and it’s facilitated through the first appointee as the top regulator for savings and loans by Ronald Reagan. An academic account economist Dick Pratt, very smart, very quick, clever guy type of thing, but a huge believer in laissez-faire.

He deregulated and he said, hey, we have this, in jargon, it’s called a natural experiment, because there are many different jurisdictions in the United States. 50 different states, and they have different state regulatory patterns. So, we’ll look and find in all of the United States which state has the most successful savings and loans, and then our deregulation will emulate their deregulation where they’ve already deregulated, and they looked and they said Texas, Texas is the model that you need to follow. It’s far and away reporting the best results. Well, of course, it was that’s where the fraud started because that’s where the deregulation started, and the frauds are a sure thing. They are mathematically guaranteed if you follow what we identified as the recipe for accounting control, fraud for looting. If you follow that recipe, it is a sure thing, right? You will absolutely report record profits. They won’t be real, but you’ll report record profits. So, he used the worst possible model for his deregulation and then he deliberately set off what economists called a race to the bottom, which they thought was a good thing because regulation, bad, deregulation, good.

Remember this. In fact, it had begun with Jimmy Carter at the national level before Ronald Reagan. Both parties really believed in this deregulation stuff. So great, Texas is deregulated already, now the United States at the federal level will deregulate even more than Texas. That will set off a race to the bottom where Texas and California will try to deregulate even more and for good reason. In the United States, we have this doctrine called supremacy of the federal government, which means that we can preempt any state efforts to get in the way. So, if the feds deregulate, the state can’t do anything to you, but if the state can’t do anything to your savings and loan to either help you or hurt you, why should you make political contributions to the state banking chairman of the Senate or House answer. You wouldn’t, so that was a powerful incentive to keep the flow of money to the key committee chairmen to deregulate, and California and Texas won the race to the bottom, and these two states produce 60 percent of the total losses out of the savings loan debacle of the 1980s and 1990s.

So good policy, right, in all of these things, in our jargon, I have a doctorate in criminology and I study elite fraud and corruption principally within those fields. This is going to mean what we call a criminogenic environment, and that’s a direct steal from natural science, where we talk about pathogenic environments, an environment, like a cesspool that produces lots of bacteria and viruses and such and causes lots of infections where you get the same thing happening throughout whatever portion of the economy you deregulate.

In particular, finance is most susceptible to this. So they deregulated at the worst possible time in the worst possible way, and they said simultaneously, they put in writing, we don’t have to worry about no stinking fraud. Fraud is inherently trivial. Right, and I’m not overstating. I mean, it’s not the exact words, but I’m not overstating.

Paul Jay

Who said that?

Bill Black

The head of the agency [Dick Pratt], a top academic economist, expert in finance, said.

Paul Jay

Well, were they in on it? The fraud?

Bill Black

What my saying is of this era, it always is. The sad fact is you didn’t have to bribe anyone. They really believed in laissez-faire, so to skip ahead a few years, there’s this road to Damascus experience. Apparently it’s a big biblical day in our talk. His successor, Ed Gray. Now, his successor is a personal family friend of both of the Reagans, Mrs. Reagan as well. Critical to his survival, and he’s a PR guy, right, that’s his thing. So, in the midst of the worst financial scandal in U.S. history at the time, President Reagan says, let me put a PR guy in charge, because what the hell, right? And the trade association, which political scientists rated the third most powerful in the United States. It was called the League of Savings Institutions. They go and tell Ed Gray, you’re getting this position because of us. We lobbied with the administration and we lobbied to get you because we were sure you would do what we want done, they tell him this and he tells us the senior staff. So, this is the world, and then two things happen. First, the examiners, the examiners are the people that actually go out into the field and they don’t just look at what the institution writes in propaganda policies and such. They look at what’s actually happening. They’re the people closest, and it turns out to that to be able to run the scams I’m talking about, you have to destroy what’s called the loan underwriting process. Now, that’s insane because the loan underwriting process is what makes banks profitable, honestly profitable.

Paul Jay

They evaluate the risk.

Bill Black

Should we take it and if so, at what price? Right. So, it’s the most critical thing that you would never do if you were an honest banker, which is of course how spoiler alert, we’re going to convict of felonies over a thousand elites, out of the savings and loan debacle, completely different than what’s going to happen in the great financial crisis. OK, so Ed Gray comes in and the first thing he does is he listens to the examiners.

They put in every month these Significant Supervisory Cases, and this is the coming problem. There are roughly three thousand savings and loans and the number in this SSE case book grows from around one hundred to around five hundred. OK, and they are short write-ups, but Gray reads them religiously and he goes. Oh, shit. None of this is running the way the economists claim it’s running, it’s a coming disaster, and then he has the peak of his road to Damascus experience. This wonderful, laconic Texan, with a pronounced Texas twang, no art at all, in a Texas accent, but he knows his stuff about underwriting and such, and he drives and he’s taking pictures like the eight-millimeter stuff in those days. This is 1982-ish, 1983-ish. So, he’s driving for miles with the camera stuck out and narrating as he’s going along. In an utterly no inflection voice. He’s not excited, Gray calls it financial pornography, watching it because it’s mile after mile after mile of real estate developments that aren’t really being developed where they are just wasting all the material. You can see it rotting on the ground and it goes on for over an hour driving around this huge complex, even goes up in a plane and does the same thing looking down. Many of these things were so bad that they never got beyond the concrete pad for the home.

Paul Jay

And these are all phony loans for building these things.

Bill Black

Right, we call them Martian landing pads. Gray, who’s this ardent anti-regulator; He really loves Ronald Reagan and Mrs. Reagan, goes this is obscene and it’s going to produce a catastrophe. It is my duty, though, I hate it, to try to do everything I have to throw myself in front of this bus. He predicts to us that it will destroy his career both in business and in politics. He’s like 52 prime, super high in a significant position, a riser, and a personal friend, as I say, of the folks, and he knows it’s going to piss off the Reagans. He starts re-regulating. Charles Keating, alleged super Christian, who’s actually a massive fraudster, is an incredible lobbyist, and since he’s looting Lincoln Savings, what does he care? He knows the institution is going to fail if you spend an extra 20 million on lobbying. So what? So he lobbies like crazy. He hires Alan Greenspan as a lobbyist. Alan Greenspan personally walks around the Senate recruiting the five U.S. senators who will become known as the Keating Five when they meet with us on April 9th, 1987, to try to extort us to not take enforcement action against Lincoln Savings on behalf of and I quote “our good friend Charles Keating” type of thing. When Gray begins this reregulation, this majority at the express request of Charles Keating’s lobbying effort. Keating was a top 100 granter, a donor to Reagan and Bush. He was very politically connected. A majority of the House of Representatives co-sponsored a resolution telling us to stop the re-regulation. The entire leadership of both parties in the House signed that. So think of this, you’ve got the president against you, Vice President Bush is running the financial deregulation task force. He hates you, the chief of staff, the former Marine, the former head of Merrill Lynch hates you and is against you. OMB is trying to destroy you. OMB files a criminal referral against Ed Gray on the grounds that he’s closing too many insolvent savings and loans.

Paul Jay

And how many had he closed by that point? But they were insolvent.

Bill Black

Yes, but you have to understand the highest priority of the Reagan administration vis a vis the savings and loan debacle at all times, the red line was that you could not say it’s going to require a federal bailout, because that would mean the federal deficit was really $150 billion bigger and of course, President Reagan’s top priority was getting the tax cut, and the argument against it was the deficit swelling, and so if they had to admit that the deficit was really much larger, they might not get the tax cut.

Paul Jay

The hole of the bank debt was about 150 billion bucks?

Bill Black

The hole in the insurance fund, so the industry was insolvent on a market value basis by roughly $150 billion, and there were $6 billion in the insurance funds still. So, we went to work every day wondering whether there was going to be a nationwide run for five years.

Paul Jay

How much of this was public at this time?

Bill Black

It was not made public because this was the red line, right? Gray knew that if he crossed this red line he’d be removed immediately. So, we just didn’t talk about how much it was ultimately going to cost, we just went about trying to make sure it cost as little as possible.

Paul Jay

So, thousands of banks are involved in fraud?

No, three hundred savings and loans were growing more than 50 percent annually, and we’re following this looting strategy of fraud, but Gray’s first action, which was before he saw the Texas guys tape, the financial pornography, just reading the examiners Significant Supervisory Cases. The first thing he did, which was in November of 1983, which was essentially when the deregulation that his predecessor had put in place was kicking in, Gray stopped any new savings and loans from starting in California, Texas, and Florida, and the frauds, were almost always real estate developers who were failing, and of course, the dream of every real estate developer is to own their own captive lender like a bank or a savings and loan, because that’s what you need as a real estate developer– funding. If you have your own bank or savings and loan, that’s never an issue type of thing. So, this was like the dream of all time for these sleazy developers.

Paul Jay

And whose money is in these savings and loan?

Bill Black

Well, overwhelmingly ours, right? They are deposits. In America as opposed to other countries the liability side of a bank is almost entirely deposits and in the American context, almost all of those deposits are fully insured by the federal government. So, who’s on the hook really? The taxpayers are on the hook. Europe has many more large loans, typically from other banks. That is uninsured hot money, as it’s called. So, you can see Gray is going to commit political and career suicide and knows that he’s going to commit it. The trade association, of course, instantly turns against him as well. So, if you look at the correlation of forces as the military talks about it, it’s everybody on one side against Gray and pretty much Gray on the other. So obviously, we’re going to lose, and here’s the remarkable thing, yeah, we lost personally. We’re unemployable in government, but we stopped this raging epidemic of fraud and the new entrants. Gray by saying no more of these real estate developers are going to come in the door in California and Texas and Florida, he prevented it from becoming any kind of even mild recession, much less a great financial crisis. That’s just the second stage.

The third stage turns out to actually be the great financial crisis, and for that, you have to know what Gray’s big legacy was. Gray did something really simple. He knew, as I said, that the two great disasters were California and Texas, so he asked everybody he had respect for who were the two top financial supervisors in America, and then he personally recruited them, and appointed them in California and Texas.

The guy in Texas was Joe Selby, who had twice risen through the ranks at the Office of the Comptroller of the Currency, the acting comptroller of the Currency, but of course, he would never be made head because you’d have to be politically powerful to get that kind of thing. So getting him was a real coup and he put him in the absolute worst place, which was Texas. Selby was from Texas. Selby knew that this was going to end disastrously for him because Selby was gay, and the speaker of the House, the Democratic speaker of the House, Jim Wright called up Ed Gray and demanded that Gray get rid of Selby on the grounds that Selby was a homosexual. This is how recently these things were that badly screwed up. Even after we brought Charles Keating down, he sued, and one of his lieutenants began a deposition demanding to know who the employees at the Federal Home Loan Bank of San Francisco, where I was the top lawyer by then, were homosexuals. Under the allegation that gays are secretive, and they must have a secret conspiracy against Charles Keating because he’s a Christian. The chief judge, based on what we call a proffer by the lawyer that says, I have a good faith basis for this conspiracy. I’m not just making this shit up right – the judge, the chief judge in Arizona, which is where Lincoln Savings Home was, the parent company, allowed those questions. Now, after that good faith basis, the second question of that lawyer was, have you ever heard a rumor about who might be gay at San Francisco Bank, which is kind of inconsistent with a proffer. Our moderately senior supervisor who is being deposed came back at lunch break in absolute tears. She was just completely broken down by this outrageous treatment, and so this is the first I hear about it and I say the deposition is over, we are going to go for emergency writ in front of the judge, and of course, we destroyed them in that. They had absolutely no basis, but at that hearing, they started the hearing by making a motion to exclude me from the courtroom.

The lawyers for the Keating lieutenant say you shouldn’t allow Bill Black to be in this room, and the judge said that may have worked with Danny Wall, Gray’s infamous successor who caves into Keatings demands and extortion, but it is not going to work in this courtroom, and then because he’d been lied to in the proffer, he basically chopped the heads off these folks. That lieutenant I saw in other depositions. I went up to him and told him how scurrilous I thought he was. He said, I can’t be bigoted. I’m black. Well, I guess you proved it. Again, people forget how recently this kind of homophobia was absolutely dominant and could destroy executives. The point is, Selby prevented a Texas disaster from becoming a Texas catastrophe, knew it would lead not under Gray, but under his successors to his being smeared and fired and did it anyway for America. Mike Patriarca, a name people have not heard was his counterpart in California that I worked with, and he stopped the first aspect that I’ve talked about, this looting.

Now, I want to transition to the second aspect, which Patriarca also stops, and that is what becomes the great financial crisis, which actually is the third act of the savings and loan debacle of the early 1990s. This is literally true, Orange County, California, is the financial fraud capital of the world, not America, the world. We were out there and California had jurisdiction over it, and so the examiners came to us. Again, the examiners are the hero of this story, and they said there’s a new scam, and you’ve got to stop it.

Paul Jay

What year are we in?

Bill Black

This is 1990. All right, there’s a new scam and you’ve got to stop it now. So in 1990, we are still dealing with the second act of the savings loan debacle, the looting that I was talking about, and we are incredibly overwhelmed.

Is anybody charged at this point?

Oh, yes, hundreds, but you’re right to ask. It doesn’t happen immediately and I’ll bring you back, but I’ll tell that story briefly. No one was being charged in the 1980s. There wasn’t even a criminal referral system that was coherent. So first under Gray. Gray said, look, here are two top priorities. One, get the frauds out of controlling the savings and loan because as long as they’re in control, the losses are going to mount exponentially. Two, once you get them out, hold them personally accountable wherever possible by criminal prosecution. Also by lawsuits, not against the savings and loan, lawsuits against them, where you grab their funds.

So that’s what we did. So we figured out we had to develop a criminal referral system. So we started making referrals and soon we were making thousands of referrals. We decided to make them public every month. Well, this is back in the day when there were actually more reporters in places and pretty soon places like The Washington Post noticed. There are five thousand criminal referrals and only three prosecutions. What the hell’s going on? And they would start writing stories.

Paul Jay

Criminal referral means your agency tells the Department of Justice there’s a case here. It’s a referral to the DOJ. Am I right?

Bill Black

That is correct, And the FBI. They’re not just, hey, we think we got a problem. We had criminal referral coordinators and they met periodically with their counterparts, the FBI and Department of Justice. We got feedback on every major referral and then we would retrain folks about, OK, this is what they want, they think is weak. This is the strong part, and it got better and better. Continuous improvement regime and B school type jargon. These became superb. In major cases, the text was 40, 60 pages, and 200 to 400 pages of attachments with all kinds of easy things about how to find the most useful stuff. We really set out the entire path to make the prosecution successful.

Paul Jay

So, hundreds of these types of referrals and how many actual charges at that point.

Bill Black

So, thousands of these referrals and in the mid-1980s, essentially two or three prosecutions. The attorney general actually puts in his memoir that they just got tired of getting bashed with all of this. When a new guy comes in after the disgraceful Danny Wall, who gave in to the pressure of the five senators and the speaker of the House. The new guy was Tim Ryan. This is Bush one appointing Tim Ryan to be the new head of the agency. A very bright lawyer, and he hires a very aggressive litigator as his person because as he explains to me personally, he met with Bush and Bush said, corruption-george-h-w-bush

OK, new regime. He gets appointed in like 1992-ish and such there are over 20,000 thousand criminal referrals, by then there were 30,000 criminal referrals. By then there were a meaningful number of prosecutions, but Tim Ryan also sacrificed his career for the public knowingly, and what he did is bring an enforcement action. We massively increased enforcement actions as well. He brought an enforcement action against the son of a sitting president of the United States of America, and he’s been unemployable since.

Paul Jay

Which one?

Bill Black

Neil Bush. He’s the guy that brought that enforcement action and everybody knew what was going to happen if he did that, he was a super-fast tracker.

Paul Jay

If you go back to Gray and the gentleman you’re talking about now and you and your team, if all of you had caved to the pressure, what would have happened?

Bill Black

Something akin to the great financial crisis would have happened in the mid-90s.

Paul Jay

Which means these banks would have all failed, the federal insurance plan would have to have stepped in at the rate of.

Bill Black

Oh, it couldn’t have. They would have had to bail out the insurance plan, not in terms of billions, which they did eventually, but in trillions of dollars.

Paul Jay

Now, the Reagan administration, the professionals even on Wall Street, they must know this is how it’s unfolding, and you said earlier they don’t want this to go public because how do you do a tax cut in the midst of all this? So, I mean, it’s really part of the fraud that this keeps getting covered up.

Bill Black

Yeah, but I would go easy on the idea that they knew, right? Remember, the conventional wisdom that I gave you from Dick Pratt was well fraud by elites can’t ever be serious.

Paul Jay

Right, one person doing a $20 check is serious.

Bill Black

Well, they look like us, they can’t be real crooks. They dress nicely. They speak well. They can’t be real crooks; they can’t cause real problems.

Paul Jay

But when Gray gets his head around how serious this is and he’s a friend of Reagan. He must tell Reagan. So, from at least that point on.

Bill Black

No. Your point is absolutely logical, and I went to Ed Gray to make exactly that point. I said, you’re a personal friend. Tell him, and he said, you don’t understand, it’s impossible. I guarantee you, he’s right, because I know Ed Gray, not because I know Ronald Reagan. If Ed Gray says it was absolutely impossible, it was.

Paul Jay

Yeah, but from what I’m learning about Reagan. I’ve just been interviewing the guy Matt Tyrnauer who did this four part series called The Reagans for Showtime and reading some other stuff. Reagan didn’t want to hear what he didn’t want to know, not because he didn’t know, but he didn’t want to hear what he didn’t want to know.

Bill Black

Yeah, but what does he know about banking?

Paul Jay

Nothing, he just knows that the people that help make him president want such and such, so he doesn’t go against them.

Bill Black

As human beings, we are primed for those people that help us the most. They’re the last people in the world we see as cheats and fraudster’s, and Charles Keating was one of his leading donors.

Paul Jay

Was Keating part of that kitchen cabinet that helped get Reagan to run?

Bill Black

No, but Ed Gray was at the savings and loan that was at the heart of the San Diego savings and loan that was at the heart of that kitchen cabinet.

Paul Jay

Because, I mean, they deliberately created Ronald Reagan to be a front man for their agenda.

Bill Black

But again, that’s the point, right? So, Don Regan is his consiglieri. Don Regan is the self-professed Marine tough guy who his first words out of his mouth when he meets Ed Gray is you’re going to be a team player, aren’t you? And felt that he could intimidate folks and by the way, the very first thing the Bush administration did within months, its first major legislative proposal, was to make sure that this could never happen again. Now, this is not the crisis. This is Ed Gray. Could never happen again.

Paul Jay

Really?

Bill Black

Yeah, so the first thing the legislation did– we were an independent regulatory agency and they eliminated that and made it a bureau within the Treasury – a member of the executive branch, so that there could never be someone independent using their judgment again, I’m quite serious. That’s the first thing that they decided to get away with. So, again, you get this immensely successful prosecution. Let me make clear how successful this was. Our key strategic disadvantage, of course, was money. In the form of lobbying, in the form of political contributions. That’s how the terrible things were happening. That’s how at the behest of Charles Keating, the most notorious fraud in America, our jurisdiction in San Francisco, was removed over Keating, at the demand of the five senators and the speaker of the House, Jim Wright, and the cowardice of Gray’s successor, Danny Wall. For the first time in U.S. regulatory history, he removed the jurisdiction at the demand of the crooks because we had insisted on going forward with our recommendation that it be taken over by the federal government and we had made a criminal referral.

Paul Jay

And you’re including these senators in the crooks, these five.

Bill Black

Well, they were assisting the crooks. You can see my notes of the meeting, which is what made it something before the Senate Ethics Committee. Ultimately the only way to get them to back off was to tell them we were about to make a criminal referral and do they really want to be going full force for a massive felon.

Paul Jay

OK, we’re going to end this here and do a part two and I don’t know how many other parts, but we’re going to let this story unfold. And in the next part, I’m going to start by asking Bill, a thousand prosecutions or more. Some people actually went to jail out of all this, and by 2007, 2008, as this whole subprime of the crisis that unfolds, another massive essentially financial fraud, the people involved are not very worried about going to jail. So why when so many people eventually did go to jail, do the next crop of these fraudsters seem absolutely unconcerned that this is going to come down on their heads. So we’ll take that up in the next part with Bill. Thanks for joining us on theAnalysis.news. Thank you, Bill, and look out for part two of our series.

Federal Arrests Show No Sign that Antifa Plotted Protests

Despite claims by President Trump and Attorney General William P. Barr, there is scant evidence that loosely organized anti-fascists are a significant player in protests.

Inciting a riot. Hurling a Molotov cocktail. Plotting to sow destruction. Those are some of the most serious charges brought by federal prosectors against demonstrators at protests across the country in recent weeks.

But despite cries from President Trump and others in his administration, none of those charged with serious federal crimes amid the unrest have been linked so far to the loose collective of anti-fascist activists known as antifa.

A review of the arrests of dozens of people on federal charges reveals no known effort by antifa to perpetrate a coordinated campaign of violence. Some criminal complaints described vague, anti-government political leanings among suspects, but the majority of the violent acts that have taken place at protests have been attributed by federal prosecutors to individuals with no affiliation to any particular group.

Even so, Attorney General William P. Barr has blamed antifa for orchestrating the mass protests, which broke out in cities and towns across the country following the death in police custody of George Floyd. “There is clearly some high degree of organization involved at some of these events and coordinated tactics that we are seeing,” Mr. Barr said. “Some of it relates to antifa, some of it relates to groups that act very much like antifa.”

Mr. Trump has sought to expand and exploit accusations against what he has called the involvement of “radical leftists” in the protests. At one point the president said that antifa would be declared a “terrorist organization,” although it is not a single organization nor does any American law allow using that designation against a domestic group. On Tuesday, the president suggested on Twitter, without providing any evidence, that a 75-year-old Buffalo protester hospitalized after being knocked down by police, could be “an ANTIFA provocateur.”

Mr. Trump and other Republicans have also sought to raise campaign funds off the unsubstantiated accusations. “Stand with President Trump against antifa!” read a banner advertisement on Mr. Trump’s re-election campaign website this week.

Marjorie Green, a congressional candidate in Georgia, produced a campaign ad showing her armed with an AR-15 military-style rifle and threatening antifa activists. “You won’t burn our churches, loot our businesses or destroy our homes,” she said.

Asked why the myriad criminal complaints do not single out antifa, Mr. Barr said on Fox News this week that preliminary charges do not require linking suspects to a particular group, adding that there was, “a witches’ brew of extremist groups that are trying to exploit this situation on all sides.”

F.B.I. agents and federal prosecutors have pursued charges aggressively against rioters, looters and others accused of wreaking havoc during the demonstrations. Law enforcement officials have relied on a variety of federal statutes to make arrests, including conspiracy to commit arson, starting a riot, civil disorder and possession of a Molotov cocktail.

The most serious case that has emerged in federal court involved three men in Nevada linked to a loose, national network of far-right extremists advocating for the overthrow of the U.S. government. They were arrested on May 30 on charges of trying to foment violence during Black Lives Matter protests.

Given the sheer volume of thousands of arrests nationwide in recent weeks, officials cautioned that many investigations remain in the early stages with investigators still trying to determine affiliations. In addition, state and local court documents are far harder to search comprehensively.

However, interviews with several major local police departments and a review of hundreds of newspaper stories about arrests around the country revealed no evidence of an organized political effort behind the looting and other violence.

“We saw no organized effort of antifa here in Los Angeles,” said Josh Rubenstein, the spokesman for the Los Angeles Police Department.

Asked in an interview about the involvement of antifa or other extremists groups in Minneapolis, Medaria Arradondo, the chief of police, said, “As I sit here today, I have not received any sort of official information identifying any of the groups.”

In the one example where antifa is mentioned, local police in Austin, Texas, said members of the Red Guards, a Maoist organization, were involved in organizing the looting of a Target store. The Red Guards have been associated with antifa protests in Austin in the past, but local activists said they were largely estranged from the group.

While anarchists and anti-fascists openly acknowledged being part of the massive crowds, they call the scale, intensity and durability of the protests far beyond anything that they might dream of organizing. Some tactics used at the protests, like the wearing of all black and the shattering of store windows, are reminiscent of those used by anarchist groups, say those who study such movements.

In Portland, those affiliated with Rose City Antifa said they have supported the continuing protests. But the city’s antifa actions have long involved a wide range of people, some who dress in black apparel and face coverings and others who show up in everyday clothing to decry far-right extremists and police militarization. There has also been various far-left activities in Seattle, including people who have spray-painted anarchist symbols on public property.

Antifa has roots in the Occupy Wall Street protests of a decade ago and the demonstrations against the World Trade Organization in the 1990s. During Mr. Trump’s inauguration, antifa activists marched in Washington vandalizing businesses and at one point setting fire to a limousine.

Over the next several months, its followers disrupted events hosted by right-wing speakers like Ann Coulter and Milo Yiannopoulous. When the far right fought back, organizing its own public protests, anti-fascist activists met them on the streets in what often turned into violent confrontations, culminating in the bloody rally in 2017 in Charlottesville, Va.

Anarchists and others accuse officials of trying to assign blame to extremists rather than accept the idea that millions of Americans from a variety of political backgrounds have been on the streets demanding change. Numerous experts called the participation of extremist organizations overstated, as well.

“A significant number of people in positions of authority are pushing a false narrative about antifa being behind a lot of this activity,” said J.M. Berger, the author of the book “Extremism,” and an authority on militant movements. “These are just unbelievably large protests at a time of great turmoil in this country, and there is surprisingly little violence given the size of this movement.”

In July 2019, Christopher Wray, the F.B.I. director, told the Senate Judiciary Committee that the agency “considers antifa more of an ideology than an organization.”

In Las Vegas, the complaint filed in U.S. District Court said the three suspects called themselves members of the “boogaloo,” which is described as a far-right movement “to signify a coming civil war and/or fall of civilization.”

At an initial protest, the three strapped on bulletproof vests, grabbed their rifles and waded into the crowd, hoping to provoke clashes between protesters and the police, according to court papers. One taunted police officers, yelling in their faces, while a second chided protesters “that peaceful protests don’t accomplish anything and they needed to be violent,” the complaint said.

When that failed, they plotted to blow up an electric substation along the route of the demonstration in the hope that would prompt more violence between police and protesters, according to the complaint. They were arrested after preparing Molotov cocktails from gasoline and lemonade bottles before a march.

Robert M. Drascovich Jr., an attorney for one of the accused, Stephen T. Parshall, 35, said his client denied all the charges.

Individuals associated with the boogaloo movement have been out in force at countless demonstrations in the past few years, clad in their distinctive combat dress and armed with rifles. They often claim that they appear armed in public to underscore their commitment to Second Amendment rights, or to protect local businesses.

But online, boogaloo discussion groups overflow with racist statements and threats to exploit any unrest to spark a race war that will bring about a new government system.

In Denver, police seized a small arsenal including three assault rifles, numerous magazines, several bullet proof vests and other military paraphernalia from the car trunk of a self-professed “boogaloo” adherent headed toward a protest, a man who had previously live-streamed his own support for armed confrontations with police.

After a demonstration in Athens, Ga., on May 31 ended with the National Guard being called in and tear gas fired to clear protesters away from the gates of University of Georgia, Chief Cleveland L. Spruill wrote a lengthy memo spelling out his concerns around extremist involvement in the protests.

Given the volatile mix of protesters, including armed men, he said, he feared a repeat of Charlottesville. Some participants called such fears overblown given the overall peaceful tenor of the protest.

In New York, police briefed reporters on May 31, claiming that radical anarchists from out of state had plotted ahead of the protests by setting up encrypted communications systems, arranging for street medics and collecting bail funds.

Within five days, however, Dermot F. Shea, the city’s police commissioner, acknowledged that most of the hundreds of people arrested at the protests in New York were actually New Yorkers who took advantage of the chaos to commit crimes and were not motivated by political ideology. John Miller, the police official who had briefed reporters, told CNN that most looting in New York had been committed by “regular criminal groups.”

In Austin, Texas, court documents said several members of the Red Guards participated in burglarizing a Target store, including a woman who streamed the event on Facebook Live, encouraging people to come “even if you do not want to loot,” one affidavit said.

Although the court documents identified the Red Guards as part of the city’s anti-fascist umbrella organization, several Austin activists described the group as either defunct or estranged from one another because of their penchant for troubling acts like laying a dead cat on the doorstep of a business involved in a gentrification dispute.

Kit O’Connell, a longtime radical leftist activist and community organizer in Austin, said that shortly after Mr. Trump’s election, the group took part in anti-fascist protests in the city against a local white supremacist group and scuffled separately with Act for America, an anti-Muslim organization.

They’ve been an influence at the protests but they’re not in charge — no one’s really in charge,” Mr. O’Connell said.

Carl Guthrie, a lawyer for Samuel Miller, one of those charged with burglary, denied that his client had any connection to the Red Guards. He called such accusations “a transparent, incendiary attempt to distract from the problems plaguing our society systemic racism and state-sponsored murder.”

Experts on extremism said the few suspects arrested with overt political goals fall under the broad category of “accelerationists,” groups that hope to exploit any public unrest to further their own anti-government goals.

Betsy DeVos openly admits she’s using the pandemic to impose her private school choice agenda

“Yes, absolutely,” DeVos replied when asked if she was trying to “utilize” the crisis to help “faith-based schools”

Secretary of Education Betsy DeVos admitted that she was trying to use the ongoing coronavirus crisis to push through her private school choice agenda during a Tuesday radio interview.

DeVos made the comments during an interview with Cardinal Timothy Dolan, the archbishop of New York, on his Sirius XM show. The interview was first flagged by the nonprofit education news outlet Chalkbeat.

Dolan asked the secretary whether she was trying to “utilize this particular crisis to ensure that justice is finally done to our kids and the parents who choose to send them to faith-based schools.”

“Am I correct in understanding what your agenda is?” he asked.

“Yes, absolutely,” DeVos replied. “For more than three decades, that has been something that I’ve been passionate about. This whole pandemic has brought into clear focus that everyone has been impacted, and we shouldn’t be thinking about students that are in public schools versus private schools.”

Department of Education spokeswoman Angela Morabito said in a statement to Chalkbeat that DeVos “is helping Catholic schools just as she is helping all schools; this does not mean she is favoring any one type of school over another.”

“There is no question that this crisis has impacted all students — no matter what kind of school they’re enrolled in,” she added.

DeVos’ comments came as she defended her decision to redirect coronavirus relief funds away from public schools with high numbers of impoverished students to private schools which tend to serve wealthy students. Congress allocated about $13.5 billion to help schools, most of which was intended to go to schools based on a formula that determines how many poor children they serve.

The formula has long allocated some of the funding for poor children who attend private schools, The Washington Post reported. But DeVos said states should calculate how many total students private schools serve rather than just the number of poor students. As a result, millions in aid will be redirected away from schools with high poverty rates to private schools which may not have many poor students.

The move drew criticism from lawmakers on both sides of the aisle.

“My sense was that the money should have been distributed in the same way we distribute Title I money,” Sen. Lamar Alexander, R-Tenn., the chairman of the Senate Education Committee who is typically a DeVos allytold reporters Wednesday. “I think that’s what most of Congress was expecting.”

Democrats also decried the decision.

“[The guidance] seeks to repurpose hundreds-of-millions of taxpayer dollars intended for public school students to provide services for private school students, in contravention of both the plain reading of the statute and the intent of Congress,” House Education Chairman Bobby Scott, D-Va., House Education Appropriations Subcommittee Chairwoman Rosa DeLaura, D-Ct., and Senate Education ranking member Patty Murray, D-Wash., said in a letter to DeVos on Tuesday.

“Given that the guidance contradicts the clear requirements of the CARES Act, it will cause confusion among states and local education agencies that will be uncertain of how to comply with both the department’s guidance and the plain language of the CARES Act,” the lawmakers urged, asking her to “immediately revise” the guidance.

But DeVos defended the decision Thursday to reporters.

“It’s our interpretation that [the funding] is meant literally for all students, and that includes students no matter where they’re learning,” she said.

The Democrats’ warning has proven right, however, as states are already dealing with confusion sparked by the policy.

The Education Law Center said DeVos’ policy was a “patent misreading” of the federal law and could redirect $800,000 in aid from Newark Public Schools in New Jersey to private school students. Tennessee’s education chief said she plans to follow DeVos’ guidance, but other school leaders argue that it is not legally binding and should be ignored.

Indiana’s schools chief Jennifer McCormick said that  the state would ignore the guidance after consulting with the state’s attorney general.

“I will not play political agenda games with relief funds,” she said.

Scott told NPR that “there is rightfully pushback” on the decision.

“The actions of the Department of Education have left states and districts stuck between compliance with the law,” he said, “and adhering to ideologically motivated guidance.”

 

Supreme Court case on Trump’s taxes may show if he benefits from CARES Act

In early May, after weeks of delay prompted by the pandemic, the US Supreme Court will hear oral arguments in three highly-anticipated cases about president Donald Trump’s financial records. One of those matters involve a subpoena for Trump’s taxes.

The case is important. Trump, unlike any president in recent history, has refused to disclose his finances, obscuring potential conflict of interests between his government and his personal business. But the issue has now taken on a whole new urgency because the $2.2 trillion CARES Act passed by Congress last month contains deep within its 800 pages two barely-noticeable tax clauses that only benefit rich Americans, perhaps including the president.

The new tax clauses will cost Americans about $195 billion over 10 years. They suspend previously-placed limits on tax offsets and apply retroactively, meaning millionaires will make a killing based on past circumstances while millions of Americans lose their jobs and struggle to survive the economic effects of the coronavirus crisis. This, despite the fact that, officially, the businesses of Trump and others in government cannot benefit from the stimulus package.

In other words, politicians apparently found a workaround for the protections meant to shield the people from government corruption.

“The [tax] policy is complex,” senator Sheldon Whitehouse of Rhode Island told Quartz. “But the principle is straightforward: In the midst of a national health emergency, we ought to help those who need it—like healthcare workers and small businesses—not give huge tax breaks to hedge fund managers and real estate investors. This is a special-interest looting of the American taxpayer, plain and simple.”

Precisely how much Trump stands to gain from the “bonanza” tax breaks is unclear because he has refused to disclose his finances. The president has so far intervened in cases ordering his accountants and business associates to reveal their dealings with him, arguing that the chief executive’s records are special.

Supreme Court precedent indicates otherwise, however, and the new tax provisions in the CARES Act raise additional suspicions about his secret records that can’t be put to rest without full disclosure.

“If we had Trump’s tax returns, as we do for every other president in the modern era, the American people could see what kind of conflicts of interest and financial mischief swirl around their president,” Whitehouse said. “In this case, we could see whether Trump himself would benefit from giveaways like these provisions.”

On swindles and windfalls

The suspect clauses are hundreds of pages deep in the hastily-passed emergency CARES Act. They benefit a relatively small group of wealthy taxpayers and have nothing to do with battling Covid-19 or providing relief to the Americans worst-hit by the crisis, but Whitehouse said Republican politicians made them a priority during negotiations.

Members of Congress knew the tax clauses were in there. But the specifics, the extent to which these breaks could line the pockets of the rich and benefit wealthy real estate investors like the president and his son-in-law Jared Kushner, were not immediately apparent.

“What was a surprise was just how much money those provisions will loot from taxpayers to send to real estate investors and other million-dollar-plus earners—tax filers like the Trumps and Kushners,” Whitehouse said.

The astronomical cost only became evident a day after CARES was signed into law, when the nonpartisan congressional Joint Committee on Taxation (JCT) published an analysis of the provisions. The committee’s latest findings show that four of five millionaires will pocket an average of $1.6 million more this year alone thanks to the stimulus bill. This of course dwarfs the $1,200 one-time checks average Americans will receive.

In total the tax clauses will cost taxpayers more than the funding allotted in the CARES Act to all hospitals throughout the US, and more than the relief provided to all state and local governments, according to the JCT analysis. Together, they are the costliest elements of the relief package. For that reason, Whitehouse and Texas representative Lloyd Doggett, as committee members, want to know what role, if any, the Trump administration played in advocating for these policies.

On April 9, they sent a letter demanding to review all communications pertaining to any internal advocacy for the suspect clauses. The missive was addressed to vice president Mike Pence, secretary of the treasury Steven Mnuchin, and acting director of the Office of Management and Budget Russell Vought. The lawmakers want the records “so that Congress and the American public can better understand the provenance of these tax law changes, and assess whether any individuals within the Administration who stand to gain from these provisions were involved in their development.”

SCOTUS to the rescue?

One bitter irony of this especially cruel spring of 2020 is that the CARES Act was signed into law on March 27, just days before the Supreme Court was originally meant to hear the Trump finance matters.

The hearings were delayed due to concerns about crowds in the courtroom. They would not have addressed the suspicious provisions in the CARES Act. But perhaps the JCT’s discovery of the tax clauses’ astronomical cost, published just ahead of debates over the president’s unprecedented secrecy, would have alerted Americans to the need for full financial disclosure from Trump and his subpoenaed business associates.

Instead, whispers of the secret tax windfalls were drowned out by the roar of justified pandemic panic. At that point, the people were more worried about ventilator and mask shortages than secret surpluses for the super rich and there was no dearth of pressing news to preoccupy journalists and readers. Indeed, it seemed—at least to some—that the typical ideological rifts had been overcome for the common good. “At times, our nation can appear sharply divided; divided by generations, by left and right, by our differences, and even by the donkey and the elephant,” Forbes wrote hopefully of the stimulus bill. “Sometimes, circumstances arise that compel us to either rise as one or be shattered.”

Alas, that quickly proved to be an illusion. The reality is far more stark. As The Washington Post put it on April 14, “[E]very voter should know that, at a time when hospitals, cities and states cried out for help with the pandemic, the president’s allies in Congress tossed a [$195 billion] lifeline in the direction of Trump, Kushner and other rich people who needed it the least.”

Now, with the federal and state governments planning an easing of lockdowns—or as the Trump administration puts it “Opening Up America Again”—it’s perhaps also the right moment to pay attention to the president’s unprecedented secrecy about his finances.

If the Supreme Court decides after its historic telephonic oral arguments on May 4 that Trump doesn’t have the right to hide his taxes and financial records, contrary to his claims, the third parties subpoenaed over their dealings with Trump will turn the records over, they say. Whitehouse said the documentation could potentially clarify the extent to which Trump will personally benefit from the costly tax clauses in the CARES Act.

“We already know about massive conflicts of interest for the president, whether it’s foreign dignitaries staying at his hotels or shunting military planes to Scotland to steer business to his resorts,” the senator said. “Seeing the president’s full financial records would show us much more, like whether these provisions will pad the Trump family’s bottom line.”

Need to Know: Coronavirus

After Blowing $4.5 Trillion On Buybacks, US Execs Demand Taxpayer-Funded Bailouts Of Shareholders

The Trump administration is putting together a rumored trillion-dollar-plus stimulus package that will include taxpayer funded bailouts of Corporate America, according to leaks cited widely by the media. Trump in the press conference today singled out $50 billion in bailout funds for US airlines alone. A bailout of this type is designed to bail out shareholders and unsecured creditors. That’s all it is. The alternative would be a US chapter 11 bankruptcy procedure which would allow the company to operate, while it is being handed to the creditors, with shareholders getting wiped out.

So get this: The big four US airlines – Delta, United, American, and Southwest – whose stocks are now getting crushed because they may run out of cash in a few months, would be the primary recipients of that $50 billion bailout, well, after they wasted, blew, and incinerated willfully and recklessly together $43.7 billion in cash on share buybacks since 2012 for the sole purpose of enriching the very shareholders that will now be bailed out by the taxpayer (buyback data via YCHARTS):

Share buybacks were considered a form of market manipulation and were illegal under SEC rules until 1982, when the SEC issued Rule 10b-18 which provided corporations a “safe harbor” to buy back their own shares under certain conditions. Once corporations figured out that no one cared about those conditions, and that no one was auditing anything, share buybacks exploded. And they’ve have been hyped endlessly by Wall Street.

The S&P 500 companies, including those that are now asking for huge bailouts from taxpayers and from the Fed, have blown, wasted and incinerated together $4.5 trillion with a T in cash to buy back their own shares just since 2012:

And those $4.5 trillion in cash that was wasted, blown, and incinerated on share buybacks since 2012 for the sole purpose of enriching shareholders is now sorely missing from corporate balance sheets, where these share buybacks were often funded with debt.

And the record amount of corporate debt – “record” by any measure – that has piled up since 2012 has become the Fed’s number one concern as trigger of the next financial crisis. So here we are.

In 2018, even the SEC got briefly nervous about the ravenous share buybacks and what they did to corporate financial and operational health. “On too many occasions, companies doing buybacks have failed to make the long-term investments in innovation or their workforce that our economy so badly needs,” SEC Commissioner Jackson pointed out. And he fretted whether the existing rules “can protect investors, workers, and communities from the torrent of corporate trading dominating today’s markets.”

Obviously, they couldn’t, as we now see.

Enriching shareholders is the number one goal no matter what the risks.These shareholders are also the very corporate executives and board members that make the buyback decisions. And when it hits the fan, there is always the taxpayer or the Fed to bail out those shareholders, the thinking goes. But this type of thinking is heinous.

Boeing is also on the bailout docket. Today it called for “at least” a $60-billion bailout of the aerospace industry, where it is the biggest player. It alone wasted, blew, and incinerated $43 billion in cash since 2012 to manipulate up its own shares until its liquidity crisis forced it to stop the practice last year, and its shares have since collapsed (buyback data via YCHARTS):

If Boeing’s current liquidity crisis causes the company to run out of funds to pay its creditors, it needs to file for chapter 11 bankruptcy protection. Under the supervision of the Court, the company would be restructured, with creditors getting the company, and with shareholders likely getting wiped out.

Boeing would continue to operate throughout, and afterwards emerge as a stronger company with less debt, and hopefully an entirely new executive suite and board that are hostile to share buybacks and won’t give in to the heinous clamoring by Wall Street for them.

No one could foresee the arrival of the coronavirus and what it would do to US industry. I get that. But there is always some crisis in the future, and companies need to prepare for them to have the resources to deal with them.

A company that systematically and recklessly hollows out its balance sheet by converting cash and capital into share buybacks, often with borrowed money, to “distribute value to shareholders” or “unlock shareholder value” or whatever Wall Street BS is being hyped, has set itself up for failure at the next crisis. And that’s fine. But shareholders should pay for it since they benefited from those share buybacks – and not taxpayers or workers with dollar-paychecks. Shareholders should know that they won’t be bailed out by the government or the Fed, but zeroed out in bankruptcy court.

The eventual costs of enriching shareholders recklessly in a way that used to be illegal must not be inflicted on taxpayers via a government bailout; or on everyone earning income in dollars via a bailout from the Fed.

The solution has already been finely tuned in the US: Delta, United, American, and other airlines already went through chapter 11 bankruptcies. They work. The airlines continued to operate in a manner where passengers couldn’t tell the difference. The airlines were essentially turned over to creditors and restructured. When they emerged from bankruptcy, they issued new shares to new shareholders, and in most cases, the old shares became worthless. The new airlines emerged as stronger companies – until they started blowing it with their share buybacks.

Companies like Boeing, GE, any of the airlines, or any company that blew this now sorely needed cash on share buybacks must put the ultimate cost of those share buybacks on shareholders and unsecured creditors. Any bailouts, whether from the Fed or the government, should only be offered as Debtor in Possession (DIP) loans during a chapter 11 bankruptcy filing where shareholders get wiped out.

In other words, companies that buy back their owns shares must be permanently disqualified for bailouts, though they may qualify for a government-backed DIP loan in bankruptcy court if shareholders get wiped out. Because those proposed taxpayer and Fed bailouts of these share-buyback queens are just heinous.

Matt Taibi on Subprime: Where is Money (Houses) and how do we Get It?

the Joe Rogan experience no well it you
00:05
get compared to him a lot and one in one
00:09
way I really saw that comparison was
00:11
your brilliant coverage of the financial
00:13
crisis and what was the the mechanisms
00:16
behind the scene of the financial crisis
00:18
and that I became a really big fan of
00:20
your work reading that because the that
00:23
I I think you covered that as well if
00:25
not better than anybody
00:26
oh well thanks yeah I mean so I I knew
00:31
nothing about any I couldn’t even
00:32
balance my checkbook when they assign me
00:34
to that story and and I had to start
00:38
basically from square one and I was
00:41
calling people and saying things like
00:44
can you tell me something about
00:45
something that I’ll understand you know
00:47
it’s real cold calling investment banks
00:49
and literally saying that and I finally
00:51
got a guy to have lunch with me and he
00:56
said your problem is that you’re trying
00:59
to understand this as an economic story
01:01
once you look at it as a crime story
01:04
you’ll get it and and from that point
01:08
forward I I totally I felt like like I
01:11
started to understand the whole
01:13
mechanism in the subprime mortgage scam
01:16
it really was a scam it’s really it’s
01:18
really just a massive corporatized
01:21
version of like selling oregano as weed
01:26
basically they they took stuff that
01:30
these is incredibly worthless highly
01:33
risky mortgage loans right you know they
01:36
would give out loans to everybody with a
01:38
pulse you know whether you had a job or
01:41
not whether you were a citizen or not
01:43
didn’t matter poor thing was to get the
01:45
loan immediately sell it off chop it up
01:48
turn it into securities and then they
01:50
used this highly advanced sort of
01:54
mathematical trick to turn all that sort
01:58
of mortgage hamburger into triple-a
02:00
rated securities so you’d have like a
02:02
you know a junk rated mortgage like the
02:05
riskiest loan in existence something
02:10
that was so toxic that
02:12
country companies like country or I
02:14
wouldn’t want to hold on to it for more
02:15
than a week because they were afraid it
02:17
would that the stuff would blow up and
02:18
then they would sell it off to like a
02:21
pension fund or you know an insurance
02:24
company in the form of a triple-a rated
02:27
security which you know is as safe as a
02:31
US Treasury bond so it was a scam McGann
02:35
and the the the the metaphor of you know
02:39
baby power taking baby powder and
02:42
selling it as coke or whatever that
02:44
that’s exactly what it was they just
02:45
took worthless shit and sold it as
02:47
something that was that was gold and
02:49
they got they did it for years and years
02:52
and years and years and they they knew
02:54
that this gigantic huge bubble of risk
02:58
and disaster was just accumulating and
03:02
that someday it was going to all explode
03:04
and cascade and and and ruin the economy
03:07
but everybody was trying to time it
03:10
right and and bet on when that would
03:14
happen and make their money before that
03:16
that Judgment Day came and it was it was
03:20
fascinating what’s it once I started to
03:22
learn about it it was just such a an
03:23
amazingly disgusting fascinating story
03:27
that it was just hard not to not to get
03:30
into it a crime story yeah think of it
03:33
as a crime story yeah no absolutely I
03:36
even got one guy gave me a book it was
03:42
called famous famous con artists in
03:45
history right it was like this little
03:47
tome it’s smaller than like the smallest
03:49
paperback and it was the biography of
03:53
this guy Victor Lustig was his name he
03:56
was famous because he sold the Eiffel
03:58
Tower twice alright and he he had this
04:05
this scam that he called I think it was
04:09
called the the the Hungarian box I’ll
04:14
have to go back and look but basically
04:15
what he would do is he would get on a
04:18
boat in New York and he had this sort of
04:24
beautiful mahogany box with
04:25
ranked on it that had two holes in it
04:27
and he would show all the guests that he
04:30
would put a blank piece of paper in one
04:32
and turn a crank and $100 bill would
04:35
come out the other end and he convinced
04:39
them all that it was a machine that made
04:41
money and everybody would offer him an
04:45
increasing amount of money for this
04:47
invention and he wouldn’t sell it until
04:51
the last day when he would sell it for a
04:54
you know forty or fifty thousand dollars
04:55
and then he would disappear and jump off
04:56
the boat and in France and never be seen
04:58
again people would yeah there it is
05:00
what’s it called yeah but but that’s
05:08
exactly what the Mortons picture let me
05:10
see his face
05:13
look at that fucking creep
05:15
[Laughter]
05:16
Wow let me see that box again Wow that
05:22
is crazy
05:23
so there yes so it was obviously fake
05:26
and and and but that’s what the mortgage
05:28
scam was they they they were taking
05:32
basically blank paper these these
05:35
subprime loans that belong to jander’s
05:38
who were gonna foreclose within ten
05:41
minutes all right and they were telling
05:45
people that oh we have this new
05:47
mathematical process that allows that
05:49
actually makes this stuff really safe
05:51
and you can put it in your in your
05:56
College endowment you can put in your
05:58
pension fund and so all these people you
06:01
know whose retirement monies were based
06:04
on securities we’re buying all this shit
06:08
that they thought was was triple-a rated
06:11
and that’s that’s how they woke up and
06:12
you know and in 2008-2009 and they found
06:14
their 401ks or were you know wiped out
06:19
by 40 percent or whatever it was my
06:20
neighbor really did I happen to him my
06:23
neighbor bought this plot of land and
06:24
had this dream to build his dream house
06:27
and he would go buy the plot of land and
06:30
he was always cleaning up and getting
06:31
ready and I was talking to him and then
06:33
boom 2008 happened he lost everything
06:37
and he would still go buy that plot
06:40
and cleanup and he and I would talk
06:42
about it and they just told me lost
06:44
everything
06:45
yeah so it’s never gonna happen huh yeah
06:47
no I think he I think he died he
06:51
eventually got really sick and they took
06:53
him out of his house and brought him
06:55
somewhere but I think he’s dead now but
06:57
yeah his his story was awful awful to
07:01
hear this guy who was in his 60s who had
07:04
got this piece of land with a nice view
07:06
and it’s like this is where I’m gonna
07:07
build my dream house and he had all this
07:10
money prepared for it all this money
07:11
saved away and he was ready to rock and
07:14
roll and then boom mmm it all went out
07:17
they just drained out somebody put a
07:19
hole in the bottom of the boat and
07:20
everything everything went to the bottom
07:23
of the ocean yeah and then he’d probably
07:25
got ripped off twice because his tax
07:26
dollars went to go bail out the guys who
07:28
you know you know who because some of
07:31
the some of the banks got stuck holding
07:32
some of this shit and rather than eat
07:35
the losses like your your friend did
07:37
they got the Federal Reserve to buy it
07:40
from them ya know and and you know or or
07:44
the Treasury how the fuck did they get
07:47
away with giving the CEOs bonuses during
07:51
that time yeah a giant bonuses during
07:53
the time where they they had to be
07:55
bailed out by the taxpayers yeah that
07:57
was another scam like so they were if
08:01
you looked at the fine print of all the
08:02
bailouts it’s basically said that you
08:05
had to repay the money by us by X time
08:08
before you could start paying people
08:10
exorbitant amounts of money again but a
08:14
lot of those a lot of those conditions
08:16
were never really followed and you know
08:19
the the conditions of repayment were
08:22
kind of glossed over and the the the
08:27
companies that they were supposed to be
08:28
able to pass these things called stress
08:30
tests which demonstrated that they were
08:33
back on solid footing again before they
08:35
paid people bonuses but the stress tests
08:39
were all fledged and you know I mean the
08:41
there were there was crime and
08:44
corruption a legality basically in every
08:46
direction during that whole period and
08:48
and
08:49
not just in the government but in in all
08:52
these companies as well geez yeah but
08:55
fascinating to follow yeah what was it
08:58
like covering that I mean how long did
09:00
you spend working on that seven years
09:03
probably yeah yeah well because one of
09:06
the things that I thought no that was
09:07
really interesting was I did my first
09:13
story about this and I got this
09:16
incredible reaction because it turns out
09:19
that the financial press there is nobody
09:21
in the financial press who writes for
09:23
ordinary people like it’s basically what
09:26
I was doing was a translation job I was
09:27
trying to basically take what had
09:30
happened and explain it in a way that a
09:33
person who knew nothing about finance
09:35
would be able to understand and it turns
09:38
out that nobody is doing that so all
09:42
these people who had questions about it
09:44
who who wanted to know what had happened
09:46
to their money or why don’t why didn’t
09:49
my house get foreclosed on or what it
09:50
you know what’s what’s a subprime
09:52
mortgage or anything you know there was
09:57
nobody else doing that work so I had
09:59
lots of it to do and it was really
10:01
interesting and I just kept doing it
10:04
that had to be depressing yeah oh yeah
10:07
of course
10:07
of course I mean most most investigative
10:10
reporting is depressing particularly
10:14
that because you mean a lot of it was
10:16
old people that oh my god old people
10:19
minorities I mean I did one story about
10:22
a bank in Maryland well it’s a National
10:29
Bank it’s it’s a bank that you know I
10:31
wouldn’t be surprised that a lot of
10:34
people listening how have their accounts
10:35
at this Bank they had to pay settlement
10:39
to the government because they were
10:42
intentionally targeting elderly black
10:45
people to sell subprime mortgages to and
10:50
they called the mud people
10:51
and there were all these these like
10:53
toxic emails going back and forth about
10:55
how stupid they were and how they’ll buy
10:57
anything etc etc the emails they call
11:00
them mud pee
11:01
yeah yeah and so they had to pay a
11:03
settlement to the government and but you
11:06
know the racial component of the of that
11:08
crash was something that I didn’t really
11:10
clue into until late but that was a big
11:12
part of it too
11:13
it was you know a lot of it involved
11:18
these mortgage lenders going into
11:22
particularly like lower middle-class
11:24
black neighborhoods and knocking on
11:27
doors where there’d be like an elderly
11:29
person at home and saying hey would you
11:31
like to refi your mortgage and you’ll
11:34
have a little bit of extra spending
11:35
money this month right and the person
11:40
won’t know anything about finance and
11:42
they’ll still sign this refinance deal
11:44
that allows them to save a little bit of
11:46
money each month not knowing that they
11:49
had just converted their fixed mortgage
11:51
into a floating mortgage and that is
11:53
seeing the interest rates changed you
11:56
know you’d have people who went from
11:58
paying $900 a month to paying $7,000 a
12:02
month right and suddenly they’re out in
12:04
the street and and you know the the
12:08
company that sold them the loan is long
12:10
gone by then they they’re not holding it
12:12
they as soon as they got her name on the
12:15
dotted line they sold it off to a bank
12:17
in New York who in turn again chopped it
12:20
up into hamburger and sold it probably
12:21
to you our pension fund or who or
12:23
whatever so there’s nobody she’d give a
12:25
complain to and you know yeah that stuff
12:27
was really depressing what was a feeling
12:29
like of having very little understanding
12:31
about finance and then immersing
12:33
yourself in it and now is vac sizing
12:36
that this is the underlying structure
12:38
that our society is Rhon that our money
12:41
is established through like this is this
12:43
is how we we sell houses and loans and
12:47
this is what we’re doing yes yeah no it
12:50
was it was fascinating I because before
12:52
that I was mostly covering like
12:56
elections right and again if you cover
12:58
elections it’s incredibly boring and you
13:01
never hear anything of substance and
13:03
it’s not terribly complicated and you
13:05
know one one the the Democrat says that
13:08
you know we want to help the middle
13:10
class and the Republican says we want to
13:11
protect America Family Values and that’s
13:13
pretty much the extent of the end
13:15
a challenge in terms of covering that
13:17
stuff and I always thought to myself you
13:20
know politics in America must be a lot
13:22
more complicated than this right there
13:23
must be some other hidden thing where
13:28
it’s incredibly complex and diabolical
13:30
and and you know the the real match
13:33
additions of power must be visible
13:35
somewhere and I think that you find that
13:40
when you when you start looking into how
Wall Street works how money works how
central banking works how you know how
the concentration of wealth works
I mean basically the subprime scheme was
an effort to pull the remaining savings
out of the population right it just
wasn’t you know in the old days
investment banks made their money by
lending money to companies who would
build factories and they would make
stuff and sell it around the world and
everybody would make money and never you
know even even the population would
would would benefit from it but that
manufacturing economy it’s all gone it’s
so four C’s so you have this
financialized the economy and they have
no normal beneficial way to make money
and all that all they can really do is
look to see where is their money and how
can we get it and most people had money
in their houses right like the the
14:42
accumulated savings of most people
14:43
whatever was left after the internet
14:46
crash in the 90s was in real estate and
14:50
that this was the scam by which they
14:54
took the wealth that was left in the
14:58
pockets of ordinary people and
14:59
transferred it to you know nine people
15:03
in Manhattan basically I mean that’s why
15:05
you have you know we told them when we
15:07
talk about wealth inequality now right
15:10
being a huge factor that you know the
15:13
top 95 I’m sorry the top 1% of the
15:19
population owns ninety percent of the
15:21
wealth in the country whatever it is
15:23
that’s a consequence of schemes like
15:25
this where they’re just there
15:28
they’re finding out where people have a
15:30
little bit of money and they’re
15:32
systematically coming up with scams to
15:34
move it from there to here with no
15:37
consequence no with no consequence and
15:39
that was the other part of the story
15:40
that I ended up having to cover later
15:42
which was you know the last time they
15:45
tried something like this like during
15:47
the SNL crisis which was also sort of a
15:51
giant fraud scheme also that involved
15:53
real estate lending and you know but
15:56
that the government after that actually
15:58
you know indicted 1800 people they put
16:01
800 people in jail they put a lot of you
16:04
know serious influential people on the
16:06
dock after that nobody nobody went to
16:11
jail after the stuff and there was and
16:13
people think that well they didn’t do
16:16
anything that was technically illegal no
16:17
bullshit there there was lots of stuff
16:19
that was that was brazenly criminally
16:23
illegal I mean they they committed fraud
16:25
on a broad scale but some of these
16:27
companies were into the things that were
even worse than that I mean you take
HSBC HSBC admitted to laundering 850
million dollars for a pair of Central
and South American drug cartels
including the Sinaloa cartel right which
is suspected in thousands of murders
like and you know they they admitted to
this activity they agreed to a deferred
prosecution agreement with the
government where nobody did a day in
jail no individual had to pull out a
dime out of their own pockets to pay the
shareholders pointed up 1.9 million
dollars but some of that was tax
deductible which means we paid some of
that fine and and the only real
punishment with any teeth is that some
of the executives had to partially defer
their bonuses for five years so
laundering 850 million dollars for narco
terrorists gets you a total walk you
know that tells you basically everything
you need to know about do we prosecute
white-collar crime in this country
basically no you know I mean that’s the
answer
ultimately that you find out and there
was paperwork that showed they knew it
was from the cartels oh yeah they if you
if you look at the the agreement and you
can watch the thirst there’s there’s a
video of of Loretta Lynch and lanny
18:00
breuer because this is before laura
18:02
Loretta Lynch was Attorney General but
18:03
she was she was basically the head of
18:07
this deal they talked about the fact
18:10
that the HSBC branches because most of
18:13
this was done in Mexico hmx which was
18:17
the subsidiary company they had special
18:20
teller windows built to fit cash boxes
18:24
that the drug cartels were bringing into
18:26
the bank so basically you’ve seen the
18:29
scene the scene in Scarface where the
18:31
guys come in with duffel bags of cash to
18:33
the bank right and you know that’s like
18:35
a montage you know there’s that that
18:37
song I forget what song it is in the
18:38
background same thing these guys would
18:40
come into the the bank they would slide
18:44
in these boxes of cash one after the
18:46
other and that’s admitted activity the
18:49
banks signed off on this they’d you know
18:50
it’s not like they’re contesting it
18:52
they’re not saying we neither admitted
18:53
nor denied it’s it’s part of the deal so
18:57
and in they agreed to the amount
18:59
everything so yeah it was a one point
19:04
nine billion dollar settlement but you
19:06
know it’s not like it came out of the
19:07
pockets of the people who did it and
19:09
it’s not like any of the people who did
19:11
it are in jail it’s just you know a
19:13
thing that happened and you know that’s
19:16
five weeks of profit for the bank so
19:18
what what the fuck they don’t care right
19:21
did you see the documentary an inside
19:24
job yeah yep we’ve covered a lot of the
19:27
same territory yeah yeah that was a
19:29
sobering documentary where they’re
19:31
talking to the very people that caused
19:33
the financial crisis mm-hm and and
19:35
realizing that these people were
19:37
economics professors that eventually got
19:39
these jobs really lucrative jobs with
19:42
banks and how they finagled this system
19:45
and made it so it looked like these
19:47
things were appropriate ya know I talked
19:50
to the
19:50
some of the some of the things that they
19:53
invented that made this the crash
19:54
possible sounded like good ideas like
19:58
they they came up with this thing called
20:00
the credit default swap all right and I
20:02
won’t bore you with what that is exactly
20:05
but basically it’s a kind of insurance
20:08
where it’s it’s basically a bet it’s
20:12
hard to explain but it’s a way of quasi
20:19
insuring a product without having to
20:22
pony up a lot of money and the it’s it’s
20:27
called the derivative right and these
20:31
instruments are completely unregulated
20:35
can I put the secret default swap is
20:37
like you and I betting on whether or not
20:43
a third person’s house is going to burn
20:48
in a fire right like the old-school
20:50
insurance said that it had to be your
20:53
house in order for you to get insurance
20:55
on it this new form of quasi insurance
21:00
said that two totally disinterested
21:01
parties could have an interest in a
21:03
third thing that happens so it’s
21:06
basically gambling and on the one hand
21:11
it allowed people to create a whole lot
21:15
of capital which allowed them to lend
21:16
more money which theoretically allowed
21:18
people to buy more houses but in reality
21:21
it just created the system where all
21:23
these people had bets that were back and
21:25
forth on on all these properties that’s
21:27
one of the reasons why the when the
21:30
crash happened when when all those
21:31
mortgages started to fail it wasn’t just
21:34
the failures of those properties it was
21:36
all these people who were betting on
21:37
whether or not these people could could
21:39
pay their mortgages they started to lose
21:42
money and then there were people who had
21:43
bets on that who started to lose money
21:45
and it’s like this cascading whirlpool
21:47
of shit that happened and again it just
21:51
it started out as an idea to just create
21:53
more money to lend to lend and it turned
21:56
into this nightmare mechanical scenario
22:00
that just that created losses
22:03
you know in this almost apocalyptic
22:05
fashion and a lot of them had no idea
22:08
but that that was going to be the
22:10
eventualities
22:14
yeah it’s great it’s definitely crazy
22:17
stuff as a person who didn’t really
22:19
follow finance before how much does that
22:21
affected your life now like the way you
22:24
look at things I definitely pay a lot
22:26
more attention to the fine print when I
22:30
enter into any financial contract I
22:34
think about where I do my banking but
22:38
the reality is you just don’t have a
22:40
whole lot of choice in this country
22:41
anyway I mean it’s like everything else
22:43
there’s only a few companies left so
22:47
almost every bank that’s out there where
22:51
you can have a bank account in a
22:52
mortgage is is a bank that I’ve written
22:55
about some massive scandal before so
22:58
that that’s that’s a problem but yeah I
23:03
worry about it all the time I mean I
23:04
have friends in finance who call me and
23:07
they they tell me that you know that the
23:11
things that are incredibly unsafe and
23:13
that this that and the other could could
23:14
could happen and so I have an anxiety
23:17
level about things that I never had
23:18
before but apart from that yeah I mean
23:22
that’s a natural consequence of having
23:26
to spend 7 years looking at all these
23:29
horror stories that’s great it’s crazy
23:31
you spent their lunch time on it do you
23:34
see any other bubbles coming up
23:36
yeah people talk about that all the time
23:40
there’s a lot of a lot of negative press
23:45
about subprime auto loans for instance
23:48
which is it’s not exactly the same but
23:52
it’s it’s a similar thing I mean the
23:53
same basic scam of taking loans chopping
24:00
them up and then repackaging them as
24:02
something that’s more valuable than the
24:04
original loan you can do that with
24:06
anything any kind of credit you can do
24:08
it with credit cards you can do it with
24:09
aircraft loans you can do it with with
24:11
car loans you can do it with with home
24:13
mortgages
24:15
and so the the mechanism of taking
24:18
things that are are toxic and risky and
24:22
making them look like triple-a is still
24:25
is still part of the economy and it’s
24:30
everywhere the plus side of that is that
24:33
there’s more credit available you know
24:36
almost anybody can get a credit card or
24:38
even if you’ve had screwed up credit you
24:39
can get a car you know I mean there’s
24:42
this put us on this like endless cycle
24:44
of build-up bubble collapse build-up
24:46
bubble collapse rebounding collapse
24:49
again absolutely I mean I think that’s
24:51
that’s that’s why I can’t you have to be
24:55
nervous about the you know the
24:57
skyrocketing stock exchange because we
25:01
verified yeah I mean you should be right
25:03
do you are you heavily invested in and
25:05
I’ve got some in there I just did when
25:07
when the whole you know when Trump was
25:09
saying the economy has never been better
25:10
look at the stock market stock market’s
25:12
killing it always do and then it’ll have
25:14
a bad day and okay well I thought we’re
25:16
doing great like what’s going on with
25:18
this bad day can you not control these
25:19
bad days right like what’s happening
25:21
here right if you’re if you’re in
25:23
control the good days you’re also in
25:24
control the bad days right yeah of
25:26
course of course it just it seems it
25:29
seems super suspicious yeah and and in
25:32
the old days you’d have a lot of
25:34
confidence that well the stock market
25:37
always eventually goes up so yeah
25:40
there’s gonna be bad days but it’ll go
25:42
back but the problem is the underlying
25:43
economy in America it just isn’t all
25:46
that hot you know like we’re like what
25:48
do we really make in this country what
25:50
what we’re where’s the floor right like
25:53
we have we have some industries that
25:55
sort of perform well but if you know
25:58
periodically we go through these bubbles
26:00
that are based on nothing more than
26:01
enthusiasm you know in the 90s it was
26:04
the the tech bubble right where people
26:08
like Alan Greenspan would say things
26:10
like well we have a new paradigm in
26:11
economics right so it doesn’t matter
26:15
whether a company hasn’t shown any
26:17
ability to make money or
26:21
you know has no reasonable profit and
26:25
loss statements it’s just if it’s a good
26:27
idea that the stock is sound and
26:30
everybody should invest in it and the
26:32
stock market is going to continually go
26:34
go up so don’t worry about it of course
26:37
that doesn’t happen everybody but it
26:39
blows up everybody loses their shirt but
26:41
what what do they do the Fed lowers
26:44
interest rates basically allows Wall
26:46
Street to recapitalize drink itself
26:49
sober and they plunge into the next the
26:52
next madness which is mortgages and once
26:55
again you have Alan Greenspan saying hey
26:58
you know real estate is a great bet it’s
27:01
you know it’s going to continually
27:02
ascend people should use their homes as
27:05
ATM machines you know you should you
27:08
should consider refinancing your house
27:10
so that you can get a little bit of
27:11
extra cash and and this is this was
27:14
actually the message they sent to
27:15
America and again it creates as
27:17
artificial mania
27:19
where the economy is stoked artificially
27:23
to gigantic dimensions but it’s not
27:27
based on anything and so when when it
27:30
crashes when you finally get like any
27:33
Ponzi scheme it you know it depends it
27:36
depends on more new investors coming in
27:38
than old investors leaving right so
27:40
there’s always going to be that moment
27:42
when suddenly we don’t have as many new
27:45
ones as old ones and the instant that
27:47
happens it all goes kaboom right and
27:50
that’s what happened with with the
27:53
subprime market there was a moment in
27:55
time where they they just couldn’t keep
27:58
it going anymore they couldn’t find any
28:00
more new suckers though to get to sell
28:03
mortgages to and the mania ended and all
28:06
went splat and then it was amplified by
28:08
the fact that we have this system now of
28:11
people betting on credit that is legal
28:16
which creates more losses out of thin
28:19
air so yeah I’m terrified every time I
28:22
see this the stock market go up what’s
28:25
it based on is it based on our economy
28:27
actually doing well I don’t know I don’t
28:29
think so
28:30
you know I’m sorry I’m look like I’m
28:33
scaring you a little bit you’re
28:34
definitely scaring but I think that’s
28:36
good I think I need to be scared I tend
28:39
to take these things and just you know I
28:41
have financial advisors I let them
28:43
handle money right when I hear things
28:45
like this I just got Jesus well I I get
28:48
terrified when I hear about really smart
28:49
people getting scammed like yesterday we
28:52
were talking about theranos do you know
28:54
that a blood testing company that turned
28:57
out to be total horseshit no I didn’t
28:59
hear about this oh it’s great story it’s
29:01
it’s a story of one of those things
29:03
where you you find someone who you hope
29:06
exists and you build them up there was
29:08
this woman she looked like Steve Jobs
29:11
she wore a black turtleneck in every
29:13
photo and she was the richest ever
29:18
self-made woman she was worth four
29:21
billion dollars she had built this
29:23
company called theranos right out of
29:25
college she was like 19 when she started
29:28
the company it was a blood-testing
29:30
company that just required a small prick
29:32
of your blood to do complicated blood
29:34
analysis for diseases and things along
29:36
those lines
29:36
turns out it didn’t work at all mmm and
29:38
they faked a bunch of shit I’d spread
29:42
fraud a lot of people got their blood
29:44
tested it turned out to be you know they
29:46
were at risk for all these diseases and
29:48
warren buffett invested a hundred
29:51
million dollars I think 125 Betsy DeVos
29:54
more than 100 million dollars like all
29:56
these super wealthy people got scammed
29:59
Wow yeah when you find out that really
30:01
wealthy people write that do this for a
30:04
living
30:05
yeah Buffett does that for a living
30:07
right that he can get scammed out of a
30:09
hundred and twenty five million dollars
30:12
right right yeah and and Warren Buffett
30:15
his his mantra is supposed to be picking
30:20
the the absolute long term investment
30:25
right so it’s not he’s not like a stevie
30:28
colon type who just looks at the tape
30:30
and tries to time it just right so you
30:32
know you can you can make an investment
30:35
for ten seconds and come out with it
30:37
with a you know
30:38
if he if he’s investing in a company and
30:40
a and even he can be fooled that’s
30:43
that’s pretty terrible but look at Enron
30:45
I mean Enron was was another example of
30:47
the world’s best financial analysts
30:49
we’re looking at this company for a
30:51
decade and the the results were
30:56
completely ridiculous like it should
30:58
have been obvious to any layperson that
31:00
that these profit numbers couldn’t
31:03
possibly be real and it wasn’t until one
31:08
of those guys I think it was Jim Chanos
31:11
it was sort of a famous short seller I
31:13
mean I sort of said hey wait a minute
31:15
that there’s something up here but
31:19
people continually invested in these
31:21
companies and there’s just not a whole
31:22
lot of oversight that goes on with with
31:27
Wall Street and I think that’s that’s a
31:29
major lesson of you know the last 20
31:33
years is that is that there’s just not a
31:36
lot of eyes on on crime and in this area
31:39
another example is I’m sorry the the
31:43
who’s the guy scammed all the rich
31:44
people really made up Bernie Madoff yeah
31:46
I was gonna bring him up yes the most
31:47
egregious example right yeah yeah I mean
31:49
there are other there are other people
31:51
who did similar things but this guy
31:54
didn’t even make investments right you
31:56
know what I mean
31:57
like he he was literally just sort of
31:59
taking money and you know when someone
32:01
cashed out he would you know it was like
32:04
who’s that little girl throwing he had a
32:09
big you know pile of cash and you know
32:11
he would who take some man and throw
32:13
some out but if the SEC it had at any
32:16
time just looked at his books and said
32:19
what are you invested in it all would
32:23
have you know that whole house of cards
32:25
would have fallen and invest in anything
32:27
no and he wasn’t he wasn’t making trades
32:29
he wasn’t doing anything you know and
32:32
and there are a bunch of stories like
32:35
this there’s a great book called the
32:38
octopus which is about as somebody who
32:39
did a Madoff like scam another hedge
32:42
fund where same thing they weren’t
32:45
really making trades they were just sort
32:46
of creating phony profit and loss
32:48
statements and
32:50
and and creating records that look like
32:53
trades they could they could tell their
32:55
investors about but they weren’t
32:56
actually doing anything so if anybody
32:58
any expert at any time had just poke
33:03
their nose in into this person’s books
33:06
they would have seen it in ten seconds
33:07
that’s the mean that’s the amazing thing
33:09
about this you know not not to get back
33:12
to you know my my drug-dealing book but
33:15
this is one of the things that he says
33:16
which is that you know you can be in a
33:20
you know in a poor black neighborhood
33:22
and a couple of kids will be on a cell
33:25
phone and talking about selling ten
33:27
dollars worth of weed and they’ll be
33:29
picked up by cops you know within 20
33:33
minutes or something like that
33:34
meanwhile you know somebody like you
33:37
know Bernie Madoff can commit 100
33:41
million dollar frauds year after year
33:43
after year and not even do any to take
33:46
any effort to try to cover it up all
33:48
that well and get away with it well
33:50
Bernie’s big crime was that he ripped
33:52
off rich people yeah absolutely
33:54
if he had done the exact same thing to
33:56
poor people but he did was just it was
33:58
just too easy to call what he did a
34:00
crime versus what you were talking about
34:02
with these financial institutions right
34:05
yeah yeah if he if he had long if he
34:07
laundered it through a slightly more
34:09
legitimate process he he would have
34:11
gotten out flattened but the one of the
34:13
things that a lot of these guys these
34:15
scam artists get into it thinking that
34:18
they’re actually gonna be real hedge
34:20
funds and that they they have some stock
34:23
picking system that’s actually going to
34:25
make all their clients money and one of
34:27
the things they find out is that a they
34:29
suck they they they’re not outperforming
34:31
the market and they’re not that smart
34:33
but be that their clients can’t tell if
34:36
they just make up the numbers so there
34:39
there are a number of cases of people
34:41
who start out trying to be legitimate
34:43
and trying to be really real investment
34:46
advisors but they just end up turning it
34:49
to Bernie Madoff types because it’s just
34:52
easy there’s no there aren’t that many
34:54
people watching for it and
34:56
you know that that’s kind of scary too
34:58
well it seems like there’s so many
35:01
people doing it how could there be
35:04
enough people watching it right about
35:06
how many investment firms there are and
35:08
how many different people that are
35:09
involved in trading how could anybody be
35:12
watching all of it right yeah no there
35:15
but even even so even if you take that
35:20
into consideration then the number of
35:22
eyes that are that are on this world is
35:24
is ridiculously low electic take AIG all
35:28
right AIG was one of the world’s largest
35:31
companies at before before it crashed it
35:35
had like a hundred eighty thousand
35:36
employees it was it took advantage of
35:41
this weird loophole that allows
35:42
financial companies to essentially
35:45
choose their own regulator so because
35:48
because AIG had a thrift or Savings and
35:53
Loan that’s basically the same thing
35:54
they chose to be regulated by the OTS
35:59
which is the office of Thrift
36:01
Supervision
36:02
which is this tiny tiny little you know
36:07
office in Washington that oversees
36:10
basically Savings and Loan operations
36:12
and in in the OTS this is this is
36:16
actually true the they had exactly one
36:19
insurance expert on staff so essentially
36:22
with the world’s largest insurance
36:23
company was being regulated by a
36:27
government office that only had one
36:29
person who really understood insurance
36:31
and and even and even that person
36:33
wouldn’t have understood the the part of
36:37
the company that blew up which was
36:39
essentially an investment bank within
36:42
the insurance company that was creating
36:44
these sort of highly advanced sort of
36:46
derivative operations that know that
36:50
they just would not have been able to
36:51
understand that stuff so there the
36:55
government just does not place a lot of
36:58
resources into you know keeping an eye
37:01
on even the most basic things and when
37:04
you compare that to law enforcement in
37:06
other areas you know
37:08
is how many how many people do we have
37:11
you know worrying about back bank
37:13
robberies in this country or drugs right
37:16
or you know how many people are being
37:19
watched because their marijuana dealers
37:21
in other states I mean it dwarfs the
37:24
number of people who are watching for
37:25
economic crimes yeah one person yeah I
37:30
just love the the name of it office of
37:33
Thrift Supervision yeah sure it exists
37:36
anymore I think it was it was merged
37:39
into some other because there used to be
37:42
the OCC the officer of the Comptroller
37:44
of the currency and I think they created
37:47
a new regulator at out of all that after
37:49
the crash but but yeah and I chose its
37:53
regulator and its regulator you know was
37:56
totally overmatched didn’t couldn’t
37:58
understand shit and that’s one of the
38:00
reasons why the company blew up the
38:02
company also blew up because it was run
38:04
by insurance people who didn’t
38:07
understand the idea was basically Wall
38:11
Street’s bookie all these people were
38:12
betting all these investment banks were
38:14
betting on whether or not mortgages were
38:16
gonna fail or not and AIG was selling
38:19
the product that they could use to make
38:23
those bets essentially or they were
38:24
taking on insurance on packets of
38:27
mortgages so if they exploded you would
38:30
get a payout right it was it’s like it’s
38:33
like buying an insurance policy on your
38:35
neighbor’s house if it goes up in flames
38:37
you get paid on it you got paid AIG was
38:39
selling a product that allowed banks
38:41
essentially to buy insurance on on
38:44
houses on mortgages and if the if people
38:48
foreclosed if the mortgage has failed or
38:52
pools of mortgages failed if you if you
38:56
bought that kind of insurance you got
38:57
these huge payouts so people were
38:59
betting against mortgages basically and
39:02
AIG was taking all this book and but the
39:06
the heads of the company were oldschool
39:08
insurance executives who just didn’t
39:10
understand this sort of newfangled
39:15
complicated form of insurance and so
39:18
they would look at the numbers they were
39:20
being given and even they didn’t get it
39:21
didn’t they didn’t understand how how
39:24
exposed they were and so and all the
39:27
bets started going the wrong way
39:28
suddenly they’re being asked to pay out
39:30
billions of dollars and they’re like
39:33
wait where is this coming from so even
39:36
the companies were kind of clueless
39:38
about the shit that was going on it
39:40
turns out
39:46
[Applause]