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.
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.
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.
So, let’s start with this term you use, “control fraud’. What is it and when does this start to appear in finance?
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.
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?
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.
What’s the agency?
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.
Now, the gambles are loans they’re making.
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.
Give us an idea how many banks were involved and when was this? This is during Reagan.
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.
Who said that?
The head of the agency [Dick Pratt], a top academic economist, expert in finance, said.
Well, were they in on it? The fraud?
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.
They evaluate the risk.
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.
And these are all phony loans for building these things.
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.
And how many had he closed by that point? But they were insolvent.
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.
The hole of the bank debt was about 150 billion bucks?
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.
How much of this was public at this time?
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.
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.
And whose money is in these savings and loan?
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.
What year are we in?
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.
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?
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.
So, hundreds of these types of referrals and how many actual charges at that point.
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.
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.
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?
Something akin to the great financial crisis would have happened in the mid-90s.
Which means these banks would have all failed, the federal insurance plan would have to have stepped in at the rate of.
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.
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.
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.
Right, one person doing a $20 check is serious.
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.
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.
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.
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.
Yeah, but what does he know about banking?
Nothing, he just knows that the people that help make him president want such and such, so he doesn’t go against them.
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.
Was Keating part of that kitchen cabinet that helped get Reagan to run?
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.
Because, I mean, they deliberately created Ronald Reagan to be a front man for their agenda.
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.
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.
And you’re including these senators in the crooks, these five.
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.
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.
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.
“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 ally, told 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.”
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.”
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.
Transcript00:00the Joe Rogan experience no well it you00:05get compared to him a lot and one in one00:09way I really saw that comparison was00:11your brilliant coverage of the financial00:13crisis and what was the the mechanisms00:16behind the scene of the financial crisis00:18and that I became a really big fan of00:20your work reading that because the that00:23I I think you covered that as well if00:25not better than anybody00:26oh well thanks yeah I mean so I I knew00:31nothing about any I couldn’t even00:32balance my checkbook when they assign me00:34to that story and and I had to start00:38basically from square one and I was00:41calling people and saying things like00:44can you tell me something about00:45something that I’ll understand you know00:47it’s real cold calling investment banks00:49and literally saying that and I finally00:51got a guy to have lunch with me and he00:56said your problem is that you’re trying00:59to understand this as an economic story01:01once you look at it as a crime story01:04you’ll get it and and from that point01:08forward I I totally I felt like like I01:11started to understand the whole01:13mechanism in the subprime mortgage scam01:16it really was a scam it’s really it’s01:18really just a massive corporatized01:21version of like selling oregano as weed01:26basically they they took stuff that01:30these is incredibly worthless highly01:33risky mortgage loans right you know they01:36would give out loans to everybody with a01:38pulse you know whether you had a job or01:41not whether you were a citizen or not01:43didn’t matter poor thing was to get the01:45loan immediately sell it off chop it up01:48turn it into securities and then they01:50used this highly advanced sort of01:54mathematical trick to turn all that sort01:58of mortgage hamburger into triple-a02:00rated securities so you’d have like a02:02you know a junk rated mortgage like the02:05riskiest loan in existence something02:10that was so toxic that02:12country companies like country or I02:14wouldn’t want to hold on to it for more02:15than a week because they were afraid it02:17would that the stuff would blow up and02:18then they would sell it off to like a02:21pension fund or you know an insurance02:24company in the form of a triple-a rated02:27security which you know is as safe as a02:31US Treasury bond so it was a scam McGann02:35and the the the the metaphor of you know02:39baby power taking baby powder and02:42selling it as coke or whatever that02:44that’s exactly what it was they just02:45took worthless shit and sold it as02:47something that was that was gold and02:49they got they did it for years and years02:52and years and years and they they knew02:54that this gigantic huge bubble of risk02:58and disaster was just accumulating and03:02that someday it was going to all explode03:04and cascade and and and ruin the economy03:07but everybody was trying to time it03:10right and and bet on when that would03:14happen and make their money before that03:16that Judgment Day came and it was it was03:20fascinating what’s it once I started to03:22learn about it it was just such a an03:23amazingly disgusting fascinating story03:27that it was just hard not to not to get03:30into it a crime story yeah think of it03:33as a crime story yeah no absolutely I03:36even got one guy gave me a book it was03:42called famous famous con artists in03:45history right it was like this little03:47tome it’s smaller than like the smallest03:49paperback and it was the biography of03:53this guy Victor Lustig was his name he03:56was famous because he sold the Eiffel03:58Tower twice alright and he he had this04:05this scam that he called I think it was04:09called the the the Hungarian box I’ll04:14have to go back and look but basically04:15what he would do is he would get on a04:18boat in New York and he had this sort of04:24beautiful mahogany box with04:25ranked on it that had two holes in it04:27and he would show all the guests that he04:30would put a blank piece of paper in one04:32and turn a crank and $100 bill would04:35come out the other end and he convinced04:39them all that it was a machine that made04:41money and everybody would offer him an04:45increasing amount of money for this04:47invention and he wouldn’t sell it until04:51the last day when he would sell it for a04:54you know forty or fifty thousand dollars04:55and then he would disappear and jump off04:56the boat and in France and never be seen04:58again people would yeah there it is05:00what’s it called yeah but but that’s05:08exactly what the Mortons picture let me05:10see his face05:13look at that fucking creep05:15[Laughter]05:16Wow let me see that box again Wow that05:22is crazy05:23so there yes so it was obviously fake05:26and and and but that’s what the mortgage05:28scam was they they they were taking05:32basically blank paper these these05:35subprime loans that belong to jander’s05:38who were gonna foreclose within ten05:41minutes all right and they were telling05:45people that oh we have this new05:47mathematical process that allows that05:49actually makes this stuff really safe05:51and you can put it in your in your05:56College endowment you can put in your05:58pension fund and so all these people you06:01know whose retirement monies were based06:04on securities we’re buying all this shit06:08that they thought was was triple-a rated06:11and that’s that’s how they woke up and06:12you know and in 2008-2009 and they found06:14their 401ks or were you know wiped out06:19by 40 percent or whatever it was my06:20neighbor really did I happen to him my06:23neighbor bought this plot of land and06:24had this dream to build his dream house06:27and he would go buy the plot of land and06:30he was always cleaning up and getting06:31ready and I was talking to him and then06:33boom 2008 happened he lost everything06:37and he would still go buy that plot06:40and cleanup and he and I would talk06:42about it and they just told me lost06:44everything06:45yeah so it’s never gonna happen huh yeah06:47no I think he I think he died he06:51eventually got really sick and they took06:53him out of his house and brought him06:55somewhere but I think he’s dead now but06:57yeah his his story was awful awful to07:01hear this guy who was in his 60s who had07:04got this piece of land with a nice view07:06and it’s like this is where I’m gonna07:07build my dream house and he had all this07:10money prepared for it all this money07:11saved away and he was ready to rock and07:14roll and then boom mmm it all went out07:17they just drained out somebody put a07:19hole in the bottom of the boat and07:20everything everything went to the bottom07:23of the ocean yeah and then he’d probably07:25got ripped off twice because his tax07:26dollars went to go bail out the guys who07:28you know you know who because some of07:31the some of the banks got stuck holding07:32some of this shit and rather than eat07:35the losses like your your friend did07:37they got the Federal Reserve to buy it07:40from them ya know and and you know or or07:44the Treasury how the fuck did they get07:47away with giving the CEOs bonuses during07:51that time yeah a giant bonuses during07:53the time where they they had to be07:55bailed out by the taxpayers yeah that07:57was another scam like so they were if08:01you looked at the fine print of all the08:02bailouts it’s basically said that you08:05had to repay the money by us by X time08:08before you could start paying people08:10exorbitant amounts of money again but a08:14lot of those a lot of those conditions08:16were never really followed and you know08:19the the conditions of repayment were08:22kind of glossed over and the the the08:27companies that they were supposed to be08:28able to pass these things called stress08:30tests which demonstrated that they were08:33back on solid footing again before they08:35paid people bonuses but the stress tests08:39were all fledged and you know I mean the08:41there were there was crime and08:44corruption a legality basically in every08:46direction during that whole period and08:48and08:49not just in the government but in in all08:52these companies as well geez yeah but08:55fascinating to follow yeah what was it08:58like covering that I mean how long did09:00you spend working on that seven years09:03probably yeah yeah well because one of09:06the things that I thought no that was09:07really interesting was I did my first09:13story about this and I got this09:16incredible reaction because it turns out09:19that the financial press there is nobody09:21in the financial press who writes for09:23ordinary people like it’s basically what09:26I was doing was a translation job I was09:27trying to basically take what had09:30happened and explain it in a way that a09:33person who knew nothing about finance09:35would be able to understand and it turns09:38out that nobody is doing that so all09:42these people who had questions about it09:44who who wanted to know what had happened09:46to their money or why don’t why didn’t09:49my house get foreclosed on or what it09:50you know what’s what’s a subprime09:52mortgage or anything you know there was09:57nobody else doing that work so I had09:59lots of it to do and it was really10:01interesting and I just kept doing it10:04that had to be depressing yeah oh yeah10:07of course10:07of course I mean most most investigative10:10reporting is depressing particularly10:14that because you mean a lot of it was10:16old people that oh my god old people10:19minorities I mean I did one story about10:22a bank in Maryland well it’s a National10:29Bank it’s it’s a bank that you know I10:31wouldn’t be surprised that a lot of10:34people listening how have their accounts10:35at this Bank they had to pay settlement10:39to the government because they were10:42intentionally targeting elderly black10:45people to sell subprime mortgages to and10:50they called the mud people10:51and there were all these these like10:53toxic emails going back and forth about10:55how stupid they were and how they’ll buy10:57anything etc etc the emails they call11:00them mud pee11:01yeah yeah and so they had to pay a11:03settlement to the government and but you11:06know the racial component of the of that11:08crash was something that I didn’t really11:10clue into until late but that was a big11:12part of it too11:13it was you know a lot of it involved11:18these mortgage lenders going into11:22particularly like lower middle-class11:24black neighborhoods and knocking on11:27doors where there’d be like an elderly11:29person at home and saying hey would you11:31like to refi your mortgage and you’ll11:34have a little bit of extra spending11:35money this month right and the person11:40won’t know anything about finance and11:42they’ll still sign this refinance deal11:44that allows them to save a little bit of11:46money each month not knowing that they11:49had just converted their fixed mortgage11:51into a floating mortgage and that is11:53seeing the interest rates changed you11:56know you’d have people who went from11:58paying $900 a month to paying $7,000 a12:02month right and suddenly they’re out in12:04the street and and you know the the12:08company that sold them the loan is long12:10gone by then they they’re not holding it12:12they as soon as they got her name on the12:15dotted line they sold it off to a bank12:17in New York who in turn again chopped it12:20up into hamburger and sold it probably12:21to you our pension fund or who or12:23whatever so there’s nobody she’d give a12:25complain to and you know yeah that stuff12:27was really depressing what was a feeling12:29like of having very little understanding12:31about finance and then immersing12:33yourself in it and now is vac sizing12:36that this is the underlying structure12:38that our society is Rhon that our money12:41is established through like this is this12:43is how we we sell houses and loans and12:47this is what we’re doing yes yeah no it12:50was it was fascinating I because before12:52that I was mostly covering like12:56elections right and again if you cover12:58elections it’s incredibly boring and you13:01never hear anything of substance and13:03it’s not terribly complicated and you13:05know one one the the Democrat says that13:08you know we want to help the middle13:10class and the Republican says we want to13:11protect America Family Values and that’s13:13pretty much the extent of the end13:15a challenge in terms of covering that13:17stuff and I always thought to myself you13:20know politics in America must be a lot13:22more complicated than this right there13:23must be some other hidden thing where13:28it’s incredibly complex and diabolical13:30and and you know the the real match13:33additions of power must be visible13:35somewhere and I think that you find that13:40when you when you start looking into howWall Street works how money works howcentral banking works how you know howthe concentration of wealth worksI mean basically the subprime scheme wasan effort to pull the remaining savingsout of the population right it justwasn’t you know in the old daysinvestment banks made their money bylending money to companies who wouldbuild factories and they would makestuff and sell it around the world andeverybody would make money and never youknow even even the population wouldwould would benefit from it but thatmanufacturing economy it’s all gone it’sso four C’s so you have thisfinancialized the economy and they haveno normal beneficial way to make moneyand all that all they can really do islook to see where is their money and howcan we get it and most people had moneyin their houses right like the the14:42accumulated savings of most people14:43whatever was left after the internet14:46crash in the 90s was in real estate and14:50that this was the scam by which they14:54took the wealth that was left in the14:58pockets of ordinary people and14:59transferred it to you know nine people15:03in Manhattan basically I mean that’s why15:05you have you know we told them when we15:07talk about wealth inequality now right15:10being a huge factor that you know the15:13top 95 I’m sorry the top 1% of the15:19population owns ninety percent of the15:21wealth in the country whatever it is15:23that’s a consequence of schemes like15:25this where they’re just there15:28they’re finding out where people have a15:30little bit of money and they’re15:32systematically coming up with scams to15:34move it from there to here with no15:37consequence no with no consequence and15:39that was the other part of the story15:40that I ended up having to cover later15:42which was you know the last time they15:45tried something like this like during15:47the SNL crisis which was also sort of a15:51giant fraud scheme also that involved15:53real estate lending and you know but15:56that the government after that actually15:58you know indicted 1800 people they put16:01800 people in jail they put a lot of you16:04know serious influential people on the16:06dock after that nobody nobody went to16:11jail after the stuff and there was and16:13people think that well they didn’t do16:16anything that was technically illegal no16:17bullshit there there was lots of stuff16:19that was that was brazenly criminally16:23illegal I mean they they committed fraud16:25on a broad scale but some of these16:27companies were into the things that wereeven worse than that I mean you takeHSBC HSBC admitted to laundering 850million dollars for a pair of Centraland South American drug cartelsincluding the Sinaloa cartel right whichis suspected in thousands of murderslike and you know they they admitted tothis activity they agreed to a deferredprosecution agreement with thegovernment where nobody did a day injail no individual had to pull out adime out of their own pockets to pay theshareholders pointed up 1.9 milliondollars but some of that was taxdeductible which means we paid some ofthat fine and and the only realpunishment with any teeth is that someof the executives had to partially defertheir bonuses for five years solaundering 850 million dollars for narcoterrorists gets you a total walk youknow that tells you basically everythingyou need to know about do we prosecutewhite-collar crime in this countrybasically no you know I mean that’s theanswerultimately that you find out and therewas paperwork that showed they knew itwas from the cartels oh yeah they if youif you look at the the agreement and youcan watch the thirst there’s there’s avideo of of Loretta Lynch and lanny18:00breuer because this is before laura18:02Loretta Lynch was Attorney General but18:03she was she was basically the head of18:07this deal they talked about the fact18:10that the HSBC branches because most of18:13this was done in Mexico hmx which was18:17the subsidiary company they had special18:20teller windows built to fit cash boxes18:24that the drug cartels were bringing into18:26the bank so basically you’ve seen the18:29scene the scene in Scarface where the18:31guys come in with duffel bags of cash to18:33the bank right and you know that’s like18:35a montage you know there’s that that18:37song I forget what song it is in the18:38background same thing these guys would18:40come into the the bank they would slide18:44in these boxes of cash one after the18:46other and that’s admitted activity the18:49banks signed off on this they’d you know18:50it’s not like they’re contesting it18:52they’re not saying we neither admitted18:53nor denied it’s it’s part of the deal so18:57and in they agreed to the amount18:59everything so yeah it was a one point19:04nine billion dollar settlement but you19:06know it’s not like it came out of the19:07pockets of the people who did it and19:09it’s not like any of the people who did19:11it are in jail it’s just you know a19:13thing that happened and you know that’s19:16five weeks of profit for the bank so19:18what what the fuck they don’t care right19:21did you see the documentary an inside19:24job yeah yep we’ve covered a lot of the19:27same territory yeah yeah that was a19:29sobering documentary where they’re19:31talking to the very people that caused19:33the financial crisis mm-hm and and19:35realizing that these people were19:37economics professors that eventually got19:39these jobs really lucrative jobs with19:42banks and how they finagled this system19:45and made it so it looked like these19:47things were appropriate ya know I talked19:50to the19:50some of the some of the things that they19:53invented that made this the crash19:54possible sounded like good ideas like19:58they they came up with this thing called20:00the credit default swap all right and I20:02won’t bore you with what that is exactly20:05but basically it’s a kind of insurance20:08where it’s it’s basically a bet it’s20:12hard to explain but it’s a way of quasi20:19insuring a product without having to20:22pony up a lot of money and the it’s it’s20:27called the derivative right and these20:31instruments are completely unregulated20:35can I put the secret default swap is20:37like you and I betting on whether or not20:43a third person’s house is going to burn20:48in a fire right like the old-school20:50insurance said that it had to be your20:53house in order for you to get insurance20:55on it this new form of quasi insurance21:00said that two totally disinterested21:01parties could have an interest in a21:03third thing that happens so it’s21:06basically gambling and on the one hand21:11it allowed people to create a whole lot21:15of capital which allowed them to lend21:16more money which theoretically allowed21:18people to buy more houses but in reality21:21it just created the system where all21:23these people had bets that were back and21:25forth on on all these properties that’s21:27one of the reasons why the when the21:30crash happened when when all those21:31mortgages started to fail it wasn’t just21:34the failures of those properties it was21:36all these people who were betting on21:37whether or not these people could could21:39pay their mortgages they started to lose21:42money and then there were people who had21:43bets on that who started to lose money21:45and it’s like this cascading whirlpool21:47of shit that happened and again it just21:51it started out as an idea to just create21:53more money to lend to lend and it turned21:56into this nightmare mechanical scenario22:00that just that created losses22:03you know in this almost apocalyptic22:05fashion and a lot of them had no idea22:08but that that was going to be the22:10eventualities22:14yeah it’s great it’s definitely crazy22:17stuff as a person who didn’t really22:19follow finance before how much does that22:21affected your life now like the way you22:24look at things I definitely pay a lot22:26more attention to the fine print when I22:30enter into any financial contract I22:34think about where I do my banking but22:38the reality is you just don’t have a22:40whole lot of choice in this country22:41anyway I mean it’s like everything else22:43there’s only a few companies left so22:47almost every bank that’s out there where22:51you can have a bank account in a22:52mortgage is is a bank that I’ve written22:55about some massive scandal before so22:58that that’s that’s a problem but yeah I23:03worry about it all the time I mean I23:04have friends in finance who call me and23:07they they tell me that you know that the23:11things that are incredibly unsafe and23:13that this that and the other could could23:14could happen and so I have an anxiety23:17level about things that I never had23:18before but apart from that yeah I mean23:22that’s a natural consequence of having23:26to spend 7 years looking at all these23:29horror stories that’s great it’s crazy23:31you spent their lunch time on it do you23:34see any other bubbles coming up23:36yeah people talk about that all the time23:40there’s a lot of a lot of negative press23:45about subprime auto loans for instance23:48which is it’s not exactly the same but23:52it’s it’s a similar thing I mean the23:53same basic scam of taking loans chopping24:00them up and then repackaging them as24:02something that’s more valuable than the24:04original loan you can do that with24:06anything any kind of credit you can do24:08it with credit cards you can do it with24:09aircraft loans you can do it with with24:11car loans you can do it with with home24:13mortgages24:15and so the the mechanism of taking24:18things that are are toxic and risky and24:22making them look like triple-a is still24:25is still part of the economy and it’s24:30everywhere the plus side of that is that24:33there’s more credit available you know24:36almost anybody can get a credit card or24:38even if you’ve had screwed up credit you24:39can get a car you know I mean there’s24:42this put us on this like endless cycle24:44of build-up bubble collapse build-up24:46bubble collapse rebounding collapse24:49again absolutely I mean I think that’s24:51that’s that’s why I can’t you have to be24:55nervous about the you know the24:57skyrocketing stock exchange because we25:01verified yeah I mean you should be right25:03do you are you heavily invested in and25:05I’ve got some in there I just did when25:07when the whole you know when Trump was25:09saying the economy has never been better25:10look at the stock market stock market’s25:12killing it always do and then it’ll have25:14a bad day and okay well I thought we’re25:16doing great like what’s going on with25:18this bad day can you not control these25:19bad days right like what’s happening25:21here right if you’re if you’re in25:23control the good days you’re also in25:24control the bad days right yeah of25:26course of course it just it seems it25:29seems super suspicious yeah and and in25:32the old days you’d have a lot of25:34confidence that well the stock market25:37always eventually goes up so yeah25:40there’s gonna be bad days but it’ll go25:42back but the problem is the underlying25:43economy in America it just isn’t all25:46that hot you know like we’re like what25:48do we really make in this country what25:50what we’re where’s the floor right like25:53we have we have some industries that25:55sort of perform well but if you know25:58periodically we go through these bubbles26:00that are based on nothing more than26:01enthusiasm you know in the 90s it was26:04the the tech bubble right where people26:08like Alan Greenspan would say things26:10like well we have a new paradigm in26:11economics right so it doesn’t matter26:15whether a company hasn’t shown any26:17ability to make money or26:21you know has no reasonable profit and26:25loss statements it’s just if it’s a good26:27idea that the stock is sound and26:30everybody should invest in it and the26:32stock market is going to continually go26:34go up so don’t worry about it of course26:37that doesn’t happen everybody but it26:39blows up everybody loses their shirt but26:41what what do they do the Fed lowers26:44interest rates basically allows Wall26:46Street to recapitalize drink itself26:49sober and they plunge into the next the26:52next madness which is mortgages and once26:55again you have Alan Greenspan saying hey26:58you know real estate is a great bet it’s27:01you know it’s going to continually27:02ascend people should use their homes as27:05ATM machines you know you should you27:08should consider refinancing your house27:10so that you can get a little bit of27:11extra cash and and this is this was27:14actually the message they sent to27:15America and again it creates as27:17artificial mania27:19where the economy is stoked artificially27:23to gigantic dimensions but it’s not27:27based on anything and so when when it27:30crashes when you finally get like any27:33Ponzi scheme it you know it depends it27:36depends on more new investors coming in27:38than old investors leaving right so27:40there’s always going to be that moment27:42when suddenly we don’t have as many new27:45ones as old ones and the instant that27:47happens it all goes kaboom right and27:50that’s what happened with with the27:53subprime market there was a moment in27:55time where they they just couldn’t keep27:58it going anymore they couldn’t find any28:00more new suckers though to get to sell28:03mortgages to and the mania ended and all28:06went splat and then it was amplified by28:08the fact that we have this system now of28:11people betting on credit that is legal28:16which creates more losses out of thin28:19air so yeah I’m terrified every time I28:22see this the stock market go up what’s28:25it based on is it based on our economy28:27actually doing well I don’t know I don’t28:29think so28:30you know I’m sorry I’m look like I’m28:33scaring you a little bit you’re28:34definitely scaring but I think that’s28:36good I think I need to be scared I tend28:39to take these things and just you know I28:41have financial advisors I let them28:43handle money right when I hear things28:45like this I just got Jesus well I I get28:48terrified when I hear about really smart28:49people getting scammed like yesterday we28:52were talking about theranos do you know28:54that a blood testing company that turned28:57out to be total horseshit no I didn’t28:59hear about this oh it’s great story it’s29:01it’s a story of one of those things29:03where you you find someone who you hope29:06exists and you build them up there was29:08this woman she looked like Steve Jobs29:11she wore a black turtleneck in every29:13photo and she was the richest ever29:18self-made woman she was worth four29:21billion dollars she had built this29:23company called theranos right out of29:25college she was like 19 when she started29:28the company it was a blood-testing29:30company that just required a small prick29:32of your blood to do complicated blood29:34analysis for diseases and things along29:36those lines29:36turns out it didn’t work at all mmm and29:38they faked a bunch of shit I’d spread29:42fraud a lot of people got their blood29:44tested it turned out to be you know they29:46were at risk for all these diseases and29:48warren buffett invested a hundred29:51million dollars I think 125 Betsy DeVos29:54more than 100 million dollars like all29:56these super wealthy people got scammed29:59Wow yeah when you find out that really30:01wealthy people write that do this for a30:04living30:05yeah Buffett does that for a living30:07right that he can get scammed out of a30:09hundred and twenty five million dollars30:12right right yeah and and Warren Buffett30:15his his mantra is supposed to be picking30:20the the absolute long term investment30:25right so it’s not he’s not like a stevie30:28colon type who just looks at the tape30:30and tries to time it just right so you30:32know you can you can make an investment30:35for ten seconds and come out with it30:37with a you know30:38if he if he’s investing in a company and30:40a and even he can be fooled that’s30:43that’s pretty terrible but look at Enron30:45I mean Enron was was another example of30:47the world’s best financial analysts30:49we’re looking at this company for a30:51decade and the the results were30:56completely ridiculous like it should30:58have been obvious to any layperson that31:00that these profit numbers couldn’t31:03possibly be real and it wasn’t until one31:08of those guys I think it was Jim Chanos31:11it was sort of a famous short seller I31:13mean I sort of said hey wait a minute31:15that there’s something up here but31:19people continually invested in these31:21companies and there’s just not a whole31:22lot of oversight that goes on with with31:27Wall Street and I think that’s that’s a31:29major lesson of you know the last 2031:33years is that is that there’s just not a31:36lot of eyes on on crime and in this area31:39another example is I’m sorry the the31:43who’s the guy scammed all the rich31:44people really made up Bernie Madoff yeah31:46I was gonna bring him up yes the most31:47egregious example right yeah yeah I mean31:49there are other there are other people31:51who did similar things but this guy31:54didn’t even make investments right you31:56know what I mean31:57like he he was literally just sort of31:59taking money and you know when someone32:01cashed out he would you know it was like32:04who’s that little girl throwing he had a32:09big you know pile of cash and you know32:11he would who take some man and throw32:13some out but if the SEC it had at any32:16time just looked at his books and said32:19what are you invested in it all would32:23have you know that whole house of cards32:25would have fallen and invest in anything32:27no and he wasn’t he wasn’t making trades32:29he wasn’t doing anything you know and32:32and there are a bunch of stories like32:35this there’s a great book called the32:38octopus which is about as somebody who32:39did a Madoff like scam another hedge32:42fund where same thing they weren’t32:45really making trades they were just sort32:46of creating phony profit and loss32:48statements and32:50and and creating records that look like32:53trades they could they could tell their32:55investors about but they weren’t32:56actually doing anything so if anybody32:58any expert at any time had just poke33:03their nose in into this person’s books33:06they would have seen it in ten seconds33:07that’s the mean that’s the amazing thing33:09about this you know not not to get back33:12to you know my my drug-dealing book but33:15this is one of the things that he says33:16which is that you know you can be in a33:20you know in a poor black neighborhood33:22and a couple of kids will be on a cell33:25phone and talking about selling ten33:27dollars worth of weed and they’ll be33:29picked up by cops you know within 2033:33minutes or something like that33:34meanwhile you know somebody like you33:37know Bernie Madoff can commit 10033:41million dollar frauds year after year33:43after year and not even do any to take33:46any effort to try to cover it up all33:48that well and get away with it well33:50Bernie’s big crime was that he ripped33:52off rich people yeah absolutely33:54if he had done the exact same thing to33:56poor people but he did was just it was33:58just too easy to call what he did a34:00crime versus what you were talking about34:02with these financial institutions right34:05yeah yeah if he if he had long if he34:07laundered it through a slightly more34:09legitimate process he he would have34:11gotten out flattened but the one of the34:13things that a lot of these guys these34:15scam artists get into it thinking that34:18they’re actually gonna be real hedge34:20funds and that they they have some stock34:23picking system that’s actually going to34:25make all their clients money and one of34:27the things they find out is that a they34:29suck they they they’re not outperforming34:31the market and they’re not that smart34:33but be that their clients can’t tell if34:36they just make up the numbers so there34:39there are a number of cases of people34:41who start out trying to be legitimate34:43and trying to be really real investment34:46advisors but they just end up turning it34:49to Bernie Madoff types because it’s just34:52easy there’s no there aren’t that many34:54people watching for it and34:56you know that that’s kind of scary too34:58well it seems like there’s so many35:01people doing it how could there be35:04enough people watching it right about35:06how many investment firms there are and35:08how many different people that are35:09involved in trading how could anybody be35:12watching all of it right yeah no there35:15but even even so even if you take that35:20into consideration then the number of35:22eyes that are that are on this world is35:24is ridiculously low electic take AIG all35:28right AIG was one of the world’s largest35:31companies at before before it crashed it35:35had like a hundred eighty thousand35:36employees it was it took advantage of35:41this weird loophole that allows35:42financial companies to essentially35:45choose their own regulator so because35:48because AIG had a thrift or Savings and35:53Loan that’s basically the same thing35:54they chose to be regulated by the OTS35:59which is the office of Thrift36:01Supervision36:02which is this tiny tiny little you know36:07office in Washington that oversees36:10basically Savings and Loan operations36:12and in in the OTS this is this is36:16actually true the they had exactly one36:19insurance expert on staff so essentially36:22with the world’s largest insurance36:23company was being regulated by a36:27government office that only had one36:29person who really understood insurance36:31and and even and even that person36:33wouldn’t have understood the the part of36:37the company that blew up which was36:39essentially an investment bank within36:42the insurance company that was creating36:44these sort of highly advanced sort of36:46derivative operations that know that36:50they just would not have been able to36:51understand that stuff so there the36:55government just does not place a lot of36:58resources into you know keeping an eye37:01on even the most basic things and when37:04you compare that to law enforcement in37:06other areas you know37:08is how many how many people do we have37:11you know worrying about back bank37:13robberies in this country or drugs right37:16or you know how many people are being37:19watched because their marijuana dealers37:21in other states I mean it dwarfs the37:24number of people who are watching for37:25economic crimes yeah one person yeah I37:30just love the the name of it office of37:33Thrift Supervision yeah sure it exists37:36anymore I think it was it was merged37:39into some other because there used to be37:42the OCC the officer of the Comptroller37:44of the currency and I think they created37:47a new regulator at out of all that after37:49the crash but but yeah and I chose its37:53regulator and its regulator you know was37:56totally overmatched didn’t couldn’t37:58understand shit and that’s one of the38:00reasons why the company blew up the38:02company also blew up because it was run38:04by insurance people who didn’t38:07understand the idea was basically Wall38:11Street’s bookie all these people were38:12betting all these investment banks were38:14betting on whether or not mortgages were38:16gonna fail or not and AIG was selling38:19the product that they could use to make38:23those bets essentially or they were38:24taking on insurance on packets of38:27mortgages so if they exploded you would38:30get a payout right it was it’s like it’s38:33like buying an insurance policy on your38:35neighbor’s house if it goes up in flames38:37you get paid on it you got paid AIG was38:39selling a product that allowed banks38:41essentially to buy insurance on on38:44houses on mortgages and if the if people38:48foreclosed if the mortgage has failed or38:52pools of mortgages failed if you if you38:56bought that kind of insurance you got38:57these huge payouts so people were38:59betting against mortgages basically and39:02AIG was taking all this book and but the39:06the heads of the company were oldschool39:08insurance executives who just didn’t39:10understand this sort of newfangled39:15complicated form of insurance and so39:18they would look at the numbers they were39:20being given and even they didn’t get it39:21didn’t they didn’t understand how how39:24exposed they were and so and all the39:27bets started going the wrong way39:28suddenly they’re being asked to pay out39:30billions of dollars and they’re like39:33wait where is this coming from so even39:36the companies were kind of clueless39:38about the shit that was going on it39:40turns out39:46[Applause]
Dr. William Lazonick, co-founder and president of The Academic-Industry Research Network, sits down with Real Vision’s Max Wiethe to dissect the evolution of the stock market and the modern American economic system. Citing Boeing as an example, he contends that the stock market is being used to loot previously innovative corporations as insiders and outsiders alike are incentivized to push stock prices higher. He also argues that American competitiveness is being sapped as companies prioritize stock buybacks over investing in research and development, building new infrastructure, and paying off debt. Lazonick explains how this focus on short-term profits has led to unstable employment, sagging productivity growth and a loss of international competitiveness. Filmed on December 6, 2019 in New York.