S&L Crisis Reformist: Gov-Industry Cover-Up Is Huge

Update: Black's response can be read at Black's response to bloggers.

William K. Black, senior regulator during the 1980s S & L crisis and associate professor of economics and law, says the government understates the immense scale of exotic financial products fraud and is lying about the current health of our financial system to prevent a meltdown.

Confidence is oxygen, pointed out Warren Buffett last October. I keep up my hope that Obama is simply rolling out the recovery program (and sparing us all the details) so as not to scare the hell out of everyone, thinking that the immediate effects of the recovery ought to be different than a shock-and-awe campaign. But secrecy doesn't exactly work well nor should it in democracies, right?

A rolled-out truth and outright lying don't work at all, in Black's view. Here's an excerpt from his interview with Bill Moyers broadcast last Friday night. About the scariest stuff on the crisis I have read yet:

WILLIAM K. BLACK: ... What would happen if after a plane crashes, we said, 'Oh, we don't want to look in the past. We want to be forward looking.' Many people might have been, you know, we don't want to pass blame. No. We have a nonpartisan, skilled inquiry. We spend lots of money on, get really bright people. And we find out, to the best of our ability, what caused every single major plane crash in America. And because of that, aviation has an extraordinarily good safety record. We ought to follow the same policies in the financial sphere. We have to find out what caused the disasters, or we will keep reliving them. And here, we've got a double tragedy. It isn't just that we are failing to learn from the mistakes of the past. We're failing to learn from the successes of the past.

BILL MOYERS: What do you mean?

WILLIAM K. BLACK: In the Savings and Loan debacle, we developed excellent ways for dealing with the frauds, and for dealing with the failed institutions. And for 15 years after the Savings and Loan crisis, didn't matter which party was in power, the U.S. Treasury Secretary would fly over to Tokyo and tell the Japanese, 'You ought to do things the way we did in the Savings and Loan crisis, because it worked really well. Instead you're covering up the bank losses, because you know, you say you need confidence. And so, we have to lie to the people to create confidence. And it doesn't work. You will cause your recession to continue and continue.' And the Japanese call it the 'lost decade'. That was the result. So, now we get in trouble, and what do we do? We adopt the Japanese approach of lying about the assets. And you know what? It's working just as well as it did in Japan.

BILL MOYERS: Yeah. Are you saying that Timothy Geithner, the Secretary of the Treasury, and others in the administration, with the banks, are engaged in a cover up to keep us from knowing what went wrong?

WILLIAM K. BLACK: Absolutely.

BILL MOYERS: You are.

WILLIAM K. BLACK: Absolutely, because they are scared to death. All right? They're scared to death of a collapse. They're afraid that if they admit the truth, that many of the large banks are insolvent. They think Americans are a bunch of cowards, and that we'll run screaming to the exits. And we won't rely on deposit insurance. And, by the way, you can rely on deposit insurance. And it's foolishness. All right? Now, it may be worse than that. You can impute more cynical motives. But I think they are sincerely just panicked about, 'We just can't let the big banks fail.' That's wrong.

BILL MOYERS: But what might happen, at this point, if in fact they keep from us the true health of the banks?

WILLIAM K. BLACK: Well, then the banks will, as they did in Japan, either stay enormously weak, or Treasury will be forced to increasingly absurd giveaways of taxpayer money. We've seen how horrific AIG -- and remember, they kept secrets from everyone.

Go for the Juggler, Obama

Paul Krugman has a piece in the Times this morning advocating that President-elect Obama pursue a full-blooded “progressive agenda.”

In opposition to the warnings of the center-right pundits who recommend that Obama go slow and not attempt too much change, Krugman echoes most citizens in our democracy who advise or more accurately demand: Change.

That rabble! And it’s all going so well.

Seriously, in light of the gargantuan problems facing our country and the irrefutable electoral mandate, in which direction do you think Obama will direct his legislative and administrative agendas?

Putting aside the ludicrous notion that we are a center-right country that discredited-by-facts pundits are spewing (and didn’t we just have an election or two these last two years repudiating the thesis?), Obama can be counted on to go for the juggler.

That sage advice decided upon by the American people in the 2008 election is called an “electoral mandate.”

Following the radical interventions of the Bush administration and the Federal Reserve System into the financial systems (without which we would be looking at, at best, a deep L-shaped recession as critical confidence dissipated), Obama is assembling the toughest political operation available to fight for the people who elected him to bring about change, and offer hope.

Obama, contra Bush, will save Social Security, Medicaid and Medicare, and expand the health care system to: Provide health care for more Americans.

Obama will likely push an array of innovations across the board that will be geared to help working Americans achieve the American Dream, or at least give them a fighting chance to survive and prosper during what we hope will only be a short-lived U-shaped recession.

The fact is that Bush was spot-on correct to bail-out critical streams of the financial system.

And Obama is equally spot-on correct to directly bail out the American public by giving them a fighting chance to make their children’s’ futures brighter than what may seem apparent during these next couple of years.

Cries of “welfare” and “socialism” or other such nonsense emitted by the rightwing who saw the results of their economic fantasies and orthodoxies obscenely played out in front of the American people these last 10 years will not sit well because voters aren’t likely to soon forget the great bail-out.

As Krugman says, “… a serious progressive agenda — call it a new New Deal — isn’t just economically possible, it’s exactly what the economy needs.”

And politically it’s exactly what enough politicians require to stay in office.
- via mal contends

Warren Buffett Says Confidence is Oxygen

"You want to be greedy when others are fearful. You want to be fearful when others are greedy. It's that simple. ... They're pretty fearful. In fact, in my adult lifetime, I don’t think I’ve ever seen people as fearful economically as they are right now."
- Warren Buffett, October 1, 2008 on the Charlie Rose Show

Why the Charlie Rose show featuring an exclusive conversation with Warren Edward Buffett, regarded as the world's greatest investor and chair of Berkshire Hathaway, is not endlessly broadcast this week is a mystery of the American political culture.

Even as House Republicans scream (at the apparent urging of Newt Gingrich) that the Emergency Economic Stabilization Act 2008 is a slippery slope to socialism, Buffett's reasoned defense of the Bush-Paulson-US Senate-Everyone-except-the-GOP-House Members Act assures that not only may the bailout bill produce a net profit (if conceived of in those terms) for American taxpayers, but the fear and loathing epitomized by the House Republicans (though not singled out by Buffett in the interview) is ludicrously removed from reality.

The insistence by some progressive Democrats that similar investments be made in the American people directly is certainly called for, but stemming the fear [the VIX or Volatility or Fear Index remains extremely high] is imperative during this time of what Buffett calls a financial "Pearl Harbor".

The psychosocial superstructure holding up our economy ought not be bombed, especially now.

As Buffett says: "Confidence is key. ... You don't want to do too little too late."