Discover the True Scope of Financial Madness

Learn what liars’ loans are and what their connection is to ninjas, banksters and the current global moral and financial crisis.

The American replica of public television, the Public Broadcast Service (PBS) last week aired a  ‘dialogue’ that stood out and which revealed all the mischief that threw the United States and then the entire world into a depressive, or as the IMF likes to call it, ‘global recession’. The main star of the show was William K. Black, a former head of the Institute for Fraud Prevention who is nowadays teaching economy and law at the Missouri University in Kanzas City. In the late 1980’s Black served as a tough regulator. When a scandal broke out which, at that time was colossal, and which pertained to the loans and savings of American tax payers who were cheated out of some 160 billion dollars, Black criticised everybody without any reservations, in the manner of the last honest sheriff. Among those slammed were five “honourable senators”, including John McCain, who had a brief blush over his concessions to the S&L company which, in turn, gave him enough money to buy Croatian prime minister’s entire car park. 

The PBS asked Black for an interview after he had attended a conference in New York which gathered the intellectual elite comprised of pundits and reporters who tried to find an answer to the question that can be translated as “How do they get away with it?”.

Due to his credibility and unstained reputation, as well as his book entitled “The Best Way to Rob a Bank Is to Own One”, Black is a person whose opinion is worth hearing.

Ninjas, banksters and liars’ loans 

Lately Black has been focused on the scandal of all scandals and, typically, does not refrain from condemning anybody, including Barack Obama, whom he wholeheartedly supported during the primaries. But the real target of Black’s sharp tongue is not the incumbent administration, but the “Wall Street barons”, heirs of an earlier generation whose scandalous rip-offs of wealth back in the 1930s earned them comparison to Al Capone and the mob, and the nickname "banksters."

At the beginning of the interview and without any restraint, Black claims that which is obvious to anybody who has taken time to look at the background of the ‘global recession’. For him, the current economic and financial collapse was caused by fraud which stems from the very top.

- In your book, you make it clear that calculated dishonesty by people in charge is at the heart of most large corporate failures and scandals, including, of course, the S&L, but is that true? Is that what you're saying here, that it was in the boardrooms and the CEO offices where this fraud began? – PBS host Bill Moyers asked Black after a brief warm-up.

- Absolutely – Black responded, explaining that “the Way that you do it is to make really bad loans, because they pay better. Then you grow extremely rapidly, in other words, you're a Ponzi-like scheme. And the third thing you do is we call it leverage. That just means borrowing a lot of money, and the combination creates a situation where you have guaranteed record profits in the early years. That makes you rich, through the bonuses that modern executive compensation has produced. It also makes it inevitable that there's going to be a disaster down the road.”

- How do they get away with it? I mean, what about their own checks and balances in the company? What about their accounting divisions? – Moyers asked.

- All of those checks and balances report to the CEO, so if the CEO goes bad, all of the checks and balances are easily overcome. And the art form is not simply to defeat those internal controls, but to suborn them, to turn them into your greatest allies. And the bonus programs are exactly how you do that – Black said.

- If I wanted to go looking for the parties to this, with a good bird dog, where would you send me? – the host asked.

- Well, that's exactly what hasn't happened. We haven't looked, all right? The Bush Administration essentially got rid of regulation, so if nobody was looking, you were able to do this with impunity and that's exactly what happened. Where would you look? You'd look at the specialty lenders. The lenders that did almost all of their work in the sub-prime and what's called Alt-A, liars' loans. Liars' loans mean that we don't check. You tell us what your income is. You tell us what your job is. You tell us what your assets are, and we agree to believe you. We won't check on any of those things. And by the way, you get a better deal if you inflate your income and your job history and your assets – Black revealed.

He also revealed that “managers” and tradesmen had their own terminology for the above mentioned liars' loans: ninja loans. Judging by his words, American banks and other investment companies are mostly run by ‘ninjas’ who are prepared for anything, but ‘seppuku’.

The conversation continued with a harsh criticism of Bush’s administration which made any kind of control over financial institutions impossible.

- Even Ronald Reagan, you know, said, "Trust, but verify." They just gutted the verification process. We know that will produce enormous fraud, under economic theory, criminology theory, and two thousand years of life experience – Black was harsh.

Moyers then asked if it was possible that these complex instruments were deliberately created so swindlers could exploit them.

- Oh, absolutely. This stuff, the exotic stuff that you're talking about was created out of things like liars' loans, that were known to be extraordinarily bad. And now it was getting triple-A ratings. Now a triple-A rating is supposed to mean there is zero credit risk. So you take something that not only has significant, it has crushing risk. That's why it's toxic. And you create this fiction that it has zero risk. That itself, of course, is a fraudulent exercise. And again, there was nobody looking, during the Bush years. So finally, only a year ago, we started to have a Congressional investigation of some of these rating agencies, and it's scandalous what came out. What we know now is that the rating agencies never looked at a single loan file. When they finally did look, after the markets had completely collapsed, they found, and I'm quoting Fitch, the smallest of the rating agencies, "the results were disconcerting, in that there was the appearance of fraud in nearly every file we examined – he said.

- So if your assumption is correct, your evidence is sound, the bank, the lending company, created a fraud. And the ratings agency that is supposed to test the value of these assets knowingly entered into the fraud. Both parties are committing fraud by intention – Moyers made his conclusion.

They knew, they stole…

The conversation then moved onto criminal responsibility, or lack thereof. This is what Black replied to Moyers’ question about why nobody of those responsible for ‘global fraud’ had not been brought to justice.

- Because they didn't even begin to investigate the major lenders until the market had actually collapsed, which is completely contrary to what we did successfully in the Savings and Loan crisis, right? Even while the institutions were reporting they were the most profitable savings and loan in America, we knew they were frauds. And we were moving to close them down. Here, the Justice Department, even though it very appropriately warned, in 2004, that there was an epidemic. The FBI publicly warned, in September 2004 that there was an epidemic of mortgage fraud, that if it was allowed to continue it would produce a crisis at least as large as the Savings and Loan debacle. And that they were going to make sure that they didn't let that happen. So what goes wrong? After 9/11, the attacks, the Justice Department transfers 500 white-collar specialists in the FBI to national terrorism. Well, we can all understand that. But then, the Bush administration refused to replace the missing 500 agents. So even today, again, as you say, this crisis is 1000 times worse, perhaps, certainly 100 times worse, than the Savings and Loan crisis. There are one-fifth as many FBI agents as worked the Savings and Loan crisis.

Black then revealed that the unbridledness of politicians, when it comes to the complete deregulation of banking institutions, that is, a kind of “legalisation of fraud and fraudulence”, knows no party boundaries and that during the Clinton years, a plethora of tomfoolery had been committed.

‘Mimicry and hiding dirty laundry’

- What is your explanation for why the bankers who created this mess are still calling the shots? – Moyers wondered.

- There are two reasons. One, they're much closer to the bankers. These are people from the banking industry. And they have a lot more sympathy. In fact, they're outright hostile to autoworkers, as you can see. They want to bash all of their contracts. But when they get to banking, they say, ‘contracts, sacred.' But the other element of your question is we don't want to change the bankers, because if we do, if we put honest people in, who didn't cause the problem, their first job would be to find the scope of the problem. And that would destroy the cover up – Black responded.

- The cover up? – Moyers was shocked.

- Sure. The cover up – Black confirmed.

- That's a serious charge – Moyers continued.

- Of course – Black agreed.

- Who's covering up? – Moyers asked.

- Geithner is charging, is covering up. Just like Paulson did before him. Geithner is publicly saying that it's going to take $2 trillion — a trillion is a thousand billion — $2 trillion taxpayer dollars to deal with this problem. But they're allowing all the banks to report that they're not only solvent, but fully capitalized. Both statements can't be true. It can't be that they need $2 trillion, because they have masses losses, and that they're fine. These are all people who have failed. Paulson failed, Geithner failed – he said.

Black then recalled the “Pecora” investigation which was launched after the Great Depression and which discovered some of its “hidden mechanisms”, so he wonders: Where's our investigation?

- 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 – Black said.

Panic fear of collapse

In the end, Black gave reasons for the absolute non-transparency with which world leaders are solving the crisis, recalling how much pressure was needed for the AIG to reveal its beneficiaries that received money of America tax payers, reiterating the fact that those outside the financial circles have no idea about ninja strategies or mass frauds that each one of us is financing one way or another.

- 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 – William Black said.

The collocutors then had a laugh at the fact that nobody in the world knows the exact “health” of certain banks and revealed several other details that are interesting to anybody curious. You can find the transcrips of the entire video, along with the accompanying video HERE. And we will conclude with the words Black said at the mentioned think-tank meeting which preceded the interview:

- This is not a financial crisis. This is a crisis of moral.