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Buying Brand Obama May 4, 2009

Posted by rogerhollander in Barack Obama, Criminal Justice, Foreign Policy, Health, Iraq and Afghanistan, Israel, Gaza & Middle East, Pakistan, Torture, War.
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by Chris Hedges

Barack Obama is a brand. And the Obama brand is designed to make us feel good about our government while corporate overlords loot the Treasury, our elected officials continue to have their palms greased by armies of corporate lobbyists, our corporate media diverts us with gossip and trivia and our imperial wars expand in the Middle East. Brand Obama is about being happy consumers. We are entertained. We feel hopeful. We like our president. We believe he is like us. But like all branded products spun out from the manipulative world of corporate advertising, we are being duped into doing and supporting a lot of things that are not in our interest.

What, for all our faith and hope, has the Obama brand given us? His administration has spent, lent or guaranteed $12.8 trillion in taxpayer dollars to Wall Street and insolvent banks in a doomed effort to reinflate the bubble economy, a tactic that at best forestalls catastrophe and will leave us broke in a time of profound crisis. Brand Obama has allocated nearly $1 trillion in defense-related spending and the continuation of our doomed imperial projects in Iraq, where military planners now estimate that 70,000 troops will remain for the next 15 to 20 years. Brand Obama has expanded the war in Afghanistan, including the use of drones sent on cross-border bombing runs into Pakistan that have doubled the number of civilians killed over the past three months. Brand Obama has refused to ease restrictions so workers can organize and will not consider single-payer, not-for-profit health care for all Americans. And Brand Obama will not prosecute the Bush administration for war crimes, including the use of torture, and has refused to dismantle Bush’s secrecy laws or restore habeas corpus. 

Brand Obama offers us an image that appears radically individualistic and new. It inoculates us from seeing that the old engines of corporate power and the vast military-industrial complex continue to plunder the country. Corporations, which control our politics, no longer produce products that are essentially different, but brands that are different. Brand Obama does not threaten the core of the corporate state any more than did Brand George W. Bush. The Bush brand collapsed. We became immune to its studied folksiness. We saw through its artifice. This is a common deflation in the world of advertising. So we have been given a new Obama brand with an exciting and faintly erotic appeal. Benetton and Calvin Klein were the precursors to the Obama brand, using ads to associate themselves with risqué art and progressive politics. It gave their products an edge. But the goal, as with all brands, was to make passive consumers mistake a brand with an experience. 

“The abandonment of the radical economic foundations of the women’s and civil-rights movements by the conflation of causes that came to be called political correctness successfully trained a generation of activists in the politics of image, not action,” Naomi Klein wrote in “No Logo.”

Obama, who has become a global celebrity, was molded easily into a brand. He had almost no experience, other than two years in the Senate, lacked any moral core and could be painted as all things to all people. His brief Senate voting record was a miserable surrender to corporate interests. He was happy to promote nuclear power as “green” energy. He voted to continue the wars in Iraq and Afghanistan. He reauthorized the Patriot Act. He would not back a bill designed to cap predatory credit card interest rates. He opposed a bill that would have reformed the notorious Mining Law of 1872. He refused to support the single-payer health care bill HR676, sponsored by Reps. Dennis Kucinich and John Conyers. He supported the death penalty. And he backed a class-action “reform” bill that was part of a large lobbying effort by financial firms. The law, known as the Class Action Fairness Act, would effectively shut down state courts as a venue to hear most class-action lawsuits and deny redress in many of the courts where these cases have a chance of defying powerful corporate challenges. 

While Gaza was being bombarded and hit with airstrikes in the weeks before Obama took office, “the Obama team let it be known that it would not object to the planned resupply of ‘smart bombs’ and other hi-tech ordnance that was already flowing to Israel,” according to Seymour Hersh. Even his one vaunted anti-war speech as a state senator, perhaps his single real act of defiance, was swiftly reversed. He told the Chicago Tribune on July 27, 2004, that “there’s not that much difference between my position and George Bush’s position at this stage. The difference, in my mind, is who’s in a position to execute.” And unlike anti-war stalwarts like Kucinich, who gave hundreds of speeches against the war, Obama then dutifully stood silent until the Iraq war became unpopular.

Obama’s campaign won the vote of hundreds of marketers, agency heads and marketing-services vendors gathered at the Association of National Advertisers’ annual conference in October. The Obama campaign was named Advertising Age’s marketer of the year for 2008 and edged out runners-up Apple and Zappos.com. Take it from the professionals. Brand Obama is a marketer’s dream. President Obama does one thing and Brand Obama gets you to believe another. This is the essence of successful advertising. You buy or do what the advertiser wants because of how they can make you feel. 

Celebrity culture has leeched into every aspect of our culture, including politics, to bequeath to us what Benjamin DeMott called “junk politics.” Junk politics does not demand justice or the reparation of rights. Junk politics personalizes and moralizes issues rather than clarifying them. “It’s impatient with articulated conflict, enthusiastic about America’s optimism and moral character, and heavily dependent on feel-your-pain language and gesture,” DeMott noted. The result of junk politics is that nothing changes – “meaning zero interruption in the processes and practices that strengthen existing, interlocking systems of socioeconomic advantage.” It redefines traditional values, tilting “courage toward braggadocio, sympathy toward mawkishness, humility toward self-disrespect, identification with ordinary citizens toward distrust of brains.” Junk politics “miniaturizes large, complex problems at home while maximizing threats from abroad. It’s also given to abrupt unexplained reversals of its own public stances, often spectacularly bloating problems previously miniaturized.” And finally, it “seeks at every turn to obliterate voters’ consciousness of socioeconomic and other differences in their midst.” 

An image-based culture, one dominated by junk politics, communicates through narratives, pictures and carefully orchestrated spectacle and manufactured pseudo-drama. Scandalous affairs, hurricanes, earthquakes, untimely deaths, lethal new viruses, train wrecks-these events play well on computer screens and television. International diplomacy, labor union negotiations and convoluted bailout packages do not yield exciting personal narratives or stimulating images. A governor who patronizes call girls becomes a huge news story. A politician who proposes serious regulatory reform, universal health care or advocates curbing wasteful spending is boring. Kings, queens and emperors once used their court conspiracies to divert their subjects. Today cinematic, political and journalistic celebrities distract us with their personal foibles and scandals. They create our public mythology. Acting, politics and sports have become, as they were during the reign of Nero, interchangeable. 

In an age of images and entertainment, in an age of instant emotional gratification, we do not seek reality. Reality is complicated. Reality is boring. We are incapable or unwilling to handle its confusion. We ask to be indulged and comforted by clichés, stereotypes and inspirational messages that tell us we can be whoever we seek to be, that we live in the greatest country on Earth, that we are endowed with superior moral and physical qualities, and that our future will always be glorious and prosperous, either because of our own attributes, or our national character, or because we are blessed by God. Reality is not accepted as an impediment to our desires. Reality does not make us feel good. 

In his book “Public Opinion,” Walter Lippmann distinguished between “the world outside and the pictures in our heads.” He defined a “stereotype” as an oversimplified pattern that helps us find meaning in the world. Lippmann cited examples of the crude “stereotypes we carry about in our heads” of whole groups of people such as “Germans,” “South Europeans,” “Negroes,” “Harvard men,” “agitators” and others. These stereotypes, Lippmann noted, give a reassuring and false consistency to the chaos of existence. They offer easily grasped explanations of reality and are closer to propaganda because they simplify rather than complicate.

Pseudo-events-dramatic productions orchestrated by publicists, political machines, television, Hollywood or advertisers-however, are very different. They have, as Daniel Boorstin wrote in “The Image: A Guide to Pseudo-Events in America,” the capacity to appear real even though we know they are staged. They are capable, because they can evoke a powerful emotional response, of overwhelming reality and replacing reality with a fictional narrative that often becomes accepted truth. The unmasking of a stereotype damages and often destroys its credibility. But pseudo-events, whether they show the president in an auto plant or a soup kitchen or addressing troops in Iraq, are immune to this deflation. The exposure of the elaborate mechanisms behind the pseudo-event only adds to its fascination and its power. This is the basis of the convoluted television reporting on how effectively political campaigns and politicians have been stage-managed. Reporters, especially those on television, no longer ask if the message is true but if the pseudo-event worked or did not work as political theater. Pseudo-events are judged on how effectively we have been manipulated by illusion. Those events that appear real are relished and lauded. Those that fail to create a believable illusion are deemed failures. Truth is irrelevant. Those who succeed in politics, as in most of the culture, are those who create the brands and pseudo-events that offer the most convincing fantasies. And this is the art Obama has mastered.

A public that can no longer distinguish between truth and fiction is left to interpret reality through illusion. Random facts or obscure bits of data and trivia are used to bolster illusion and give it credibility or are discarded if they interfere with the message. The worse reality becomes-the more, for example, foreclosures and unemployment skyrocket-the more people seek refuge and comfort in illusions. When opinions cannot be distinguished from facts, when there is no universal standard to determine truth in law, in science, in scholarship, or in reporting the events of the day, when the most valued skill is the ability to entertain, the world becomes a place where lies become true, where people can believe what they want to believe. This is the real danger of pseudo-events and why pseudo-events are far more pernicious than stereotypes. They do not explain reality, as stereotypes attempt to, but replace reality. Pseudo-events redefine reality by the parameters set by their creators. These creators, who make massive profits peddling these illusions, have a vested interest in maintaining the power structures they control. 

The old production-oriented culture demanded what the historian Warren Susman termed character. The new consumption-oriented culture demands what he called personality. The shift in values is a shift from a fixed morality to the artifice of presentation. The old cultural values of thrift and moderation honored hard work, integrity and courage. The consumption-oriented culture honors charm, fascination and likability. “The social role demanded of all in the new culture of personality was that of a performer,” Susman wrote. “Every American was to become a performing self.”

The junk politics practiced by Obama is a consumer fraud. It is about performance. It is about lies. It is about keeping us in a perpetual state of childishness. But the longer we live in illusion, the worse reality will be when it finally shatters our fantasies. Those who do not understand what is happening around them and who are overwhelmed by a brutal reality they did not expect or foresee search desperately for saviors. They beg demagogues to come to their rescue. This is the ultimate danger of the Obama Brand. It effectively masks the wanton internal destruction and theft being carried out by our corporate state. These corporations, once they have stolen trillions in taxpayer wealth, will leave tens of millions of Americans bereft, bewildered and yearning for even more potent and deadly illusions, ones that could swiftly snuff out what is left of our diminished open society.

Chris Hedges writes a regular column for Truthdig.com. Hedges graduated from Harvard Divinity School and was for nearly two decades a foreign correspondent for The New York Times. He is the author of many books, including: War Is A Force That Gives Us Meaning, What Every Person Should Know About War, and American Fascists: The Christian Right and the War on America.  His most recent book, Empire of Illusion: The End of Literacy and the Triumph of Spectacle, will be out in July, but is available for pre-order.

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Banksters on the War Path: How Wall Street Is Fighting Back and Winning Their Fight for the Status Quo May 2, 2009

Posted by rogerhollander in Economic Crisis.
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by Danny Schechter

Dick Durbin knows his way around the Senate. He’s been there a long time, long enough to know how things really work. Over the years, the man from Illinois has come to realize that it’s not the elected officials who are in charge. Last week, he said it was the bankers “who run the place” acknowledging that Senators may be in office, but not necessarily in power.

Usually, the people who pull the strings stay in the background to avoid too much public exposure. They rely on lobbyists to do their bidding. They prefer to work in the shadows. They may back certain politicians, but coming from a world of credit default swaps as they do, they hedge their bets by putting money on all the horses.

They have so much influence because they have been reengineering the American economy for decades through “financialization,” a process by which banks and financial institutions gradually came to dominate economic and political decision-making. Kevin Phillips, a one time Reagan advisor and commentator, says our deepest problem is “the ascendancy of finance in national policymaking (as well as in the gross domestic product), and the complicity of politicians who really don’t want to talk about it.”

Curiously, despite the journalists like Bill Moyers and Arianna Huffington who have been blowing the whistle on the role of the “banksters” in our political life, criticizing the Republicans and Democrats who deregulated the financial system, this issue seems to float above the heads of most of the public, much of the press, and even the activist community more drawn to punishing the torture inflicted on a few by a former Administration than the economic duress being imposed on the majority of Americans by a minority of the super rich.

Demonstrators are still drawn more to the White House than the banks that have proliferated on every corner of the country.

Last week, a Zogby poll found that a majority of the public believes the press made things worse by reporting on the economic collapse. Not only is that blaming the messenger, it also overlooks the fact that much of the media was complicit in the crisis by not covering the forces that caused the collapse when it might have done some good.

Exacerbating the problem is that the Obama Administration has, in Robert Scheer’s words, enlisted “the very experts who helped trigger the crisis to try to fix it.”

“Obama,” he writes “seems depressingly reliant on the same-old, same old cast of self-serving house wreckers who act as if government exists for the sole benefit of corporations and executives.”

The team of Tim Geithner and Larry Summers has been carrying Wall Street’s water as Robert Rubin did before them. No wonder that Obama’s Attorney General Eric Holder told the Street last February, “We’re not going to go on any witch hunts.”

That was before we learned that Wall Street forced US regulators to delay the release of stress test results for the country’s 19 biggest banks until next Thursday, because some of the lenders objected to government demands that they needed to raise more capital. They are trying to rig the results.

That was also before the public learned of the obscenely huge bonuses the firms benefiting from the TARP bailout were shelling out to their executives. That was before we saw how the bankers with help from Democrats, including new convert Arlen Specter, managed to kill a bill to help homeowners stop foreclosures.

“The Senate on Thursday rejected an effort to stave off home foreclosures by a vote of 51 to 45. It was an overwhelming defeat, with the bill’s backers falling 15 votes short — a quarter of the Democratic caucus — of the 60 needed to cut off debate and move to a final vote. Across the United States, the measure is estimated to have been able to prevent 1.69 million foreclosures and preserve $300 billion in home equity.”

Commented the Center for Responsible Lending, “Instead of defending ordinary Americans, the majority of Senators went with the banks. Yes, the same banks who have benefited so richly from the TARP bailout.”

There was one small victory with the House approving a bill to protect consumers from credit card abuses. It’s not clear if the Senate will pass it too. “It’s one step forward and one step backward,” said Travis Plunkett, of the Consumer Federation of America. “Congress is moving in fits and starts to re-regulate the financial services industry and the banking lobby still has tremendous clout.”

“Tremendous clout” is an understatement.

In this past week, we also saw how a few hedge funds undermined the attempt to save Chrysler from bankruptcy by holding out for more money even after the unions and big banks agreed to compromise to save jobs.

The President was furious but apparently powerless: “A group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout,” Obama said. “They were hoping that everybody else would make sacrifices, and they would have to make none. Some demanded twice the return that other lenders were getting.”

Explains the blog Naked Capitalism, “the banksters are eagerly, shamelessly, and openly harvesting their pound of flesh from financially stressed average taxpayers, and setting off a chain reaction in the auto industry which has the very real risk of creating even larger scale unemployment than the economy already faces. It’s reckless, utterly irresponsible, over-the-top greed.”

Will they be allowed to get away with it? A “captured” Congress is doing their bidding. There is no doubt that class antagonism is stewing, says the editor of the blog. He expressed a fear of a reaction that will go way beyond flag-wavng tea parties.

“… I am concerned this behavior is setting the stage for another sort of extra-legal measure: violence. I have been amazed at the vitriol directed at the banking classes. Suggestions for punishment have included the guillotine (frequent), hanging, pitchforks, even burning at the stake. Tar and feathering appears inadequate, and stoning hasn’t yet surfaced as an idea. And mind you, my readership is educated, older, typically well-off (even if less so than three years ago). The fuse has to be shorter where the suffering is more acute.”

One is reminded of the title of that movie, “There will be blood.” Rather than show contrition or compassion for its own victims, Wall Street is hoping to jack up its salaries and bonuses to pre-2007 levels. The men at the top are oblivious to the pain they helped cause. And so far, they’ve only occasionally been scolded by politicians that have mostly enabled, coddled, bankrolled, funded, rewarded, and genuflected to their power.

Wall Street’s behavior may be predictable, but how can we account for the silence of so many organizations that should be out there organizing the outrage that is building? Knock, Knock, Obama supporters, bloggers, trade unionists, out of work workers and fellow Americans. Will we fight back or roll over?

Pitchforks anyone?

Mediachannel’s News Dissector Danny Schechter is making a film about Wall Street based on his book Plunder (newsdissector.com/plunder). Comments to dissector@mediachannel.org 

Bill Moyers Journal: William K. Black Interview April 16, 2009

Posted by rogerhollander in Uncategorized.
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william-black
Bill Moyers Journal, April 3, 2009
The financial industry brought the economy to its knees, but how did they get away with it? With the nation wondering how to hold the bankers accountable, Bill Moyers sits down with William K. Black, the former senior regulator who cracked down on banks during the savings and loan crisis of the 1980s. Black offers his analysis of what went wrong and his critique of the bailout

BILL MOYERS: Welcome to the Journal.

For months now, revelations of the wholesale greed and blatant transgressions of Wall Street have reminded us that “The Best Way to Rob a Bank Is to Own One.” In fact, the man you’re about to meet wrote a book with just that title. It was based upon his experience as a tough regulator during one of the darkest chapters in our financial history: the savings and loan scandal in the late 1980s.

WILLIAM K. BLACK: These numbers as large as they are, vastly understate the problem of fraud.

BILL MOYERS: Bill Black was in New York this week for a conference at the John Jay College of Criminal Justice where scholars and journalists gathered to ask the question, “How do they get away with it?” Well, no one has asked that question more often than Bill Black.

The former Director of the Institute for Fraud Prevention now teaches Economics and Law at the University of Missouri, Kansas City. During the savings and loan crisis, it was Black who accused then-house speaker Jim Wright and five US Senators, including John Glenn and John McCain, of doing favors for the S&L’s in exchange for contributions and other perks. The senators got off with a slap on the wrist, but so enraged was one of those bankers, Charles Keating — after whom the senate’s so-called “Keating Five” were named — he sent a memo that read, in part, “get Black — kill him dead.” Metaphorically, of course. Of course.

Now Black is focused on an even greater scandal, and he spares no one — not even the President he worked hard to elect, Barack Obama. But his main targets are 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.”

Bill Black, welcome to the Journal.

WILLIAM K. BLACK: Thank you.

BILL MOYERS: I was taken with your candor at the conference here in New York to hear you say that this crisis we’re going through, this economic and financial meltdown is driven by fraud. What’s your definition of fraud?

WILLIAM K. BLACK: Fraud is deceit. And the essence of fraud is, “I create trust in you, and then I betray that trust, and get you to give me something of value.” And as a result, there’s no more effective acid against trust than fraud, especially fraud by top elites, and that’s what we have.

BILL MOYERS: 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?

WILLIAM K. BLACK: Absolutely.

BILL MOYERS: How did they do it? What do you mean?

WILLIAM K. BLACK: Well, 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.

BILL MOYERS: So you’re suggesting, saying that CEOs of some of these banks and mortgage firms in order to increase their own personal income, deliberately set out to make bad loans?

WILLIAM K. BLACK: Yes.

BILL MOYERS: How do they get away with it? I mean, what about their own checks and balances in the company? What about their accounting divisions?

WILLIAM K. BLACK: 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.

BILL MOYERS: If I wanted to go looking for the parties to this, with a good bird dog, where would you send me?

WILLIAM K. BLACK: 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.

BILL MOYERS: Yeah. Liars’ loans–

WILLIAM K. BLACK: Liars’ loans.

BILL MOYERS: Why did they call them liars’ loans?

WILLIAM K. BLACK: Because they were liars’ loans.

BILL MOYERS: And they knew it?

WILLIAM K. BLACK: They knew it. They knew that they were frauds.

WILLIAM K. BLACK: 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.

BILL MOYERS: You think they really said that to borrowers?

WILLIAM K. BLACK: We know that they said that to borrowers. In fact, they were also called, in the trade, ninja loans.

BILL MOYERS: Ninja?

WILLIAM K. BLACK: Yeah, because no income verification, no job verification, no asset verification.

BILL MOYERS: You’re talking about significant American companies.

WILLIAM K. BLACK: Huge! One company produced as many losses as the entire Savings and Loan debacle.

BILL MOYERS: Which company?

WILLIAM K. BLACK: IndyMac specialized in making liars’ loans. In 2006 alone, it sold $80 billion dollars of liars’ loans to other companies. $80 billion.

BILL MOYERS: And was this happening exclusively in this sub-prime mortgage business?

WILLIAM K. BLACK: No, and that’s a big part of the story as well. Even prime loans began to have non-verification. 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.

BILL MOYERS: Is it possible that these complex instruments were deliberately created so swindlers could exploit them?

WILLIAM K. BLACK: 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.”

BILL MOYERS: 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.

WILLIAM K. BLACK: Right, and the investment banker that — we call it pooling — puts together these bad mortgages, these liars’ loans, and creates the toxic waste of these derivatives. All of them do that. And then they sell it to the world and the world just thinks because it has a triple-A rating it must actually be safe. Well, instead, there are 60 and 80 percent losses on these things, because of course they, in reality, are toxic waste.

BILL MOYERS: You’re describing what Bernie Madoff did to a limited number of people. But you’re saying it’s systemic, a systemic Ponzi scheme.

WILLIAM K. BLACK: Oh, Bernie was a piker. He doesn’t even get into the front ranks of a Ponzi scheme…

BILL MOYERS: But you’re saying our system became a Ponzi scheme.

WILLIAM K. BLACK: Our system…

BILL MOYERS: Our financial system…

WILLIAM K. BLACK: Became a Ponzi scheme. Everybody was buying a pig in the poke. But they were buying a pig in the poke with a pretty pink ribbon, and the pink ribbon said, “Triple-A.”

BILL MOYERS: Is there a law against liars’ loans?

WILLIAM K. BLACK: Not directly, but there, of course, many laws against fraud, and liars’ loans are fraudulent.

BILL MOYERS: Because…

WILLIAM K. BLACK: Because they’re not going to be repaid and because they had false representations. They involve deceit, which is the essence of fraud.

BILL MOYERS: Why is it so hard to prosecute? Why hasn’t anyone been brought to justice over this?

WILLIAM K. BLACK: 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…

BILL MOYERS: Who did?

WILLIAM K. BLACK: 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.

BILL MOYERS: You talk about the Bush administration. Of course, there’s that famous photograph of some of the regulators in 2003, who come to a press conference with a chainsaw suggesting that they’re going to slash, cut business loose from regulation, right?

WILLIAM K. BLACK: Well, they succeeded. And in that picture, by the way, the other — three of the other guys with pruning shears are the…

BILL MOYERS: That’s right.

WILLIAM K. BLACK: They’re the trade representatives. They’re the lobbyists for the bankers. And everybody’s grinning. The government’s working together with the industry to destroy regulation. Well, we now know what happens when you destroy regulation. You get the biggest financial calamity of anybody under the age of 80.

BILL MOYERS: But I can point you to statements by Larry Summers, who was then Bill Clinton’s Secretary of the Treasury, or the other Clinton Secretary of the Treasury, Rubin. I can point you to suspects in both parties, right?

WILLIAM K. BLACK: There were two really big things, under the Clinton administration. One, they got rid of the law that came out of the real-world disasters of the Great Depression. We learned a lot of things in the Great Depression. And one is we had to separate what’s called commercial banking from investment banking. That’s the Glass-Steagall law. But we thought we were much smarter, supposedly. So we got rid of that law, and that was bipartisan. And the other thing is we passed a law, because there was a very good regulator, Brooksley Born, that everybody should know about and probably doesn’t. She tried to do the right thing to regulate one of these exotic derivatives that you’re talking about. We call them C.D.F.S. And Summers, Rubin, and Phil Gramm came together to say not only will we block this particular regulation. We will pass a law that says you can’t regulate. And it’s this type of derivative that is most involved in the AIG scandal. AIG all by itself, cost the same as the entire Savings and Loan debacle.

BILL MOYERS: What did AIG contribute? What did they do wrong?

WILLIAM K. BLACK: They made bad loans. Their type of loan was to sell a guarantee, right? And they charged a lot of fees up front. So, they booked a lot of income. Paid enormous bonuses. The bonuses we’re thinking about now, they’re much smaller than these bonuses that were also the product of accounting fraud. And they got very, very rich. But, of course, then they had guaranteed this toxic waste. These liars’ loans. Well, we’ve just gone through why those toxic waste, those liars’ loans, are going to have enormous losses. And so, you have to pay the guarantee on those enormous losses. And you go bankrupt. Except that you don’t in the modern world, because you’ve come to the United States, and the taxpayers play the fool. Under Secretary Geithner and under Secretary Paulson before him… we took $5 billion dollars, for example, in U.S. taxpayer money. And sent it to a huge Swiss Bank called UBS. At the same time that that bank was defrauding the taxpayers of America. And we were bringing a criminal case against them. We eventually get them to pay a $780 million fine, but wait, we gave them $5 billion. So, the taxpayers of America paid the fine of a Swiss Bank. And why are we bailing out somebody who that is defrauding us?

BILL MOYERS: And why…

WILLIAM K. BLACK: How mad is this?

BILL MOYERS: What is your explanation for why the bankers who created this mess are still calling the shots?

WILLIAM K. BLACK: Well, that, especially after what’s just happened at G.M., that’s… it’s scandalous.

BILL MOYERS: Why are they firing the president of G.M. and not firing the head of all these banks that are involved?

WILLIAM K. BLACK: 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.

BILL MOYERS: The cover up?

WILLIAM K. BLACK: Sure. The cover up.

BILL MOYERS: That’s a serious charge.

WILLIAM K. BLACK: Of course.

BILL MOYERS: Who’s covering up?

WILLIAM K. BLACK: 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. They were all promoted because they failed, not because…

BILL MOYERS: What do you mean?

WILLIAM K. BLACK: Well, Geithner has, was one of our nation’s top regulators, during the entire subprime scandal, that I just described. He took absolutely no effective action. He gave no warning. He did nothing in response to the FBI warning that there was an epidemic of fraud. All this pig in the poke stuff happened under him. So, in his phrase about legacy assets. Well he’s a failed legacy regulator.

BILL MOYERS: But he denies that he was a regulator. Let me show you some of his testimony before Congress. Take a look at this.

TIMOTHY GEITHNER:I’ve never been a regulator, for better or worse. And I think you’re right to say that we have to be very skeptical that regulation can solve all of these problems. We have parts of our system that are overwhelmed by regulation.

Overwhelmed by regulation! It wasn’t the absence of regulation that was the problem, it was despite the presence of regulation you’ve got huge risks that build up.

WILLIAM K. BLACK: Well, he may be right that he never regulated, but his job was to regulate. That was his mission statement.

BILL MOYERS: As?

WILLIAM K. BLACK: As president of the Federal Reserve Bank of New York, which is responsible for regulating most of the largest bank holding companies in America. And he’s completely wrong that we had too much regulation in some of these areas. I mean, he gives no details, obviously. But that’s just plain wrong.

BILL MOYERS: How is this happening? I mean why is it happening?

WILLIAM K. BLACK: Until you get the facts, it’s harder to blow all this up. And, of course, the entire strategy is to keep people from getting the facts.

BILL MOYERS: What facts?

WILLIAM K. BLACK: The facts about how bad the condition of the banks is. So, as long as I keep the old CEO who caused the problems, is he going to go vigorously around finding the problems? Finding the frauds?

BILL MOYERS: You–

WILLIAM K. BLACK: Taking away people’s bonuses?

BILL MOYERS: To hear you say this is unusual because you supported Barack Obama, during the campaign. But you’re seeming disillusioned now.

WILLIAM K. BLACK: Well, certainly in the financial sphere, I am. I think, first, the policies are substantively bad. Second, I think they completely lack integrity. Third, they violate the rule of law. This is being done just like Secretary Paulson did it. In violation of the law. We adopted a law after the Savings and Loan crisis, called the Prompt Corrective Action Law. And it requires them to close these institutions. And they’re refusing to obey the law.

BILL MOYERS: In other words, they could have closed these banks without nationalizing them?

WILLIAM K. BLACK: Well, you do a receivership. No one — Ronald Reagan did receiverships. Nobody called it nationalization.

BILL MOYERS: And that’s a law?

WILLIAM K. BLACK: That’s the law.

BILL MOYERS: So, Paulson could have done this? Geithner could do this?

WILLIAM K. BLACK: Not could. Was mandated–

BILL MOYERS: By the law.

WILLIAM K. BLACK: By the law.

BILL MOYERS: This law, you’re talking about.

WILLIAM K. BLACK: Yes.

BILL MOYERS: What the reason they give for not doing it?

WILLIAM K. BLACK: They ignore it. And nobody calls them on it.

BILL MOYERS: Well, where’s Congress? Where’s the press? Where–

WILLIAM K. BLACK: Well, where’s the Pecora investigation?

BILL MOYERS: The what?

WILLIAM K. BLACK: The Pecora investigation. The Great Depression, we said, “Hey, we have to learn the facts. What caused this disaster, so that we can take steps, like pass the Glass-Steagall law, that will prevent future disasters?” 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.

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.

BILL MOYERS: A.I.G. did?

WILLIAM K. BLACK: What we’re doing with — no, Treasury and both administrations. The Bush administration and now the Obama administration kept secret from us what was being done with AIG. AIG was being used secretly to bail out favored banks like UBS and like Goldman Sachs. Secretary Paulson’s firm, that he had come from being CEO. It got the largest amount of money. $12.9 billion. And they didn’t want us to know that. And it was only Congressional pressure, and not Congressional pressure, by the way, on Geithner, but Congressional pressure on AIG.

Where Congress said, “We will not give you a single penny more unless we know who received the money.” And, you know, when he was Treasury Secretary, Paulson created a recommendation group to tell Treasury what they ought to do with AIG. And he put Goldman Sachs on it.

BILL MOYERS: Even though Goldman Sachs had a big vested stake.

WILLIAM K. BLACK: Massive stake. And even though he had just been CEO of Goldman Sachs before becoming Treasury Secretary. Now, in most stages in American history, that would be a scandal of such proportions that he wouldn’t be allowed in civilized society.

BILL MOYERS: Yeah, like a conflict of interest, it seems.

WILLIAM K. BLACK: Massive conflict of interests.

BILL MOYERS: So, how did he get away with it?

WILLIAM K. BLACK: I don’t know whether we’ve lost our capability of outrage. Or whether the cover up has been so successful that people just don’t have the facts to react to it.

BILL MOYERS: Who’s going to get the facts?

WILLIAM K. BLACK: We need some chairmen or chairwomen–

BILL MOYERS: In Congress.

WILLIAM K. BLACK: –in Congress, to hold the necessary hearings. And we can blast this out. But if you leave the failed CEOs in place, it isn’t just that they’re terrible business people, though they are. It isn’t just that they lack integrity, though they do. Because they were engaged in these frauds. But they’re not going to disclose the truth about the assets.

BILL MOYERS: And we have to know that, in order to know what?

WILLIAM K. BLACK: To know everything. To know who committed the frauds. Whose bonuses we should recover. How much the assets are worth. How much they should be sold for. Is the bank insolvent, such that we should resolve it in this way? It’s the predicate, right? You need to know the facts to make intelligent decisions. And they’re deliberately leaving in place the people that caused the problem, because they don’t want the facts. And this is not new. The Reagan Administration’s central priority, at all times, during the Savings and Loan crisis, was covering up the losses.

BILL MOYERS: So, you’re saying that people in power, political power, and financial power, act in concert when their own behinds are in the ringer, right?

WILLIAM K. BLACK: That’s right. And it’s particularly a crisis that brings this out, because then the class of the banker says, “You’ve got to keep the information away from the public or everything will collapse. If they understand how bad it is, they’ll run for the exits.”

BILL MOYERS: Yeah, and this week in New York, at this conference, you described this as more than a financial crisis. You called it a moral crisis.

WILLIAM K. BLACK: Yes.

BILL MOYERS: Why?

WILLIAM K. BLACK: Because it is a fundamental lack of integrity. But also because, if you look back at crises, an economist who is also a presidential appointee, as a regulator in the Savings and Loan industry, right here in New York, Larry White, wrote a book about the Savings and Loan crisis. And he said, you know, one of the most interesting questions is why so few people engaged in fraud? Because objectively, you could have gotten away with it. But only about ten percent of the CEOs, engaged in fraud. So, 90 percent of them were restrained by ethics and integrity. So, far more than law or by F.B.I. agents, it’s our integrity that often prevents the greatest abuses. And what we had in this crisis, instead of the Savings and Loan, is the most elite institutions in America engaging or facilitating fraud.

BILL MOYERS: This wound that you say has been inflicted on American life. The loss of worker’s income. And security and pensions and future happened, because of the misconduct of a relatively few, very well-heeled people, in very well-decorated corporate suites, right?

WILLIAM K. BLACK: Right.

BILL MOYERS: It was relatively a handful of people.

WILLIAM K. BLACK: And their ideologies, which swept away regulation. So, in the example, regulation means that cheaters don’t prosper. So, instead of being bad for capitalism, it’s what saves capitalism. “Honest purveyors prosper” is what we want. And you need regulation and law enforcement to be able to do this. The tragedy of this crisis is it didn’t need to happen at all.

BILL MOYERS: When you wake in the middle of the night, thinking about your work, what do you make of that? What do you tell yourself?

WILLIAM K. BLACK: There’s a saying that we took great comfort in. It’s actually by the Dutch, who were fighting this impossible war for independence against what was then the most powerful nation in the world, Spain. And their motto was, “It is not necessary to hope in order to persevere.”

Now, going forward, get rid of the people that have caused the problems. That’s a pretty straightforward thing, as well. Why would we keep CEOs and CFOs and other senior officers, that caused the problems? That’s facially nuts. That’s our current system.

So stop that current system. We’re hiding the losses, instead of trying to find out the real losses. Stop that, because you need good information to make good decisions, right? Follow what works instead of what’s failed. Start appointing people who have records of success, instead of records of failure. That would be another nice place to start. There are lots of things we can do. Even today, as late as it is. Even though they’ve had a terrible start to the administration. They could change, and they could change within weeks. And by the way, the folks who are the better regulators, they paid their taxes. So, you can get them through the vetting process a lot quicker.

BILL MOYERS: William Black, thank you very much for being with me on the Journal.

WILLIAM K. BLACK: Thank you so much.

William K. Black suspects that it was more than greed and incompetence that brought down the U.S. financial sector and plunged the economy in recession — it was fraud. And he would know. When it comes to financial shenanigans, William K. Black, the former senior regulator who cracked down on banks during the savings and loan crisis of the 1980s, has seen pretty much everything.

Now an Associate Professor of Economics and Law at the University of Missouri, William K. Black tells Bill Moyers on the JOURNAL that the tool at the very center of mortgage collapse, creating triple-A rated bonds out of “liars’ loans” — loans issued without verifying income, assets or employment — was a fraud, and the banks knew it.

And while there is no law against liars’ loans, Black points out that there are, “many laws against fraud, and liars’ loans are fraudulent. […] They involve deceit, which is the essence of fraud.”

Only the scale of the scandal is new. A single bank, IndyMac, lost more money than the entire Savings and Loan Crisis. The difference between now and then, explains Black, is a drastic reduction in regulation and oversight, “We now know what happens when you destroy regulation. You get the biggest financial calamity of anybody under the age of 80.”

>>More about the Savings and Loan Crisis

Biography

William K. Black, author of THE BEST WAY TO ROB A BANK IS TO OWN ONE, teaches economics and law at the University of Missouri — Kansas City (UMKC). He was the Executive Director of the Institute for Fraud Prevention from 2005-2007. He has taught previously at the LBJ School of Public Affairs at the University of Texas at Austin and at Santa Clara University, where he was also the distinguished scholar in residence for insurance law and a visiting scholar at the Markkula Center for Applied Ethics.

Black was litigation director of the Federal Home Loan Bank Board, deputy director of the FSLIC, SVP and general counsel of the Federal Home Loan Bank of San Francisco, and senior deputy chief counsel, Office of Thrift Supervision. He was deputy director of the National Commission on Financial Institution Reform, Recovery and Enforcement.

Black developed the concept of “control fraud” — frauds in which the CEO or head of state uses the entity as a “weapon.” Control frauds cause greater financial losses than all other forms of property crime combined. He recently helped the World Bank develop anti-corruption initiatives and served as an expert for OFHEO in its enforcement action against Fannie Mae’s former senior management.

Published April 3, 2009. Guest photos by Robin Holland