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What You Should Know / April 21, 2010

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www.youtube.com -- BILL BLACK: Members of the Committee, thank you. You asked earlier for a stern regulator, you have one now in front of you. And we need to be blunt. You haven’t heard much bluntness in hours of testimony. We stopped a nonprime crisis before it became a crisis in 1991 by supervisory actions. We did it so effectively that people forgot that it even existed, even though it caused several hundred million dollars of losses — but none to the taxpayer. We did it by preemptive litigation, and by supervision. We broke a raging epidemic of accounting control fraud without new legislation in the period of 1984 through 1986. Legislation would’ve been helpful, we sought legislation, but we didn’t get it. And we were able to stop that because we didn’t simply consider business as usual. Lehman’s failure is a story in large part of fraud. And it is fraud that begins at the absolute latest in 2001, and that is with their subprime and liars’ loan operations. Lehman was the leading purveyor of liars’ loans in the world. For most of this decade, studies of liars’ loans show incidence of fraud of 90%. Lehmans sold this to the world, with reps and warranties that there were no such frauds. If you want to know why we have a global crisis, in large part it is before you. But it hasn’t been discussed today, amazingly. Financial institution leaders are not engaged in risk when they engage in liars’ loans — liars’ loans will cause a failure. They lose money. The only way to make money is to deceive others by selling bad paper, and that will eventually lead to liability and failure as well. When people cheat you cannot as a regulator continue business as usual. They go into a different category and you must act completely differently as a regulator. What we’ve gotten instead are sad excuses. The SEC: we’re told they’re only 24 people in their comprehensive program. Who decided how many people there would be in their comprehensive program? Who decided the staffing? The SEC did. To say that we only had 24 people is not to create an excuse — it’s to give an admission of criminal negligence. Except it’s not criminal, because you’re a federal employee. In the context of the FDIC, Secretary Geithner testified today that this pushed the financial system to the brink of collapse But Chairman Bernanke testified we sent two people to be on site at Lehman. We sent fifty credit people to the largest savings and loan in America. It had 30 billion in assets. We had a whole lot less staff than the Fed does. We forced out the CEO. We replaced the CEO. We did that not through regulation but because of our leverage as creditors. Now I ask you, who had more leverage as creditors in 2008? The Fed, as compared to the Federal Home Loan Bank of San Francisco, 19 years earlier? Incomprehensible greater leverage in the Fed, and it simply was not used. Let’s start with the repos. We have known since the Enron in 2001 that this is a common scam, in which every major bank that was approached by Enron agreed to help them deceive creditors and investors by doing these kind of transactions. And so what happened? There was a proposal in 2004 to stop it. And the regulatory heads — there was an interagency effort — killed it. They came out with something pathetic in 2006, and stalled its implication until 2007, but it ’s meaningless. We have known for decades that these are frauds. We have known for a decade how to stop them. All of the major regulatory agencies were complicit in that statement, in destroying it. We have a self-fulfilling policy of regulatory failure because of the leadership in this era. We have the Fed, the Federal Reserve Bank of New York, finding that this is three card monty. Well what would you do, as a regulator, if you knew that one of the largest enterprises in the world, when the nation is on the brink of economic collapse, is engaged in fraud, three card monty? Would you continue business as usual? That’s what was done. Oh they met a lot — they say “we only had a nuclear stick.” Sounds like a pretty good stick to use, if you’re on the brink of collapse of the system. But that’s not what the Fed has to do. The Fed is a central bank. Central banks for centuries have gotten rid of the heads of financial institutions. The Bank of England does it with a luncheon. The board of directors are invited. They don’t say “no.” They are sat down. The head of the Bank of England says “we have lost confidence in the head of your enterprise. We believe Mr. Jones would be an effective replacement. And by 4 o’clock that day, Mr. Jones is running the place. And he has a mandate to clean up all the problems. Instead, every day that Lehman remained under its leadership, the exposure of the American people to loss grew by hundreds of millions of dollars on average. Auroroa was pumping out up to 300 billion dollars a month in liars’ loans. Losses on those are running roughly 50% to 85 cents on the dollar. It is critical not to do business as usual, to change. We’ve also heard from Secretary Geithner and Chairman Bernanke — we couldn’t deal with these lenders because we had no authority over them. The Fed had unique authority since 1994 under HOEPA to regulate all mortgage lenders. It finally used it in 2008. They could’ve stopped Aurora. They could’ve stopped the subprime unit of Lehman that was really a liar’s loan place as well as time went by.

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8 Comments

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  • 1. Joe Stack's Financial Advisor  |  April 21st, 2010 at 10:57 pm

    I wonder what all those rednecks with guns are going to do when they figure all this stuff out. I guess when the Federalis declare martial law when the DJIA collapses it won’t matter anymore…fooey.

  • 2. Tam  |  April 22nd, 2010 at 2:13 am

    Good man! Bet he must have found that particularly satisfying after having to put up with decades of bullshit from those hucksters…

  • 3. Kat  |  April 22nd, 2010 at 4:54 am

    Bill Black rules!

  • 4. Fissile  |  April 22nd, 2010 at 7:16 am

    @Joe Stack’s — The “rednecks with guns” will likely do nothing. In the off chance that they do something, it will most certainly be the wrong thing — like shoot some “hippies or mooslimes”. I grew up in the hunting culture. I obtained my hunting license when I was 14 years old. I’m sorry to say that I’ve been around these people all my life. The majority of these people are what are known as “Fudds” to the few of us that have a clue. Fudd as in Elmer Fudd, only there’s nothing comical about them. They’re hate filled petty “right-wingers” who are so stupid it defies belief.

  • 5. BlottoBonVismarck  |  April 22nd, 2010 at 12:23 pm

    ZERO – THE NUMBER OF MAIN STREAM MEDIA STORIES ON THIS

    Google reports precisely _zero_ main stream media stories on this testimony. What a surprise. Not.

    Does Huffington Post count? As what? The National Enquirer of the Democratic party? Certainly not as an MSM outlet. Though it is trying very hard to get there, with censorship for dissent with the Democratic party line and / or political content. No change there, then.

    THE EXILED

    Congratulations, as usual, to The Exiled. (Definitely) A low class rag of extreme cynicism and gallows humour – so you’ll probably love it. It sees _entirely_ through the US Reality Distortion Field — tm Steve Jobs of Apple. Marketing genius but truth? HA! — as only those who have travelled or lived abroad can do.

    A rag that never fails to beat the dead Neocon horse — further to death — and to celebrate American heroes. Sort of. From the in-no-way-loyal-opposition, the fearless muckrakers and the invective-spewing, not-goosestepping-in-formation-into-oblivion reprobates of the Exiled.

    The Exiled – http://exiledonline.com/

    NEOCON NAZIS – EIN REICH, EIN VOLK, EIN BATHWATER

    Tea-Partiers of the USA salute their leader – Comrade Cheney – For it is he! ER, actually it’s Goosestepping-into-oblivion – the German version. Before the Neocon remake. – http://www.youtube.com/watch?v=LMGWWr00Q0k

    Ein Reich, Ein Volk, Ein Fuhrer – The inspiration for Our Dear Leader, All Hail Comrade Cheney. – http://www.youtube.com/watch?v=uV71QNHnNMQ

    The ladies of The Tea Party are taught to deal with Neocon-SA members, in the infamous Night of the Long Chiffon Scarves, somewhere in the Confederacy of Dunces, ER, Tea Party Land (*2) – the land where the only virgins are sisters that can run faster than their brothers. – @2.43 http://www.youtube.com/watch?v=HkP_eYtrF6I#t=01m18s

    Illegitimi non carborundum – The Neocons’s Princess Erika (Prince) of Bathwater as ‘Mr. Bimmler’ – After the War – Monty Python – http://www.youtube.com/watch?v=sVxM5IBLeU4#t=02m35s

    LIBERTE, EGALITE, FRATERNITE

    My personal all-time favourite Exiled story? ‘Class War 101: Meet the Reptiles (Who Are Making Meat Out Of You)’ – The Exiled – http://exiledonline.com/class-war-101-meet-the-reptiles-who-are-making-meat-out-of-you/

    A donf citoyens, au barricades!!! –

    http://www.youtube.com/watch?v=6EvakM9Waus#t=02m08s

  • 6. Palinisanidiot  |  April 22nd, 2010 at 1:31 pm

    You mean the revolving door swings both ways!

  • 7. Joe Stack's Financial Advisor  |  April 22nd, 2010 at 2:03 pm

    @Fissile

    That is what I was implying. The Fudds are indeed a few muffins short of a dozen, and they may in fact do something “out of the ordinary.” Most will likely be apathetic when the “time for action” arises.

    Feds DID just bust a right-wing militia group called the “Huteree” or something for conspiring to kill police officers. So they ARE out there, but it is only the 1-2% that will actually do anything.

  • 8. Palinisanidiot  |  April 22nd, 2010 at 3:06 pm

    That entire movement has become a high school lab experiment; an ant farm laughing stock. Led by such luminaries as Michelle Bachman and Sarah Palin who are more suited to being gym teachers. Even their Mt. Olympus of Beck and Limbaugh are just blowhard clowns, the sort that make kids afraid. I was feeling alienated to a degree in this country but after hearing some of Bachmans recent comments there’s no doubt that the movement of mutant goons is no real threat; if only to the right.


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