04/07/2009 12:34:54 AM EST

William K. Black Interview: Bank Bailout Might Destroy the Obama Presidency

posted by yturks


William K. Black, professor of Law and Economics at the University of Missouri and author of "The Best Way to Rob a Bank is to Own One" discusses his criticism of Tim Geithner's bank rescue plan here.

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William K. Black Interview: Bank Bailout Might Destroy the Obama Presidency | 9 comments (9 topical, 0 hidden)
The Congressional Budget Office (none / 0)
would seem to agree --->

Agency says bailout will cost taxpayers more

PETE YOST | April 4, 2009 10:31 PM EST |WASHINGTON -- Bailing out the financial sector will cost taxpayers $167 billion more than originally anticipated, according to a Congressional Budget Office estimate.

The original figure in January was $189 billion, but it is now $356 billion _ $152 billion more for 2009 and $15 billion more next year, the CBO says in its March report updating the budget and economic outlook.

The CBO raised its projection because yields have increased on securities issued by the bailed-out financial institutions under the $700 billion Troubled Asset Relief Program.

That means there will be an increase in the cost of the subsidy from the U.S. Treasury's purchase of preferred stock, asset guarantees and loans to automakers, the CBO said.

In addition, since the CBO issued its original cost estimate for the program, the Treasury announced additional deals with Bank of America and American International Group.

Those deals will be at rates higher than the averages in the CBO's original estimate. Also going up: the subsidy rates in the administration's $50 billion program to deal with home foreclosures.

The TARP program isn't the only one that will prove more costly to taxpayers than originally thought, says the CBO.

Bailing out Fannie Mae and Freddie Mac _ the two mortage finance giants taken over by the government in September _ will cost another $52 billion this year alone, and an additional $28 billion for their activities from 2010 to 2019, says the CBO.

Since January, the condition of both Fannie Mac and Freddie Mac has turned out to be worse than expected.

So CBO has increased its estimate of the current value of future losses.

Most of the increase stems from loans and guarantees inherited at the time the government took control of the two housing entities, says the CBO.

Fannie Mae and Freddie Mac plunged into the purchase of risky mortgages, becoming two of the major contributors to the housing market's collapse and the ensuing global financial crisis.

_

On the Net:

Congressional Budget Office report:

http://www.cbo.gov/ftpdocs/ 100xx/doc10014/03-20-Presid entBudget.pdf

by gatekeeper50 on 04/07/2009 02:00:42 AM EST

Thank you!! and suggestion (none / 1)
May I suggest that TyT see if Willam K. Black would be willing to be a regular guest on the show?
I found his insight both on Bill Moyers Journal and today's TYT show to be very informative.
Thanks.

by sbandb on 04/07/2009 03:48:15 AM EST

Jeffrey Sachs interview next please. (none / 0)
"The Geithner and Summers plan is even worse than we thought."

by Mickey Itchi on 04/07/2009 08:21:16 AM EST

Another note of caution (gloom?) (none / 0)
US Recovery Is Far Off, Banks Are 'Basically Insolvent': Soros
By: Reuters | 06 Apr 2009 | 04:49 PM ET
The U.S. economy is in for a "lasting slowdown" and could face a Japan-style period of relatively low growth coupled with high inflation, billionaire investor George Soros said on Monday.

Soros, speaking to Reuters Financial Television, also warned that rescuing U.S. banks could turn them into "zombies" that draw the lifeblood of the economy, prolonging the economic slowdown.

"I don't expect the U.S. economy to recover in the third or fourth quarter so I think we are in for a pretty lasting slowdown," Soros said, adding that in 2010 there might be "something" in terms of U.S. growth.

Soros' view contrasts with the majority of economists, who expect the U.S. economy to stop contracting in the third quarter and resume growing in the fourth quarter, according to the latest monthly poll of forecasts conducted by Reuters.

The recovery will look like "an inverted square root sign," Soros said. "You hit bottom and you automatically rebound some, but then you don't come out of it in a V-shape recovery or anything like that. You settle down—step down."

The healing of the banking system and housing markets is crucial to recovery. "The banking system, as a whole, is basically insolvent," Soros said.

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What's more, the Treasury's Public-Private Investment Fund is going to work but it won't be enough to recapitalize the banks in a way that they are able to or willing to provide credit.

"What we have created now is a situation where the banks who will be able to earn their way out of a hole, but by doing that, they are going to weigh on the economy," he said. "Instead of stimulating the economy, they will draw the lifeblood, so to speak, of profits away from the real economy in order to keep themselves alive. This is the zombie bank situation."

The stress tests being conducted by Treasury could be a precursor to a more successful recapitalization of the banks, he added.

Dollar is Vulnerable

Soros, whose latest book, "The Crash of 2008 and What it Means," has made prescient calls during the current credit crisis.

Exactly one year ago, he told Reuters that global losses are likely to top $1 trillion from the credit crisis. To date, U.S. and European banks have recorded more than $700 billion in losses and write-downs, as of Feb. 5. 2009, according to Reuters data.

Soros also said the U.S. dollar is under selling pressure and may eventually be replaced as a world reserve currency, possibly by the IMF's Special Drawing Rights, a synthetic currency basket comprised of dollars, euros, yen and sterling.

"I think the dollar is now under question and I think the system will need to be reformed, so that the United States will be subject to the same discipline as is imposed on other countries," said Soros, whose famous bet against the British pound earned his Quantum Fund $1 billion in 1992. "Being the main issuer of international currency, we have been exempt and we have abused that because we have effectively consumed 6.5 percent more than we have produced. That is now coming to an end."

China recently proposed greater use of Special Drawing Rights, possibly as an eventual global reserve currency. "In the long run, having an international accounting unit rather than the dollar may, in fact, be to our advantage so we can't splurge—you know, it felt very good for 25 years but now we are paying a very heavy price," Soros said.


China will be the first country to emerge from recession, probably this year, and will spearhead global growth in 2010, Soros said. He said world policymakers are "actually beginning to catch up" with the crisis and efforts to fix structural problems in the financial system.

The system was "fundamentally flawed, and there is no returning to where we came from," he said.

Euro Zone Not in Danger

In Europe, he said the crisis provides an incentive for countries that use the euro to remain inside the monetary union, though countries on the periphery still face serious problems.

The euro has been "a tremendous advantage" to countries that use it, adding there's "no question of a weaker country dropping out," Soros said.

While additional resources for the International Monetary Fund will help it stabilize struggling Eastern Europe, he said the Baltic states still face "serious problems" and Ukraine is not far from default.

Widespread use of credit default swaps has worsened the risks for Europe, he said, though he added that Germany, the euro zone's biggest economy, is becoming more open to offering help. "Germany, which has been the most reserved about being the deep pocket of the rest of Europe, has recognized that it too has a responsibility toward the new member states."

Germany has been one of the most reluctant major economies to meet U.S. calls for more fiscal stimulus spending to boost the global economy and fight the financial crisis.

by gatekeeper50 on 04/07/2009 09:19:35 AM EST

Interviews are great for getting information but- (none / 0)
Cenk I would love to see you moderate a debate between Black and Geithner. Better than Ana juice on my jeans. Wait, no what am I typing. No it wouldn't! Although it would be a killer msnbc 10 P.M. special.

by Mickey Itchi on 04/07/2009 12:37:42 PM EST

I'm almost sorry I watched that (none / 1)
I almost feel a little sick after that interview.  I'm about ready to grab a pitchfork and join the angry mob.  The only question now is how to voice an opposition to what's going on.   Would it ever be heard?  

by bfaul on 04/07/2009 04:31:36 PM EST

Good luck (none / 0)
Sadly we're up against *at least* 1/3 of the so called progressive community. I say 'so called' because part of being a progressive means that facts trump ideology, at least for me.

Just look at the reaction Cenk's post is having over at DailyKos and HuffPo.

by Tom Hanc on 04/07/2009 06:54:53 PM EST

[ Parent ]
Recent Black Articles (none / 0)
Great interview!  Thanks so much. Hope to see more of Black in the future. (P.S. the video cuts out about two-thirds of the way through - a server problem).

Why did all the mainstream economic models (like Greenspan's) fail to predict the current crisis? They don't incorporate the possibility of fraud! That is the subject of the first fascinating article below ...

Surreal Fiddling While Rome Burns
http://www.cato-unbound.org /2008/12/10/william-k-black /surreal-fiddling-while-rom e-burns/


Why Is Geithner Continuing Paulson's Policy of Violating the Law?
http://www.huffingtonpost.c om/william-k-black/why-is-g eithner-continuin_b_169234. html


The Audacity of Dopes
http://www.huffingtonpost.c om/william-k-black/the-auda city-of-dopes_b_165637.html

Two Documents Everyone Should Read to Better Understand the Crisis
http://www.huffingtonpost.c om/william-k-black/the-two- documents-everyon_b_169813. html

Book: The Best Way to Rob a Bank Is to Own One
http://www.amazon.com/Best- Way-Rob-Bank-Own/dp/0292721 390/ref=rsl_mainw_dpl?ie=UT F8&m=ATVPDKIKX0DER

by horatio on 04/07/2009 11:05:34 PM EST

Bill Moyer interviewed William Black on PBS (none / 0)

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.

----------------------Break--------------------------- ------

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.

Continued here  How Wall Street Robs the Banks that it Owns

Also watch Glenn Greenwald with Amy Goodman, James Thindwa, William Greider, and several other video casts on PBS Bill Moyers Journal here

by gatekeeper50 on 04/09/2009 06:04:43 PM EST

William K. Black Interview: Bank Bailout Might Destroy the Obama Presidency | 9 comments (9 topical, 0 hidden)
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