Bill Black: Hijacking protests for political gain
Third-party movements like the Tea Party and Occupy Wall Street are about corporatism. Their main appeal has to do with defending democratic values that are violated by bailouts for special interests. I see both movements concentrated on the nexus of government and corporate interests with the Tea Party focused on government’s complicity and the Occupy Wall Street movement focused on corporations.
These movements lose broad-based appeal in getting co-opted by political parties. The Tea Party is now fully ensconced in the Republican Party, making it unlikely to have appeal beyond that party. Is the same likely to happen to Occupy Wall Street? Dylan Ratigan and guests Bill Black and David DeGraw give their take.
The special interest most people are concerned about are the banks. In the banking sector, fraud was a major contributor to the crisis. In fact, as Bill Black notes, the FBI warned in 2004 of an epidemic of fraud which would collapse the financial system. Because the White House has not prosecuted these frauds, bankers in general are now denounced as ‘banksters’ as if all bankers are complicit in this fraud. Black says the biggest victims of these frauds and the lack of prosecution other than homeowners are all of the honest people in financial services. I agree. I would add a third group, taxpayers.
Regarding Wall Street, I have said "Forget about Goldman" because I think you have to look at government’s role first since government sets the agenda and creates the rules of the game. What you want is government setting adequate ground rules, letting ‘the players’ play freely but enforcing the rules. Not enforcing the rules leads to crisis.
You definitely don’t don’t want government out of the way, because that just means the biggest and most unscrupulous win. Telling government to “get out of the way and let business do it’s work” tilts the playing field and is the message that corporatists want to hear. It is corporatism masquerading as liberty.
Video below
re: corporatism masquerading as liberty.
I think this needs to be refined. The corporatists seem to love government in most cases. They love it when they create inflation to push prices higher and reduce debt burdens. They love it when they create tax loopholes that only benefit the largest. They love it when there are dozens of bureaucratic impediments to starting a competing business. They love it when they are essentially told, “if you manage to get big enough, we’ll never let you fail.”
What they don’t like is being told to keep to a certain accounting standard, to provide adequate disclosure of risks, to maintain product safety, and to otherwise operate transparently for the sake of investors and consumers.
As Bill mentioned in the video, there are already existing laws against fraud that protect against this. They have simply gone unused. In the case of accounting standards, they’ve actually been relaxed.
I disagree with you Ed. Government does need to get out of the way. What is needed are prosecutors and lawyers knowledgeable enough to go after the highly complex nature of these frauds. Is there a shortage? Do they avoid these cases because they get inundated with ‘fine print’ defenses from the banks? Whatever the reason, it’ not happening. And it needs to.
Put government agents in charge to prevent this from happening again? Guess where they’re going to get their ideas? Lobbyists. And what kind of ideas will those be?
I don’t think the corporatists would like any of what I wrote. Government is their friend. It’s the police that they need to be worried about.
Of course you disagree! But that’s only the ideology talking. I disagree with nothing you said here:
1.They love it when they create inflation to push prices higher and reduce debt burdens.
YES
2. They love it when they create tax loopholes that only benefit the largest.
YES
3. They love it when there are dozens of bureaucratic impediments to starting a competing business.
YES
4. They love it when they are essentially told, “if you manage to get big enough, we’ll never let you fail.”
YES
5. What they don’t like is being told to keep to a certain accounting standard, to provide adequate disclosure of risks, to maintain product safety, and to otherwise operate transparently for the sake of investors and consumers.
YES, YES
6. As Bill mentioned in the video, there are already existing laws against fraud that protect against this. They have simply gone unused. In the case of accounting standards, they’ve actually been relaxed.
YES, YES, YES
I wrote about Madoff:
https://pro.creditwritedowns.com/2009/02/sec-complicit-in-madoff-fraud-whistleblower-says.html
“Needless to say, this is yet another case where no new laws needed to be crafted to prevent massive fraud. All that was necessary was for regulators to enforce the laws already on the books — a clear case of Cognitive Regulatory Capture. But, I am sure you know what is going to happen: the Madoff ponzi scheme and other scandals will cause the Obama administration to go for “regulation heavy” and America will tilt from one extreme to the other – dealing a fatal blow to chances for an early recovery to the banking crisis. Judging from statements already made by Obama and his team, “regulation heavy” is coming very soon.”
So, how is what I am saying any different than what you’re saying, Matt. From what I am reading, I agree with everything you’re saying here.
By the way, to do all these things, government needs to enforce the laws ALREADY on the books. That is the OPPOSITE of getting out of the way and letting business have its way.
“You definitely don’t want government out of the way, because that just means the biggest and most unscrupulous win.”
If the government had gotten out of the way starting in say 2007, these large banks would have mostly gone bust in 2008. And, it wouldn’t have been the most unscrupulous that survived. It would have been the most cautious that survived. Exactly what you want in a banker by the way.
Sure, if government were run by angels, these kinds of problems could probably be prevented. In practice, unscrupulous, lazy, or just plain incompetent people abound in government, Wall Street does not have a corner on that market. It is futile to believe that somehow an “honest” government can be wished into being to adequately regulate a corrupt Wall Street. Humans are humans good, bad, and ugly. Whether they work for Wall Street, Main Street, or Washington doesn’t change that fact.
The only real check on Wall Street is not Washington it is the market. Let the failures go bankrupt already.
It’s more futile to believe an honest government can be wished into being which will allow large financial institutions to just fail. Show me one country where this is now happening? At least we have a history of regulators bringing cases to prosecutors just twenty years ago after the savings and loan crisis. We have zero history of government “getting out of the way” and letting their banking friends fail.
Yes, the ideal would be to have the ground rules set so bankrupt companies can simply fail, preferably with minimal knock on effect. But that’s not the world we live in.
You need to have redundancy in the system and that means not just hoping failure will do the trick but also creating an environment in which banks can fail i.e. breaking up banks, reducing OTC derivative exposure and actually enforcing existing laws.
Thinking that government is run by angels and just letting banks fail is going to happen is simply unrealistic in a world where no government is doing that.
Ed, I read that last sentence as, “expecting government to avoid breaking its own laws is unrealistic.”
But no, we don’t really disagree. My post was more of an illustration about how things can be made to sound contradictory, yet essentially say the same thing. eg. OWS and the Tea Party. I find it utterly hilarious how the media has tried to paint these two movements into entirely different ideological camps – yet all they disagree on is terminology.
It is a mutually beneficial relationship between big business and big government. Whether the chicken or the egg came first is irrelevant. They each exist because of the other.
“We have zero history of government “getting out of the way” and letting their banking friends fail.”
This is not true. Granted it is old history. But, prior to the creation of the FED banking crisis were punctuated by failing banks or banks being bailed out by other banks. Not tax payers. Now that the government may at any time call on virtually unlimited funds this no longer happens.
“At least we have a history of regulators bringing cases to prosecutors just twenty years ago after the savings and loan crisis”
Sure, regulators are great for prosecuting criminals and scapegoats after the horse has left the barn. They would appear to be nearly worthless for preventing the crisis they were actually created to prevent. I can still recall Greenspan claiming that it was impossible to identify bubbles in real time, and he had more to do with the dot com and housing bubbles then any other man alive.
By the way, ever notice that regulators are never considered criminals for failing at their jobs. Sure the banks have influence in government, but only bankers go to jail during a financial crisis never government regulators for collusion in fraud or deriliction of duty. Kind of illustrates where the real power is.
“Yes, the ideal would be to have the ground rules set so bankrupt companies can simply fail, preferably with minimal knock on effect. But that’s not the world we live in.”
In the world we have been living in for as long as I can remember, the response to a financial crisis is for the banks to be bailed out, a few bankers to be prosecuted, some more regulations passed, and the size of the related regulatory agency increased. This is followed in ten or so years by another crisis. You seem to be advocating more of the same. Apparently, the “Ideal” as you put it is too unthinkable for you to actually support. Sadly, I suspect you will almost certainly get your way with the usual results.
Yes, it is old history and those failures caused depressions, leading to the Fed’s creation. Clearly, the lesson learned was don’t let them fail.
Depressions is just an old word for recession, they called everything a depression back then and not a recession. The creation of the FED was supposed to end them. It didn’t.
As for the snide comments on my wanting more of the same, think what you want. My statements on this issue are clear. Here I have stated my opinion and it is not as you are trying to characterise it.
I mischaracterised your opinion? I reread your article and the only thing I can think to add is that this time you want the regulations to be enforced, and you don’t say anything about more regulations or bigger regulatory agencies.
Frankly, I have no real problems with regulation, prosecution, etc. I simply have a problem with this,
“Clearly, the lesson learned was don’t let them fail.”
I would have to say that this is far and away the number one lesson to learn if you want to end up with big powerful corporations. Even if you do throw the current CEO in jail once in a while.
Yes, you did. You are getting closer to the truth here. Just as an aside, because it may not be clear, I should mention that policy elites learned the wrong lesson from the pre-Fed days. I was saying they learned to not let banks fail. There is absolutely nothing wrong with letting banks fail, even systemically important institution. We MUST let them fail. That is rule #1. It is important that reckless actors pay the financial price for their behavior or you encourage more of the same. That’s the one theme uniting the tea party and Occupy Wall Street.
Here’s my view (see here https://pro.creditwritedowns.com/2010/07/about-those-virgins.html):
What any complex system needs is redundancy. Don’t replace an all-consuming belief in the elite shaman policy maker/regulator for undying faith the free market shamans who tell us all will be well if we let the chips fall where they may. Both scenarios are not redundant. When failure strikes, it is catastrophic.
A better approach to regulatory reform is to build natural redundancy into the financial system. No system is fool-proof. But having multiple checks on system failure is better than having one.
Assume an unlevel playing field: if we assume that some actors in business are naturally advantaged and will use these advantages to tilt the playing field in their favour, we must assume these actors will overreach, take on too much risk and subject us all to a catastrophic failure. Therefore, we must devise rules of fair play which are both monitored and enforced through sanctions to prevent this. This necessarily means we have to have regulations and regulators. Assuming that markets are self-regulating is folly which invites bad behaviour. Do I want law makers dictating how private enterprises should structure their compensation schemes as the Europeans want to do? No, that is what I call regulation-heavy. But, I do want consumer protections (think seat belts or child labour laws), anti-trust laws (think cases against Standard Oil or AT&T) to be robust and enforced. To me this is the first line of defence against market failure.
Assume regulations are inadequate: I think the European proposals to regulate financial services compensation schemes are wrong. It’s over-regulation. And when there is bad regulation or over-regulation, one thing results: people devise (legal and illegal) schemes to get around the regulations. That’s certainly what has happened in the financial services sector. The profit motive is too large to prevent this sort of thing. And what invariably happens is that the market becomes distorted and more fragile as a result. This, in turn leads to unexpected and catastrophic failures.
Assume markets fail. We should assume that markets fail – and catastrophically. That means that we often reach a critical state where panic is the order of the day and where smooth bell curve mathematical functions don’t work. The likely outcome of these situations without a lender of last resort is catastrophic business failure and economic dead weight loss. This naturally leads to political chaos, economic depression and military adventurism. Allowing markets to fail and sitting idly by is not an option. This means we must create market structures, institutions, rules and safeguards to prevent liquidity crises from becoming solvency crises. This is a primary reason the Federal Reserve exists – to act as a provider of liquidity.
Assume regulators will be captured: But we should assume that these regulators will be captured by industry and fail. How else would you explain the sanctioning of increased leverage in the investment banking sector early last decade? At one point in time, net capital rules which governed the amount of leverage investment banks could use limited them to 12:1 ratios. Policymakers changed the rule in 2004 to allow 30:1 leverage and the gross increase in balance sheets which ensued. Had Lehman been limited to 12:1 leverage, its failure would have been less problematic. How do we make this regulatory failure redundant? By creating a market structure that can handle failure. And that means, first and foremost, banks must be limited in size as a share of assets. Too big to fail is too big. Full stop.
My view is that systems fail and we need to be prepared for that failure. Throwing up your hands and acting like you can just give up and let things take their course is an invitation for anarchy and its necessary successor, despotism. What we should do is structure a system that sets basic mechanisms in place to prevent market failure but that is redundant enough so that it can deal with market failure. Moreover, one flaw need not bring down the whole system if it is redundant. We shouldn’t trust the shamans who counsel absolute faith in the infallibility of the policy illuminati. But neither should we trust the shamans who counsel absolute adherence to a non-existent free market.
again, Bil Black could be providing substance to an issue that warrants a national focus: (1) Breaking the chain of cronyism between government and corporation (specifically the financial sector) (2) Presecute those who benefitted from liar loans (3) Vote out of office the politicians who promoted liar loans and sanction crony capitalism and (4) Restore the truly free market that naturally coincides with capitalism with fair and reasonable government agency oversight.