Bill Black: “Our financial institutions are being run by sociopaths”

Bill Black. As I’ve said before, William K Black, professor of economics and law at the University of Missouri, and the senior regulator during the US Savings and Loan crisis is, one of the sharpest commentators on the causes of the global financial crisis. In this interview with Paul Jay, senior eitor at the The Real News Network, Black says that:

“We have negative accountability. If you were an important contributor to this crisis you were promoted, and reappointed and given massive bonuses. There’s not been a single arrest, a single indictment, a single conviction, of one of the senior insiders at these major non-prime lenders. None….

It’s as if you took your kids, when they were teenagers, and when they did something outrageous that hurt other people, you tripled their allowance, instead of punishing them. You turn out psychopaths and sociopaths.

And we now have sociopaths in control of our major financial institutions and important levers of government as well.”

Bill Black interview on The Real News Network – Part 2

In part two of the interview, Bil Black, also 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), says the finance sector desperately needs reform and ought to be considered as “a huge parasite”… “Think of it as a giant, engorged leech on Main Street”

In an excellent article published on Benzinga today, Bill Black said the current approach to regulating financial institutions is inherently unsound. This is not only because the supposedly reformed approach is being put together by the architects of the crisis — bankers and economists — but also because it gives much too much credence to capital ratios.

Bill Black said it is “impossible to build a sound system of banking regulation based on capital regulation as it is conceived in the Basel process”. He added that the Basel process is undermined by the three flawed assumptions that underpin it. These are:-

1. Capital requirements are the ideal form of banking regulation.
2. Capital requirements can be set without establishing sound accounting.
3. Accounting control fraud is not a serious concern.

I particularly like this sentence: “The Basel process relies primarily on capital regulation, but ignores the accounting games that allow banks to create their reported capital.”

The key underlying problem is that, even though it’s been wholly discredited by the crisis, neo-classical economics still underpins the political, economic, regulatory and Basel committee response.

Bill Black concludes his Benzinga piece wirth the words: “What the regulators have not taken into account is a series of means of gaming reported capital that render capital requirements malleable. Instead of correcting these accounting abuses they have stood by, or in the case of Ben Bernanke encouraged, the destruction of the remaining integrity of accounting standards. Bernanke encouraged the Chamber of Commerce and the banking lobbyists to use their political allies to extort the Financial Accounting Standards Board (FASB) to junk the rules requiring banks to recognize their losses.

“This massively overstates asset valuations, which massively overstates reported capital – evading the requirements of the Prompt Corrective Action law. It also overstates income, allowing bank officers to enrich themselves through bonuses they had not earned. Having just gimmicked the accounting rules to achieve their goals of covering up the scale of the crisis (and claiming to have “resolved” the crisis for a pittance), it is bizarre that the banking regulatory agencies treat capital requirements as if they had meaning independent of accounting. A sound system of banking regulation cannot be based on capital regulation as it is conceived in the Basel process.”

Here’s a more recent interview Bill Black gave to Real News broadcast on 8 December 2010. As usual, Bill Black is as clear as a bell on government lies, deceit and propaganda, banking lies and subterfuge, ways in which banks hide their losses, and the continued clandestine bailouts.

The Real News Network broadcast the two-part interview with Professor Bill Black on 20 March 2010. I posted this blog on 24 January 2011.