In his book The Best Way to Rob a Bank is to Own One, William K. Black details an alarming story about financial - and political - corruption in the US.
On April 3, 2009 Black appeared on Bill Moyers Journal on PBS and blew the whistle on the U.S. banking crisis (the interview is available here and worth a look) In the interview Black asserted that the financial crisis that started in late 2008 was essentially a big Ponzi scheme; that the "liar loans" and other financial tricks were essentially illegal frauds; and that the triple-A ratings given to these loans was part of a criminal cover-up.
In a nutshell, fraud by a financial company usually involves the company:
- growing like crazy
- making loans to people who are uncreditworthy because they'll agree to pay more
- making use of extreme (political?) leverage
In other words, the companies intentionally make loans to people who will not be able to repay them, because - during an expanding bubble phase - they'll make huge sums of money. The top executives of these companies make massive salaries and bonuses (enough to live like kings even if the companies go belly up after the bubble phase)
This strategy guarantees stratospheric initial profits during the expansion phase of the bubble. But it also guarantees a catastrophic failure when the bubble loses steam. Collectively - if a lot of companies are playing this game there are extraordinary losses and a…errrrr…..crash. oops.
Black claims that Timothy Geithner is engaged in a cover-up and that the US administration does not want people to understand what went wrong or how bad the banking situation really is today. In other words, it ain’t over yet, so watch this space.
William Kurt Black is an American lawyer, academic, author, and a former bank regulator. Black's expertise is in white-collar crime, public finance, regulation, and other topics in law and economics. He is an Associate Professor of Economics and Law at the University of Missouri and was Executive Director of the Institute for Fraud Prevention from 2005-2007. There is more about him on the University of Missouri-Kansas Law School site.
image: stolen unashamedly from the net and digitally enhanced.
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