Anthony Lee Pacchia interviews Bill Black for Bloomberg Law. Video embedded following text.
On the Abacus Bank Prosecution: Prosecuting Abacus is very minor but it does give lie to the claim that there is no way to prosecute fraudulent lending.
Now that we have established that it is possible to prosecute fraudulent lending: There should be hundreds of senior officers at hundreds of banks being prosecuted. Unfortunately, we will likely see only tiny cases - and maybe one politically-motivated big case, given that it is an election year. The impunity with which these bankers operate is embarrassing.
On the fraud leading up to the crisis: By 2006, 1 of 3 of all home loans made in the USA were liars loans. The incidence of fraud in liars loans is 90%. It was overwhelmingly the lenders an their agents who put the lie in the liars loans. The Financial Crisis Inquiry Commission reported that the big banks were massive players in this. We were seeing over 1,000,000 cases of fraudulent loans per year by the big banks alone in 2006. Overall, it was over 2,000,000 fraudulent loans per year by 2006.
On why the Abacus case has come up: We know this is not a test case because a test case would be a federal prosecution. This is being taken on by a District Attorney in Manhattan.
On the Justice Department and Criminal Referrals: The Justice Department cannot bring a significant number of cases without criminal referrals. We have roughly 1,000,000 employees in our criminal jsutice system. Vitually all of them work on blue collar cirme. We have roughly 2,000 FBI white collar specialists for the 1300 industries in the USA. Therefore, we have approximately 2 FBI agents per industry.
Because a bank is not going to make a criminal referral against its own CEO, those criminal referrals can only come from the banking regulatory agencies. The Office of Thrift Supervision made over 30,000 referrals in the S&L crisis - which is 1/70th the size of our recent crisis. The same agency -which still has appropriate jurisdiction - made zero criminal referrals after this crisis. The Federal Reserve, which supervises the largest bank holding companies, made 3 total referrals.
To date there has not been anything that would pass as a real criminal investigation of any of the large institutions whose fraud drove this crisis.
On how Abacus' fraud is being handled: This is completely nonsensical. If the bank is sufficiently involved with the fraud, then the bank should be in receivership. They should get rid of the managers and they should bring in new people. To sue criminally against an open bank is an excellent way to cause the bank to fail and to potentially induce a run. This makes no sense. As with the criminal referrals, the dog that refuses to bark is the regulatory agencies. Our resources have been completely misapplied and we do not have enough.
On whether the Justice Department refuses to investigate fraud because the banks are "Systemically Important" or "Too Big to Fail": "Systemically Important" is the misnomer that the Administration uses. Let us call them what they really are: Systemically Dangerous Institutions. They are not "systemically important". The obstruction is not coming from regulators; it is coming from Treasury Secretary Geithner. Geithner went to Attorney General Cuomo and urged him not to even investigate. Geithner believes that the route to financial stability is to leave fraudulent CEOs in charge of the largest banks in the world.
Summary by Jaime Falcon
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