Charles Ferguson and Bill Black held court at the FDL Book Salon on June 23, 2012. Below are a few excerpts from Black and Ferguson. A link to the original full dialogue is at the bottom of this post.
Bill Black on the Effectiveness of Whistleblowers: There are roughly one million Americans working in our criminal justice system (not counting inmates). Of those one million, approx. 2000-2500 do white-collar crime (overwhelmingly FBI white-collar specialists — you can get higher numbers if you include specialized frauds such postal and securities frauds and the FTC folks that handle identity theft). (I’m ignoring police squads that handle very minor frauds.) There are a bit over 1,300 industries in the U.S., so we have fewer than two FBI agents per industry. So the first thing to understand is that nobody is walking a beat to stop elite white-collar crime. The FBI only investigates when it gets a criminal referral. Corporations will not make criminal referrals against their CEOs. Only the regulators can serve as the analogs to “the cops on the beat” and make the referrals against control fraud. Whistleblowers can make episodic referrals, but DOJ can’t break a fraud “epidemic” with episodic referrals and it tends to view whistleblowers as disaffected employees whose credibility is dubious.Bill Black on how to get investigations started: The fastest bang for your buck is to appoint acting regulatory heads of the OCC and the FDIC who will make the filing of criminal referrals against the elite frauds that drove this crisis among their highest priorities — and then will follow-up on those referrals (quietly and professionally) in fraud working groups — and if that fails by going public about the refusal of DOJ to prosecute and demanding action from DOJ and the president.
The OCC and the FDIC, the Fed, and the FHFA all have the resources and the bad loans aplenty to conduct an intense review of a sample of loans from the most fraudulent lenders and report publicly by name on what that sample reveals. Such an audit would place enormous pressure on the administration and DOJ to act.
Each of the agencies should begin administrative enforcement actions of the worst executives and use the ability to take testimony under oath of key employees (particularly whistleblowers and their bosses) during the investigation. The agencies then need to do a hard hitting, short white paper in plain, blunt English on the pattern of what they have found in terms of the deliberate gutting of underwriting and inflation of appraisals — two actions that no honest lender would take.
If DOJ refuses to do it, the financial regulatory agencies should make a public call for whistleblowers from the industry (many will have lost their jobs) to come forward and provide evidence of the frauds and the management actions that facilitated the frauds.
As for Mr. Bernanke, although he was a career academic, as soon as he entered politics / government, he began to show himself as a very astute political maneuverer – not aggressive, always ready to please those above him – first Bush, then Paulson, then Obama, now perhaps looking even beyond Obama…
Bill Black on how investigations became reality after the S & L crisis: There was very little outrage originally about S&L fraud and neither the agency nor DOJ originally (until 1984) made such frauds a priority. By bringing over 1,000 successful “major” prosecutions, approx. 800 civil suits, and 3,000+ administrative actions we (1) put facts in the record that journalists could cite with[out] fear of libel actions, (2) demonstrated over time that there was a pattern to the frauds and that they were led out of the “C” suite, and (3) eventually made it politically impossible for several years not to favor strong efforts at prosecution.
We knew that we had won when Rep. Frank Annunzio (a strong ally of Charles Keating), began wearing a button, six inches in diameter, that said “JAIL the S&L CROOKS”). It was pure hypocrisy, but still telling.
Link to full textual dialogue at FDL Book Salon
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