Massive Fraud at the Epicenter of U.S. Finance

(10 am. – promoted by ek hornbeck)

Bill Moyers Journal:

In an explosive interview on PBS’ Bill Moyers Journal, William K. Black, a professor of economics and law with the University of Missouri, alleged that American banks and credit agencies conspired to create a system in which so-called “liars loans” could receive AAA ratings and zero oversight, amounting to a massive “fraud” at the epicenter of US finance.

But worse still, said Black, Timothy Geithner, President Barack Obama’s Secretary of the Treasury, is currently engaged in a cover-up to keep the truth of America’s financial insolvency from its citizens.

Gosh.  Why would a Wall Street insider like Geithner be reluctant to admit that Wall Street criminals turned the US financial system into a giant Ponzi Scheme?

I’m stumped.

Fortunately, Professor Black has an explanation . . .

Black explains that the big banks intentionally

made really bad loans, because they pay better.  Then you grow extremely rapidly, in other words, you’re a Ponzi-like scheme. And the third thing you do is we call it leverage. That just means borrowing a lot of money, and the combination creates a situation where you have guaranteed record profits in the early years. That makes you rich, through the bonuses that modern executive compensation has produced. It also makes it inevitable that there’s going to be a disaster down the road.

This stuff, the exotic stuff that you’re talking about was created out of things like liars’ loans, that were known to be extraordinarily bad.  And now it was getting triple-A ratings.  Now a triple-A rating is supposed to mean there is zero credit risk.  So you take something that not only has significant, it has crushing risk.  That’s why it’s toxic. And you create this fiction that it has zero risk.  That itself, of course, is a fraudulent exercise. And again, there was nobody looking, during the Bush years.  So finally, only a year ago, we started to have a Congressional investigation of some of these rating agencies, and it’s scandalous what came out.  What we know now is that the rating agencies never looked at a single loan file.  When they finally did look, after the markets had completely collapsed, they found, and I’m quoting Fitch, the smallest of the rating agencies, “the results were disconcerting, in that there was the appearance of fraud in nearly every file we examined.”

Let’s review the situation, shall we?

1)  Big Wall Street banks perpetrated a giant Ponzi Scheme and gutted the entire US financial system.

2)  Treasury Secretary Timothy Geithner, like Secretary Henry Paulson before him, is covering up the truth.

Bill Moyers asked Black why Geithner and the Treasury Department are covering up what appears to be the worst crime rampage in American banking and finance history . . .  

They are scared to death.  They’re scared to death of a collapse.  They’re afraid that if they admit the truth, that many of the large banks are insolvent.  They think Americans are a bunch of cowards, and that we’ll run screaming to the exits.  And we won’t rely on deposit insurance.  Now, it may be worse than that.  You can impute more cynical motives.  But I think they are sincerely just panicked about, ‘We just can’t let the big banks fail.’

The President has informed us that he likes to know what he’s talking about before he speaks.  Well, when he gets done walking on red carpets all over Europe, he might want to read this TARP report so he’ll know what to say when the shit hits the fan this week . . .

Elizabeth Warren, a Harvard law professor and chair of the Congressional oversight committee monitoring the government’s Troubled Asset Relief Program, will call this week for the removal of top executives from Citigroup, AIG and other institutions that have received government funds in a damning report that will question the administration’s approach to saving the financial system from collapse.  

Warren is also set to call for shareholders in those institutions to be “wiped out”. “It is crucial for these things to happen,” she said. “Japan tried to avoid them and just offered subsidy with little or no consequences for management or equity investors, and this is why Japan suffered a lost decade.”