Thursday, January 31, 2013

Contra Yglesias — Bill Black and Randy Wray

It’s early, but Salon has published on January 30, 2013 either the funniest or saddest column of the year to date: “Are Banks Too Big To Prosecute?” 
The column is attributed to Matthew Yglesias, a blogger who studied philosophy as an undergraduate. It could be a brilliantly ironic satire of the Geithner, Holder and Breuer doctrine of immunity for banksters (which I am dubbing “GHB” for short). GHB is the “roofie” that the Obama administration gave us so the banksters could screw us repeatedly with impunity. Alternatively, and far more likely, Yglesias has written the saddest and most immoral apologia for elite white-collar crime that has yet made it into electronic bits. It takes a rerouted beginning student of philosophy, posing as a commentator on finance, to replace what should be a discussion that includes virtue ethics with a virtue-free, criminology-free, and economics-free apologia for the felons who became wealthy by costing the Nation $20 trillion and 10 million jobs.
Matthew Yglesias wrote a similar column on April 14, 2011 embracing the Geithner immunity doctrine. He titled it: “The Fraud Free Financial Crisis” – and it proves our family’s rule that it is impossible to compete with unintentional self-parody.
New Economic Perspectives
Yglesias pours the Geithner, Holder, Breuer (GHB) banksters immunity doctrine in our drinks
William K. Black | Professor of Economics and Law, UMKC

The often interesting Matthew Yglesias wonders “Are Banks Too Big To Prosecute?” See here.
Here’s his thesis. Sure, Megabanks committed tons of fraud. But we cannot prosecute banks for the fraud because that would bring them down. And the bigger they are, the more fraud they perpetrated, but the bigger the insolvency hole if we investigated them. So best to bail them out and look the other way.
But here’s the deal. Banks don’t commit fraud. Banksters commit fraud.
This is what all the gun nuts are teaching us. Guns never kill people. Insane people kill people. Guns are just a tool that allows the insane to kill massive numbers in schools, shopping malls and offices.
Economonitor — Great Leap Forward
Banks Don’t Commit Fraud; Banksters Commit Fraud: Response to Yglesias
L. Randall Wray | Professor of Economics, UMKC

Black, especially, excoriates Yglesias for being having majored in philosophy major, but now displays no understanding of ethics, and seems to think that expediency is a rational criterion in moral choice. So he is not only accepting of a double standard of justice based on privilege deriving from position but also attempts to justify it based on pragmatism and moral relativism. Flunk in ethics, and makes one wonder if he is a political flunkie.


14 comments:

Matt Franko said...

Who owns Salon?

Dan Kervick said...

It's publicly owned: Salon Media Group

Dan Kervick said...

I think to be fair to Yglesias, he does have a moral argument. He believes that if you prosecute the heads of TBTF financial firms, the companies will fail and the economy will crash, causing much suffering.

Bill correctly points out that many, many banking execs were prosecuted successfully during the 80's without destroying the economy. If the companies themselves are truly rotten, they can be temporarily taken over, cleaned out and then returned to private sector operation?

David said...

He believes that if you prosecute the heads of TBTF financial firms, the companies will fail and the economy will crash

How convenient that this belief accords exactly with that of outgoing AAG Lanny Breuer:
I think I and prosecutors around the country, being responsible, should speak to regulators, should speak to experts, because if I bring a case against institution, and as a result of bringing that case, there’s some huge economic effect — if it creates a ripple effect so that suddenly, counterparties and other financial institutions or other companies that had nothing to do with this are affected badly — it’s a factor we need to know and understand.

paul said...

"He believes that if you prosecute the heads of TBTF financial firms, the companies will fail and the economy will crash"

The question is…why or how would that crash the economy?

Are they the ones driving spending? The 0.1%? They take more than they give on balance without exception.

The average citizen doesn't need the services those banks provide. And as far as the average citizen is concerned, the crash has already happened.

Look to Iceland, much smaller economy for sure, but the naysayers said it would be much worse off than the rest of us if it told the banks to pound sand but their recovery has been better than anyone else.

Yglesias is part of the conventional wisdom, handicapped by the same defective thinking that makes the majority of our elected officials and major media worse than useless…they're dangerous.

Matt Franko said...

As far as moral arguments I have always taken the position that these people are stupid and not fraudulent criminals though lately we maybe are into criminally negligent territory as now we have a negative quarter and we are seeing no resignations....

Bernanke should resign for one and many others...

It may be criminally negligent not to resign in the face of repeated policy failures....

rsp,

Tom Hickey said...

Bill Black destroys the premises of Yglesias's argument the moral choice was between following the law and crashing the system and bringing down the global economy. Bill has often shown why prosecuting execs would NOT affect the solvency or operation of a bank or bring the bank down, which is central to Matt's argument, and Matt should know about Bill's voluminous writing to this effect.

Of course, an investigation could reveal that the bank was insolvent, but the FDIC and Fed were already in a position to know that decided to cover it up to "save the world." The banks could have beens saved in a variety of ways, cover up, bailout, resolutions, etc. The argument against prosecution is BS through and through, and now MY is in the thick of it.

Bill has also argued that the TBTF could have been put into resolution without "nationalizing" them. "Nationalizing" was simply brought in to prejudice the case against following the law. MY got snookered by the rhetoric, like most other people not in the know. I did too, some time ago, until Bill personally set me straight on it.

I would not want to be on the other side of Bill Black in an argument like this.

Matt Franko said...

Yeah but Tom one person to look at was Mozillo at Countrywide and he had the whole Congress on speed-dial... and had given many VIP loans... etc...

One thing Ive been thinking lately is: What was taking so long for these banks to lay off all the paper and they ended up stuck with 10s of billions still on their balance sheets?

in 2007 the govt was running a balanced budget and injecting no $NFAs... so what was to guaranty that the banks target market to sell these securities to would have the balances to be able to buy them?

This is a case where what probably happened is like what Paul harps on where horizontal money only just cant work... system eventually fails.

These were bank loans being made ONLY. Govt was not injecting any $NFA.

This will eventually fail and did.

The banks were originating loans and hence creating deposits, but since the govt was not injecting the $NFA, the banks were probably trying to sell these loans to institutions that didnt have any balances to be even be able to buy them, so they sat there on the banks balance sheets...

eventually systemic liquidation started as the non-govt was starved for $NFA and the MBS sold off and so did real estate, stocks.... and the banks were stuck.... maybe Goldman saw this coming as early as 2007 and designed a hedging system and sort of survived...

So we should be careful to make sure that it is really fraud that we are talking about and not just a giant moron-fest that is designed to fail, and when it did we are not embarking on some sort of witch hunt to blame people who were just trying to make money within a faulty designed system when it inevitably broke down...

We may be heading into the same scenario right now with the 4th qtr and now looking at sequestration...

$NFA flows have dried up.

If we are turning 2013 into another 2008 we will find out that the design of the system itself is largely to blame for most of the carnage...

rsp,

Tom Hickey said...

Matt,to his credit Jamie Dimon was the only one smart enough to see that it was going to end badly and stayed out. The other, to quite Chuck Prince, knew it was a game of musical chairs and played in the expectation that they would get a chair when the rush began. But the lack of $NFA had vaporized the chairs.

But What Randy and Bill are talking about here is the securitization con game that was run from the top with a wink-wink from regulators and the complicity of rating agencies, property appraisers, and mortgage brokers. It was fraud gone wholesale. There is no way that the people responsible could not have known and the way that MERS was structured is the damning evidence. They knowing flouted the law, and then tried to cover it up, and then lied about the cover up. The judiciary had been bought so it never came to much, even when prosecutors brought cut and dried cases of forged documents and false statements. Judge did not even hold in contempt those who perjured themselves before the court.

This has got to be a low point in US legal history.

Matt Franko said...

Right Tom to not prosecute those types of frauds is lawlessness.... I think those perps have to be brought to justice...

But the systemic design faults, its important that These be exposed also.... IMO more important, rsp

Matt Franko said...

It's like winter wrote today:

"We have a lack of aggregate demand because the private sector's savings desire is not being met. The private sector's savings desire is not being met because the Government is not printing the money people want to put in their bank account, so they are trying to save from each other and, of course, as a sector cannot. The Government is not printing the money people want to put in their bank because it thinks it 1) cannot, 2) if it does, it will inevitably result in inflation, and 3) even if it does, it will need to pay it all down someday and the number is already so big."

ALL else (even criminal fraud) pales in comparison to the chaos, injustice and evil that results from these basic falsehoods that are currently foisted upon the west (for me anyway)....

all the "fraud talk" imo could end up distracting from a basic message that directly confronts these truly problematic falsehoods... iow people could perhaps take away that it is claimed that our current situation is caused by fraud and crime, etc... which I do not believe it is.. rsp,

Tom Hickey said...

Agree, Matt, but its the bad apples at the top that are standing in the way of needed reform. A lot of their vig depends on the existing arrangement, which they are trying to loosen in search of more rent.

Jaime said...

Lanny Breuer comes clean: http://www.capitalismwithoutfailure.com/2013/01/lanny-breuer-on-whistleblowers-and.html

Note: This is satirical.

Jaime said...

Linkified: Click here