Bill Black — Countering Chinese Accounting Control Fraud and Predation Against U.S. Investors

Accounting control frauds target creditors and shareholders as their primary intended victims. Their primary weapon of fraud and predation is accounting. The art is to inflate assets and understate liabilities, which overstates capital and income. White-collar criminologists, economists, accounting academics, and regulators have explained the ease with which the CEOs running control frauds are able to suborn supposed “controls” (auditors, appraisers, attorneys, and credit rating agencies). The art is to suborn, not destroy, supposed ‘controls’ so that they will “bless” the CEO’s frauds, lending their reputation as supposedly independent professionals to aid the CEO in defrauding creditors and defrauding and predating on shareholders. The CEOs leading the fraud and predation can even use their ability to hire and fire the key officers at these supposed independent professional controls to generate a “Gresham’s” dynamic within their profession. George Akerlof, in his famous 1970 “lemons” article that led to award to him of the Nobel Prize in Economics in 2001, first named that perverse dynamic. Akerlof explained how it worked....

New Economic Perspectives
Countering Chinese Accounting Control Fraud and Predation Against U.S. Investors
William K. Black | Associate Professor of Economics and Law, UMKC

Bill Black — Mankiw Morality in a Mash Up with Mankiw Myths

Classic smackdown of Mankiw, part one.

New Economic Perspectives
Mankiw Morality in a Mash Up with Mankiw Myths
William K. Black | Associate Professor of Economics and Law, UMKC

My comment there:

1. Nice takedown. 

   Alan Greenspan himself admitted making a mistake in assuming deregulation would not be taken advantage of by leaders who would undermine their own institutions owing to perverse personal incentives.

   Greenspan - I was wrong about the economy. Sort of

   A perverse incentive is one that promotes rent-seeking, which is a form of free riding – in biological terms, parasitism. Neoclassical economics was designed to ignore or minimize the concepts of economic rent and rent-seeking that lie at the foundation of classical economics. 

   Historically, this can be traced to a reaction to Karl Marx and Henry George’s success at the time in calling attention to rent, which is another name for exploitation where rent extraction involves unpaid work rather than simply criminal or corrupt behavior. 

   The counter-attack was led by John Bates Clark, whose has been memorialized in conventional economic through the John Bates Clark medal. That’s right, they give a medal for this stuff!

   
   

William K. Black — How Bernie’s Economic Policies Fit into Economic Theory

The journalist Adam Davidson has written an interesting article about economics and Bernie Sanders. As an economic adviser to Bernie I found his take on Keynesian and institutional economics of considerable interest. Institutional economics, contrary to Davidson’s take on it, is thriving and the University of Missouri at Kansas City has long been a center of institutional economics. (I am one of the scholars at UMKC that works largely in this field.) Davidson treats institutional economics, which overwhelmingly studies microeconomics and the “micro foundations” of the economy as having been rendered obsolete by the transformation that Keynes’ insights sparked in the study of macroeconomics.…

Davidson’s thesis is unsupportable as a matter of logic, history, and macroeconomic theory.…

Bill hits another one out of the park.

New Economic Perspectives
How Bernie’s Economic Policies Fit into Economic Theory
William K. Black | Associate Professor of Economics and Law, UMKC

Bill Black — White-Collar Criminologists Answer the call of Conventional Macroeconomists: An Open Letter to Dr. Kartik Athreya, Research Director of the Richmond Fed

I want to thank two prominent “freshwater” macroeconomists, Dr. Narayana Kocherlakota (until recently the President of the Minneapolis Fed and previously the Chair of the University of Minnesota’s economics department) and Dr. Kartik Athreya (Research Director of the Richmond Fed) for their article (2010) and book (2013) , respectively, designed to convey the current status of macroeconomics. Reading their descriptions, and reviewing the work of Oliver Williamson, Roger Myerson, and Leonid Hurwicz in light of the discussion of macroeconomics has made it clear to me that the central difficulties in micro and macroeconomics are with concepts that are the core of what we study as white-collar criminologists and what I dealt with as a financial regulator. There is, therefore, an opportunity for substantial advances should economics draw on the findings of the discipline (white-collar criminology) and the insights of the professionals (successful financial regulators) with the preeminent expertise in these problem areas. Athreya also stresses the key role of law and how the effort to contain fraud explains significant portions of the legal rules for commerce. I also have expertise in law.

Since I combine those three forms of expertise and teach various microeconomics courses, I thought I would write this open letter to orthodox macroeconomists and macroeconomists. For reasons that I will discuss, the perfect person to address is Athreya, with a “cc” to Kocherlakota.

Where economists have drawn on our insights, the results have proven successful. Indeed, I will show that one of the greatest opportunities for the advancement of “modern” macro (and micro) economics would be to cease ignoring George Akerlof and Paul Romer’s 1993 article “Looting: The Economic Underworld of Bankruptcy for Profit.” I can think of no other field in which a Nobel Laureate, writing in his area of greatest expertise (fraud is the most damaging form of “asymmetrical information”), who proved correct and explicitly warned his field about the need to focus on “looting” (via “accounting control fraud”) would be religiously ignored by scholars in his or her discipline.…

Absolutely must-read.

New Economic Perspectives
White-Collar Criminologists Answer the call of Conventional Macroeconomists: An Open Letter to Dr. Kartik Athreya, Research Director of the Richmond Fed
William K. Black | Associate Professor of Economics and Law, UMKC

Ireland To Prosecute Top Banker Who Destroyed Their Economy — Guess Where He Was Hiding

Former Anglo Irish Bank chief executive David Drumm walks free from Central Criminal Court in Dublin, Ireland Tuesday March 15, 2016, after he and relatives lodged 150,000 euros for his bail on 33 fraud charges. Drumm was extradited from Boston to Dublin on Monday after spending seven years in the United States seeking to gain U.S. bankruptcy protection and avoid facing 33 Irish fraud charges connected to Anglo’s 2009 nationalization and collapse. Court officials expect his trial to begin in mid-2017.

A former head of a major Irish bank has been extradited from the U.S. and brought before Dublin District Court to face several charges stemming from the bank’s role in the 2008 financial crisis.

David Drumm, former chief executive of Irish Anglo Bank from 2005 until 2008, had been arrested in Boston in October 2015, and originally attempted to fight extradition — but he recently withdrew the objection and was returned to Ireland early on Monday.
Drumm faces 33 charges in Ireland, which echoes Iceland’s unprecedented move to hold its bankers criminally accountable for their role in that country’s economic meltdown.…

Iceland, and now Ireland, have taken action to hold criminal bankers accountable for their direct role in the economic devastation which enveloped most of the world beginning in 2008 — the exact opposite of what the US does.

As of October, Iceland’s criminal bankers had been sentenced to a combined 74 years in prison — with others awaiting trial. Then, the sale of one of its national banks meant a payout, albeit small, for every Icelandic citizen.

The U.S. notoriously and controversially bailed out its banks — essentially rewarding them, or at least, excusing them for the crisis they created.…

Mint Press News

Ireland To Prosecute Top Banker Who Destroyed Their Economy — Guess Where He Was Hiding

Claire Burnish

Bill Mitchell — It is fuelled by stupidity … That’s not stupidity that’s fraud

Yesterday, we saw the movie – The Big Short – which is entertaining to say the least but depressing in its message that widespread corruption in the corporate and public sectors not only goes unpunished, but is handsomely rewarded. I have also been watching the documentary series Making a Murderer – which follows the stunning and mystery-laded treatment of an American man caught up in a corrupt criminal justice system in the US state of Michigan. In that series, it appears that the criminals are those on the wrong side of the bars. 

I thought The Big Short was the macro version of Making a Murderer, which is a microscopic account of a small town and its nefarious police and legal fraternity. But apart from the corrupt and plainly unethical conduct exhibited by Wall Street, the rating agencies and the bank that fed on all the ridiculous products that were created to make complex what, in fact, was a simple strategy – make money of real estate, there was also plain dumbness at the centre of the collapse and the crisis. Dumbness created by a dangerous Groupthink where patterned behaviour was inculcated into the financial system and, ultimately, came back to bite most of us.

While the representations of cocky, sharp, bright financial market traders with PhDs in physics or mathematics in a sequence of movies about the GFC and its aftermath lead to the conclusion that these conspirators knew what they were doing and were happy to profit for themselves at the expense of those they considered to be dumber, a recent academic research study has revealed that the traders themselves were oblivious to what they were doing and became entranced themselves by their own image. 

That is what Groupthink does – it builds an impervious layer for those trapped inside the group – they are insulated from reality, consistent logic, criticism and behave in self-reinforcing ways that may involve enlarged deviations from anything reasonable, smart or evidence based. Groupthink makes people dumb and compliant. The GFC was in no small measure the product of that sort of dumb compliance, which is not to reduce the enormity of the corruption involved. It, however, does reinforce my view that we should ban all these speculative products that provide no beneficial input to the real economy, if only because the sociopaths that are attracted to creating and selling them are too dumb to know what they are doing.… [paragraphing introduced for readability] 

Kind of sums it up.

However, I think that perhaps Bill overemphasizes the role of groupthink in the financial crisis overall. The FBI warned in December 2004 of massive fraud taking place in the mortgage market, and Bill Black and others have documented the prevalence of control fraud.

Sorting out stupid and complicit is not a simple matter, and the probably go hand in hand.

Bill Mitchell – billy blog
It is fuelled by stupidity … That’s not stupidity that’s fraud
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Bill Black to Hillary Clinton — It's "fraud," not "shenanigans"

Former Secretary of State Hillary Clinton, in her debate with Senator Sanders minutes ago, said that she went to Wall Street and told them to stop their “shenanigans.” The context was that she was being asked to respond to the complaint that she was too close to on Wall Street billionaires. She had every incentive, therefore, to demonstrate how tough she would be on Wall Street. In that context, the best she could muster was the pusillanimous “shenanigans.” …

Hillary cannot bring herself to use the “f” word in the context of Wall Street CEOs leading the largest and most destructive fraud epidemics in history – frauds that made them spectacularly wealthy. A few minutes later, Bernie said that “fraud” was Wall Street’s business model.…

New Economic Perspectives

Liar’s Loans, Plus Loan Brokers, Equals Fraud Heaven

Hillary, the Banksters Committed “Fraud” not “Shenanigans”

William K. Black | Associate Professor of Economics and Law, UMKC

Bill Black — Krugman Is Half Right

The most logical explanation for such a bubble is a rational explanation – widespread “accounting control fraud” by lenders and loan purchasers. Orthodox economists make a standard assumption of rational behavior, including by criminals. But orthodox economists have a primitive tribal taboo against the “f” word – fraud. When it comes to bubbles, therefore, orthodox economists overwhelmingly simply assume mass irrationality. They would rather drop their most cherished assumptions about economic behavior than admit the reality that there are elite white-collar criminals and that their crimes can become epidemic when the incentive structures are so perverse that they produce a criminogenic environment.

This problem of dogma is compounded by the problem that the orthodox responses to a bubble are clumsy, slow, and awful in terms of their “collateral damage” to the Nation, particularly those most in need. Basically, the orthodox response is to throw the economy in a recession – hoping to kill off the bubble and reduce the severity of the eventual recession it would have caused when it collapsed on its own. Worse, the orthodox policy recommendation to avoid future bubbles is permanent monetary austerity and higher interest rates to deter bubbles – producing rolling recessions and weak growth. Indeed, orthodox economists are so dubious of their ability to correctly identify a bubble and so cognizant of the grave harms and risks posed by trying to use orthodox responses to bubbles that their standard recommendation is to do nothing even if they suspect that a bubble is developing.

The vastly better response to a bubble like the housing bubble is unknown to orthodox economists and is never taught to students. The answer is to (1) put the fraudulent lenders and loan purchasers out of business by vigorous supervision, enforcement, and prosecution and (2) to limit their growth by effective regulation and bans on loan products most conducive to fraud. The regulators and prosecutors must break the “Gresham’s” dynamic that can make fraud epidemic.

New Economic Perspectives

Krugman Is Half Right

William K. Black | Associate Professor of Economics and Law, UMKC

Bill Black — Capitalism’s Defender Unknowingly Indicts the Banksters

Great history lesson about the crisis as Bill Black eviscerates Cato 's Johan Norberg.

New Economic Perspectives
Capitalism’s Defender Unknowingly Indicts the BankstersWilliam K. Black | Associate Professor of Economics and Law, UMKC

Richard Bowen — William Black Tells the Ugly Truth!

Richard Bowen is a Citi whistleblower regarding whom Bill Black has published several recent blog posts at New Economics Perspectives.

Richard Bowen
William Black Tells the Ugly Truth!

crossposted at New Economics Perspectives

More Than A Bit Naive To See NeoLiberal Econ As Merely An Honest Dispute Between Academics

   (Commentary posted by Roger Erickson)

How about a dishonest racket among Control Frauds, with runaway momentum?

WHERE MACROECONOMICS WENT WRONG

Their premise requires one to believe that "orthodox" economics ever had things right in the first place.

Control Frauds in the Mist? Brought to you by Gresham Dynamics, Inc. (unlisted)

Name the Next Biggest Weapons Platform Threat: What's A Catchier Name For Systemic Self Parasitism? Something As Flashy As "Cyber Crime" ?

   (Commentary posted by Roger Erickson)







Cyber Crime? Anything to keep the rubes distracted?

Wake me up when losses to cyber thieves reaches the $29Trillion which WE recently, and meekly, transferred to Democracy Thieves.

Why is it so much easier to scare aggregates with the threat of specific weapon platforms, regardless of the magnitude of systemic losses?

Let's be honest. The elements of fiat currency operations are rather simple, well described, and (compared to say, Quantum Physics) they are easily understood once honestly addressed. They are simply under marketed, and have been since the days of John Law!

More specifically, how do we recruit ourselves differently, if we're to adequately mobilize against systemic crime operating in broad daylight? Sunlight is the best antiseptic only if the parasite is recognized as such, so that we exclude it from our protection!

Take "cyber crime" as one example. That term has far more cache than "White Collar Crime" - or even Control Fraud.

Ditto for "terrorism" - now widely considered as essentially a Blue Collar or physical crime. :(

One lesson is that people are more easily alarmed by the threat of specific weapon platforms, than by the threat of underlying intent.

Of course an obsolete bias to favor all other forms of capital over labor capital also plays a part, but let's return to that obsolete habit another time.

So, to more effectively recruit people to combat financial crime, perhaps we should invite our entire population to name and publicize the key weapon platforms used against evolving cultures.

Some new marketing terms would help immensely.

Savings Theft?
Income Crime?
Credit Crime?
Policy Crime?

None of these terms are yet adequate. This campaign requires aggregate trial and error. Where do we start, and what do we use as a reference? Perhaps with a 200 year old, key statement.

"All the perplexities, confusion and distress in America arise, not from defects in their Constitution or Confederation, not from want of honor or virtue, so much as from the downright ignorance of the nature of coin, credit and circulation." John Adams

Wow! It's amazing to see how little principles have changed, even while class-war weapon platforms have changed to a degree which John Adams could scarcely have imagined. Pity Adams didn't spend more time exploring what to DO about that ignorance.

So what is it, exactly, that is still keeping most Americans ignorant about those dynamic variables describing the "nature" of coin, credit & circulation, and their systemic importance to the general welfare of our electorate?

To fix what's wrong, it seems - 200 years later - that we still need to recruit our own aggregate to discern that misunderstood "nature," so that they may decide for themselves how to mobilize preventive efforts for future generations.

Large scale recruiting requires contact and sensible communication terms. The bulk of voters get little practical experience thinking about the fundamental impact of abstract concepts like "nature" crime, so the recruiting terms need to be tailored to the recipients.

System Crime?
Indirect Hijacking?
Choke-point Crime?
Nature Crime?

This task is beyond any of us. Gentlepeople, start your cognitive engines.

Let the naming begin.

William K. Black — The City of London is so Criminogenic That It Boggles Even Its Banking Apologists

Forget Wall Street as the global bad guy. The City is worse. Wall Street actually conducts its worst deals there because the rules and regulators are even laxer. The leaders of the UK have concluded that finance is really the only game they have left and to loose financial hegemony would be disastrous for Britain. So most anything goes.
New Economic Perspectives
The City of London is so Criminogenic That It Boggles Even Its Banking Apologists
William K. Black | Associate Professor of Economics and Law, UMKC

Conservation In The Time Of Control Fraud

(Commentary posted by Roger Erickson.)

Conservation In The Time Of Control Fraud

This is an interesting story on the role of Hank Paulson in personally funding conservation in China.

What are your thoughts while considering Hank Paulson simultaneously involved in conservation PLUS epic financial looting the last 15 years?

That brings up contradictory implications of Biblical proportions. Forget Peter, Hank's been robbing the entire US MiddleClass to pay Paulson, and apparently feels compelled to do penance by conserving some but not all habitats.

Maybe Hank's funding a private reserve for Control Frauds, so they'll never again have to get down on bended knee in front of their victims & accomplices.

Wouldn't Middle Classes everywhere do a far better job of conserving their own environments if they weren't robbed blind beforehand? No habitat for the human Middle Class?

Methinks "Herr-los" Paulson is uselessly robbing his own mirror here. He can't see the conservation for the robbery, so he vainly pursues one in order to try to personally fund the other.

Hank, Hank, Hank. Just give it a rest? NeoLiberalism is not a prerequisite for Christian Scientists.

A surprising inability to see the big picture? Or a massive, purposeful Control Fraud, and an outright traitor to his own nation, in more ways than one. So far, no court has subpoenaed Hank to find out, nor investigated him thoroughly enough to display the implications for an American ex Middle Class that has yet to decide how to respond to Hank's weirdly selective conservation efforts.

Matt Taibbi — The $9 Billion Witness: Meet JPMorgan Chase's Worst Nightmare

Maybe Matt's best yet. The smoking gun.

Rolling Stone
The $9 Billion Witness: Meet JPMorgan Chase's Worst Nightmare
Matt Taibbi

Att. Gen. Holder Talks As Though All Criminals Are Equally Bad ... Some Are Just More Equal In Impunity Than Others

   (Commentary posted by Roger Erickson)

Is this who we are? WWGW think?



Dear Att. Gen. Eric Holder,

How about leaving some WHITE COLLAR CRIME backdoors open for regulators?

For Pete's sake! Get a clue.

This guy can't see context for the mirror?

In what follows, the semantics have been blatantly translated to more relevant analogies, in an attempt to redirect the topic to protecting the innocent.

What about all the forms of BS which are locking law enforcement regulators out of understanding increasingly popular Control Fraud methods?

Surely it is fully possible to permit private enterprise to provide personal incentives while still adequately protecting aggregate options?

When a Middle Class is in danger, law enforcement and Public Policy needs to be able to take every legally available step to quickly find and protect Main Street and to stop those that abuse both the Middle Class and democracy. It is worrisome to see both Control Frauds AND public officials thwarting our ability to do so.

In his recent comments, Holder became just the latest government official to willingly be a hypocrite ... for financial gain, no matter how indirect.

Though Holder didn’t mention Goldman-Sachs or any other TBTJ banks by name, his remarks systematically avoided mentioning the documentation repeatedly offered by Bill Black since the resolution of the S&L Crisis 20+ years ago.

National, state and local citizen and law enforcement officials have complained loudly that the TBTJ banks are undermining efforts to fight White Collar Crime, including money-laundering and financial terrorism. The TBTJ's newest lobbying system, BS-8, has Congress so thoroughly bought that the lobbyists brazenly say that White Collar Crime is itself no longer illegal. Citibank's & JP Morgan's lobbying and "revolving door" system automatically began using direct and indirect incentives and re-election pressures decades ago, on all regulators and Congresspeople, unless they specifically opt into the bankster protection racket, described in unwritten agreements never intended to be released to honest citizens. (It will take months or years for reality to filter out and reach most people currently attempting to honestly participate in democracy.)

TBTJ financial industry executives have consistently said that less regulation better protects the privacy of Control Frauds by reducing the security of the Middle Class against a wide range of intrusions, by co-opted governments, White Collar criminals and Innocent Frauds on the bankster's payroll. American financial companies have been particularly eager to demonstrate their commitment to reduced citizen rights in the aftermath of the revelations by former litigation director of the Federal Home Loan Bank Board, Bill Black, detailing the extensive overreach of TBTJ financial lobbies.

Holder never bothers speaking honestly to the Global Alliance Against Financial Abuse of the Middle Class and Democracy in General, regardless of where their diverse chapters try to meet. In fact, to my knowledge he's never raised the issue of preserving civic protections from large-scale Financial Control Fraud.

Sure, recent gutting of diverse Federal regulatory agencies has already greatly emboldened White criminals, as TARP and the aftermath showed, including providing implicit guarantees for abusers to avoid detection. In a snowballing number of cases, perpetrators are using clouded policy to cheaply and easily bypass tens of thousands of lines of former legal protections that had existed for 70 years or more - and to leverage that ability to operate from anywhere in the world. It shouldn't be a surprise that many Control Frauds rush to take advantage of "regulatory encryption" and anonymizing White Collar Crime practices to conceal contraband practices and disguise perpetrator positions.

In response to all this, Holder has essentially called on all citizens to work with him to look the other way while Wall Street guts Main Street, and ensures that law enforcement ignores the ability, with court-authorization, to at least attempt to obtain enough information to even initiate White Collar Crime investigations, such as catching mega Control Frauds.

Even with the new forms of Control Fraud, government officials maintain access to many sources of data related to the execution of Elite Financial Fraud, including the records of calls, texts and other communications kept by lobbyists, Congressional staff and Public Regulators alike. Even worse are the extensive, passive collusion agreements that most regulatory agencies now take for granted, by claiming that they "can't afford to prosecute rampant White Collar Crime," resulting in paltry fines for massive frauds against Jane and Joe Sixpack. Police and District Attorneys rarely even get search warrants on which to use third-party tools to try to unravel the levels of corruption involved in on decisions to not prosecute massive mortgage frauds and other financial schemes. Courts can and often have ordered the entire Middle Class to furnish up the keys that would otherwise preserve the future of entire generations against domination by a few Super Crooks.

Capiche?

Yves Smith — Who Wins in the Financial Casino?

I received a message last week from a savvy reader, a former McKinsey partner who has also done among other things significant pro-bono work with housing not-for-profits (as in he has more interest and experience in social justice issues than most people with his background). His query:

We both know that financialization has, among so many other things, turned large swaths of the capital markets into a casino 

Here’s my thought/question: is there a house? 

The common wisdom is that the ‘house wins’ in casinos 

In all likelihood, at least in the great financial crisis, the TBTF banks were the ‘house’… yet, it’s at least a bit different from a casino house because, absent the bailouts, those banks would not have won. 

So, who or what was really the ‘house’? Was it the Fed? Did the Fed actually ‘win’? 

Maybe the ‘house’ is the 1% …. or, more precisely, the .01%???

Naked Capitalism
Who Wins in the Financial Casino?Yves Smith

CNBC.com staff — Throw away the key! Pols want bad bankers jailed

Some bipartisanship on one thing anyway.

CNBC Net Net
Throw away the key! Pols want bad bankers jailed
CNBC.com staff

Nomi Prins — The People vs. Federal Bank Settlements and Liquidity Rules

Gives new meaning to "bank robbery." The new meaning is that the bank robs its clients.

PolicyShop: The Demos Blog
The People vs. Federal Bank Settlements and Liquidity Rules
Nomi Prins

Bill Black — The Wall Street Journal’s Choleric Rant about Cholera and Bank Fraud Epidemics

Brilliantly stated takedown of Murdoch's WSJ. Who needs mathematically modeling with prose like this. Outstanding. Bill outdoes himself with this one.

New Economic Perspectives
The Wall Street Journal’s Choleric Rant about Cholera and Bank Fraud Epidemics
William K. Black | Associate Professor of Economics and Law, UMKC