The MSM trumpeted that the Dow closed above 10,000 with much fanfare. The jump in the Dow was fueled by Big Banks reporting multi-billion dollar profits. These profits were generated using accounting loopholes our lapdog Congress gifted to the Banking industry.
As Foreclosures Hit All-Time High, Wall Street on Pace to Hand Out Record $140B in Employee Bonuses
JUAN GONZALEZ: And William Black, where is the outrage? It seems to me, at this stage, with the—as the foreclosures continue to escalate in numbers, and yet we’re seeing these enormous profits less than a year after the financial crisis. There doesn’t seem to be the kind of outrage, even in Congress, that there was six months or eight months ago.
WILLIAM BLACK: There’s no palpable outrage, certainly not in Congress. The reform efforts on derivatives, for example, are a scandal. They exempt virtually all of the problem derivatives, and they’re designed to exempt it. And that’s the bill that’s introduced, and of course it’s likely to get worse with additional lobbying from the special interests.
Link the things that you’ve just been talking about. You talked about foreclosures reaching record highs. But in fact, foreclosures, relative to delinquencies, are quite low compared to historical ratios. In other words, banks have tons of folks who are not paying their mortgages on time, and they’re not foreclosing. And the reason they’re not foreclosing is, once you foreclose, you have to recognize losses under the accounting rules. And the banks gimmicked the accounting rules. They put pressure on Congress, and Congress put pressure on the accounting profession to gimmick the accounting rules now about a year ago. Now, these bonuses, of course, are paid compared to alleged profits. What happens if you understate your losses dramatically? You report much higher profits and much higher bonuses. So this is a web of fraud, in which they are getting as much as they can before the place goes to hell in a handbasket again.
These are the same Banks that were bailed out with hundreds of billions of dollars from the Federal Government during their last financial train wreck. The Bankers didn't even wait for the crisis to pass before returning to the same pattern of reckless behavior that created the crisis. Leaving the same incentives in place (in the form of obscenely large bonuses for the appearance of short term profits) is now in danger of producing similarly catastrophic results.
This New York Times article is the best thing I've yet to read on the financial crisis: White House Philosophy Stoked Mortgage Bonfire
Unfortunately the financial reforms proposed in Congress have no chance of reining in the Big Bank's worst excesses.
JUAN GONZALEZ: And William Black, what is your sense of the prospects now for stronger financial regulation, given the fact that—my understanding is now that the financial and securities firms have invested about $200 million in lobbying—in their lobbying efforts in Congress, and the halls of Congress are filled with the lobbyists now who are trying to influence the members of Congress on the new regulation of the financial system?
WILLIAM BLACK: Well, the earliest effort is—should be a real wake-up call, because it’s horrible. Barney Frank has proposed legislation on financial derivatives that essentially exempts what are called over-the-counter derivatives from most regulation, and it is over-the-counter derivatives that have been a major cause of this crisis. So that’s utterly insane. There’s no conceivable justification for it. And he stacked the hearing. There were nine witnesses; eight of them were from the industry and, of course, testified that they were vital to the world. The ninth witness was the only person who was in the least bit skeptical, and he was promptly gaveled down, unlike the others, by the chair. So it’s not only a farce; they’re willing to have us see that it’s a farce. They are so little afraid of public opinion and outrage that they’re not even taking steps to cover up the cover-up.
It looks like Barney Frank is trying to create the appearance of reform without doing anything that might inconvenience the Big Banks.
It looks like Geithner calls Goldman Sachs CEO Lloyd Blankfein for his input, far more often than Geithner calls President Obama for his.
Geithner makes time to talk to Wall Street bankers
White House Philosophy Stoked Mortgage Bonfire
After all the suffering the recent financial crisis has inflicted on Americans, must we continue to suffer the consequences of having the best Government money can buy?