by William K. Black  /  August 23, 2020

“The honest appraisers’ warning was ideal.  It was timely, blunt, courageous, and unambiguous.  If the regulators had acted on the warning, there would have been no Great Financial Crisis (GFC).  Unfortunately, the Presidents Clinton and Bush (II) appointed financial regulators because they were anti-regulators, so they ignored the appraisers’ warning. “From 2000 to 2007, a coalition of appraisal organizations … delivered to Washington officials a public petition; signed by 11,000 appraisers…. [I]t charged that lenders were pressuring appraisers to place artificially high prices on properties [and] “blacklisting honest appraisers” and instead assigning business only to appraisers who would hit the desired price targets (Financial Crisis Inquiry Commission (FCIC): 18).”

Let me provide some vital context that the FCIC failed to provide, presumably because it did not actually understand the appraisers’ unambiguous warning.  As I explained, the second and third phases of the savings and loan debacle (1982-1993 and 1990-2008) were the ‘test beds’ for the fraud strategies that drove the GFC.  The first reason the appraisers got it right is that they had seen the identical fraud scheme driven by the elite thrift frauds beginning around 1980, and becoming epidemic by 1982.  The (rival) professional appraiser associations were the only organized group of industry professionals that consistently allied with us (the thrift regulators) in countering the fraud epidemics driving the thrift debacle’s second and third phases.

The appraisers were also the earliest warning because they are the essential component of one of three “C’s” of prudent underwriting – they evaluate the market value of the Collateral pledged to secure the real estate loan.  Being a secured lender protects against loss only to the extent the market value of the asset the borrower ‘pledges’ as security for the loan is adequate to repay the loan if the borrower defaults.  Appraisers are the experts in providing the market value of real estate.  Terrible underwriting is always the leading indicator of elite fraud that takes the form of what the Nobel Prize winning economists George Akerlof and Paul Romer described as “Looting: The Economic Underworld of Bankruptcy for Profit” in their famous 1993 article (which explicitly describes how appraisal fraud aided the looting of thrifts in the debacle’s second phase).


The appraisers’ warning was unambiguous because any honest lender would want accurate, conservative appraisals of the market value of real estate pledged as security.  No honest lender would permit, much less incentivize, wildly inflated appraisals. Appraisal fraud through extortion is a federal felony.  It is also inherently part of a broader conspiracy allowing a host of additional federal felony charges, particularly if the lender is federally insured. The appraisers’ warning is also unambiguous about the source of the fraud epidemic. Borrowers can almost never extort an appraiser to inflate values.  Only lenders and their agents have the power to extort appraisers.  Note that this does not require “market power” in the sense that term is used in antitrust cases.

The appraisers’ warning illustrates one of the most toxic forms of elite fraud – what George Akerlof labeled a “Gresham’s” dynamic in his famous 1970 article on a “market for lemons.”  That article transformed, indeed defines, modern microeconomics and white-collar criminology’s analysis of elite fraud epidemics.  Akerlof warned that when frauds gain a competitive advantage market forces become perverse and tend to drive honesty from the markets, making fraud epidemic in entire industries. “Dishonest dealings tend to drive honest dealings out of the market. The cost of dishonesty, therefore, lies not only in the amount by which the purchaser is cheated; the cost also must include the loss incurred from driving legitimate business out of existence.”

Effective financial regulation and prosecutions do not harm honest markets – they make them possible and durable.  Honest firms and CEOs gain enormously when we drive the elite frauds from the markets. Bank CEOs incentivize their employees and agents to extort appraisers to inflate market values only if their goal is to loot the bank.  Inflating appraisals unambiguously leads to a near certainty of bank failure, but it leads to a near certainty of sharply increase income for the CEO.

The appraisers who signed the public petition were risking their careers.  They made it simple for fraudulent lenders and their agents to identify and refuse to employ the honest appraisers.  The appraisers’ warning, therefore, required great integrity and courage.  There was no reason for appraisers to fabricate their warning. The appraisers’ warning was even earlier than FCIC reported.  It takes years to get rival professional associations to agree there is a crisis, agree on a common strategy to redress the crisis, and implement the common strategy.

The appraisal associations began these serious efforts in 1998 (in the middle of the Clinton-Gore administration’s second term).  This is critical because each of the four federal banking and thrift regulatory agencies in this era had a chief appraiser who would have been aware of the profession’s consensus that appraisal fraud had become epidemic and was driven by fraudulent lenders.  That was a full decade before the onset of acute phase of the GFC in 2008.  If any of the federal agencies had responded effectively by championing the appraisers’ warning there would have been no GFC.  Each of the federal banking and thrift regulatory agencies knew by 1998 that an epidemic of mortgage fraud led by banking elites was raging in the home mortgage industry.”

[“Bill Black is an Associate Professor of Economics and Law at the University of Missouri – Kansas City (UMKC). He was the Executive Director of the Institute for Fraud Prevention from 2005-2007. He has taught previously at the LBJ School of Public Affairs at the University of Texas at Austin and at Santa Clara University, where he was also the distinguished scholar in residence for insurance law and a visiting scholar at the Markkula Center for Applied Ethics.

He was litigation director of the Federal Home Loan Bank Board, deputy director of the FSLIC, SVP and General Counsel of the Federal Home Loan Bank of San Francisco, and Senior Deputy Chief Counsel, Office of Thrift Supervision. He was deputy director of the National Commission on Financial Institution Reform, Recovery and Enforcement.

Black developed the concept of “control fraud”–-frauds in which the CEO or head of state uses the entity as a “weapon.” Control frauds cause greater financial losses than all other forms of property crime combined and kill and maim thousands. He recently helped the World Bank develop anti-corruption initiatives and served as an expert for OFHEO in its enforcement action against Fannie Mae’s former senior management.

He teaches White-Collar Crime, Public Finance, Antitrust, Law & Economics (all joint, multidisciplinary classes for economics and law students), and Latin American Development (co-taught with Professor Grieco, UMKC – History).”]

An Idiot’s Guide to Prosecuting Corporate Fraud
by / February 4 2016 

“Say you’re the newly elected president of the United States, and you want to make prosecuting corporate crime a top priority. Where do you start? Here would be good. A new group called Bank Whistleblowers United have just pushed out a comprehensive plan they think would put the executive branch back in the business of enthusiastically identifying, indicting, and convicting financial fraudsters — restoring accountability while protecting the public.

The cumulative credibility of the group’s four founders is extremely strong. Richard Bowen is the Citigroup whistleblower who unsuccessfully warned top management about the rotten condition of loans inside mortgage-backed securities. Michael Winston spoke out about similarly corrupt practices at non-bank mortgage originator Countrywide. Gary Aguirre, a Securities and Exchange Commission attorney, was fired for refusing to let a Wall Street banker out of an insider trading investigation.

And their ringleader is William Black, an outspoken fraud-fighter and longtime white-collar criminologist who was a two-fisted bank regulator during the savings and loan crisis and now teaches at the University of Missouri–Kansas City (UMKC). “The common theme,” Black said with characteristic bluntness, “is the unbelievably pathetic job of the Department of Justice and the FBI.” One of the first steps the group proposes – echoing the recommendations Senator Elizabeth Warren made last week – involves appointing aggressive leadership at federal agencies with no conflicts of interest with the entities they regulate, and hiring enough staff trained in criminology and financial fraud to attack the problem. “You don’t have to reinvent the wheel,” said Black. “The Justice Department forgot there was a wheel.”

The template for the plan is the saving and loan crisis of the late 1980s, when just one federal agency, the now-defunct Office of Thrift Supervision (OTS) issued over 30,000 criminal referrals and over 1,000 major bank executives went to prison. By comparison, in the 2008 financial crisis, OTS and their bank regulator counterparts made zero outside criminal referrals on financial crimes. And more recently, the rate of corporate prosecutions has been pathetic. The whistleblowers would restore a job position from that earlier era: Criminal referral coordinators at every federal agency to meet with their counterparts in law enforcement to press for prosecutions and continually improve the process. They would also issue monthly referral reports to make the process more transparent. George W. Bush eliminated criminal referral coordinators in his first term.

Federal agencies would also be required to create a “Top 100” list of elite fraud schemes in their jurisdiction, borrowing another successful technique from the S&L crisis. These top 100 schemes would hold priority over small fry prosecutions that look good on a tally of convictions but don’t attack the most damaging fraud. “When we created the Top 100 project,” said Bill Black, “the assistant U.S. attorney had to report every month to someone who got on your ass if the cases weren’t progressing.” Black says the Top 100 list led to prosecuting 300 savings and loans and 600 officials. “And despite the banks having the best lawyers in the world, we still got a 90 percent conviction rate.”

The proposal would end the emphasis on deferred prosecution agreements that let corporations and individuals get away with paying a fine or agreeing to independent monitoring instead of facing a criminal conviction. It would end prosecutions of mortgage fraud “mice” – cases against people who defraud banks – and transfer the resources to financial fraud “lions” – when banks defraud people. It would end an existing partnership with the Mortgage Bankers Association trade group. “In essence,” the Bank Whistleblowers Group writes, “DoJ has made itself the collection agency for the worst criminal enterprises in the nation.”

The whistleblowers even believe that quick action could lead to immediate indictments. For instance, they call for the public release of the still-secret reports from Clayton Holdings, a third-party due diligence firm that tested mortgage loans from practically every major bank during the housing bubble, and told the banks that 1 in 3 were improperly made. Financial Crisis Inquiry Commission chair Phil Angelides this week identified the Clayton reports as the key to a “last chance for justice.” The statute of limitations on the final securitizations doesn’t end until 2017. “It’s already baked in that this will be the biggest strategic failure of DOJ in history,” said Black. “But they could still indict the top ten frauds.”

Another novel technique would be to impose individual minimum capital requirements (IMCRs) commensurate with the risk banks pose based on their size, activities, and compensation systems. The whistleblower group believes that banking regulators have had the authority to do this since 1989 if they make a factual finding that it would prevent systemic risk. Black said the capital requirements would shrink the size of institutions, because being big would become considerably less profitable. “If you assessed this on an actuarial basis based on risk, the capital requirement would be so high that nobody would do it,” he said.

As a banking regulator in the 1980s, Black famously blew the whistle on the “Keating Five” Senators who tried to intimidate him into ending the federal takeover on Charles Keating’s Lincoln Savings Bank. He has assisted the governments of France, Iceland, and Ireland on how to prosecute fraud epidemics. Only in the United States have his efforts been rebuffed. “All the candidates claim they’re going to take on Wall Street, we take them at their word,” Black said. “This is how you move it from verbiage. Even the most conservative candidate should be eager to sign on to most of the plan.” A separate pledge attached to the group’s plan would have candidates vow to not take campaign contributions from any financial firm charged with committing fraud. Officers of the firm would be limited to contributions of no more than $250.

The group also asks the Justice Department to be a little more respectful of financial-fraud whistleblowers like themselves in the future. “There hasn’t been a single press conference where [DOJ] has thanked the whistleblowers or even identified them,” Black said. “If you wanted to encourage the rule of law, you would praise them as opposed to claiming credit for their work. My mom drilled into me, when people do nice things, say thank you.”

Hundreds of Wall Street Execs Went to Prison During the Last Fraud-Fueled Bank Crisis
by Joshua Holland / September 17, 2013

“September 15th marked the fifth anniversary of Wall Street giant Lehman Brothers going into bankruptcy, which precipitated the Great Recession that lingers on today — it remains the largest bankruptcy in U.S. history. To date, no executives have faced prosecution for the widespread mortgage fraud that fueled the bubble. Moyers and Company caught up with a man who knows a lot about fraud — and fraud prosecutions — to explain why that is, and what the possible consequences of letting Wall Street off the hook might be. William K. Black, now a professor of law at the University of Missouri at Kansas City, is a former bank regulator who played an integral role in throwing a number of high-level executives in jail for white-collar crimes during the savings and loan crisis in the 1980s. We spoke with Black by phone. A lightly edited transcript of our discussion is below.

Joshua Holland: To date, a few loan officers — small fish — have been convicted of various offenses related to the financial crash. But none of the big bankers have faced any charges. And it’s not that the government has been losing cases in the courts. There’s simply been no concerted effort to prosecute these guys. Can you contrast that with what happened during the savings and loan scandal of the 1980s, and also give us your sense of why this has been the case?

William Black:  Sure. The savings and loan debacle was one-seventieth the size of the current crisis, both in terms of losses and the amount of fraud. In that crisis, the savings and loan regulators made over 30,000 criminal referrals, and this produced over 1,000 felony convictions in cases designated as “major” by the Department of Justice. But even that understates the degree of prioritization, because we, the regulators, worked very closely with the FBI and the Justice Department to create a list of the top 100 — the 100 worst fraud schemes. They involved roughly 300 savings and loans and 600 individuals, and virtually all of those people were prosecuted. We had a 90 percent conviction rate, which is the greatest success against elite white-collar crime (in terms of prosecution) in history.

In the current crisis, that same agency, the Office of Thrift Supervision, which was supposed to regulate, among others, Countrywide, Washington Mutual and IndyMac — which collectively made hundreds of thousands of fraudulent mortgage loans — made zero criminal referrals. The Office of the Comptroller of the Currency, which is supposed to regulate the largest national banks, made zero criminal referrals. The Federal Reserve appears to have made zero criminal referrals; it made three about discrimination. And the FDIC was smart enough to refuse to answer the question, but nobody thinks they made any material number of criminal referrals [either].

And what people don’t understand about the criminal justice system is there are roughly a million people employed in it — and of course, millions incarcerated in it. But of the million employees, 2,300 do elite white-collar investigations. And of those 2,300, you have to contrast that to the number of industries in the United States, which is over 1,300. Notice I didn’t say ‘corporations,’ I said ‘industries.’

So a couple of things should be obvious. First, the FBI agents will not have expertise in the industry. And second, they can’t patrol the beat. They have to wait until a criminal referral comes in, and won’t come from the bank itself. Banks don’t make criminal referrals against their CEOs. It could episodically come from whistleblowers, but against an epidemic of fraud that can never work. It has to come overwhelmingly from the regulators. So when the regulators ceased making criminal referrals — which had nothing to do with an end of crime, obviously; it just had to do with a refusal to be involved in the prosecutorial effort anymore — they doomed us to a disaster where we would not succeed.

Back in the savings and loan crisis, people like me — and I did this personally a great deal of my time — trained not only our regulators, but also the FBI agents and assistant U.S. attorneys on how to identify fraud schemes, how to respond to them and how to document them. We also detailed our top examiners on the most complex frauds, so that they worked for the FBI as their internal experts, and then people like me testified as expert witnesses. And, again, we had prioritized so we were going against the absolute worst of the worst and most senior of the people. None of those things have happened now.

Because of changes in executive compensation, it’s very uncommon for people to blow the whistle in the modern era. What people often don’t understand is that executive compensation bonuses go down very low in the food chain. And so if I’m a boss and I see a crime being committed, it isn’t just that I risk losing my bonus, it’s that Fred and Mary who report to me — Fred with three kids about to go to college and Mary with a kid that has severe problems — they’ll lose their bonuses as well. And so it’s not even my greed — it’s my altruism that gets in the way.

And then the administration has never — both the Bush and the Obama administrations — made a call for the good people to come forward, the ones who fought against the frauds and were disciplined because they did so. And the Frontline special that investigated this found that as soon as word got out, they were deluged with people giving them information, and the common characteristic Frontline found was that the FBI had never even talked to them. And of course, the Obama administration has been having an unholy war against whistleblowers.

Holland: It almost sounds like — if I could offer an analogy — if you were trying to prosecute homicides and you had no police on the streets, no homicide detectives and no snitches, your hands would be tied, even if you were a tenacious prosecutor with some ambition.

Black: It’s actually far worse than that, because as a prosecutor of those kinds of cases, I end up with a corpse that has a small entry wound and a large exit wound, and I know there’s been a homicide. I can use forensic evidence to go after those people, even in the absence of witnesses. No such things occur in the elite white-collar sphere. Instead, the lenders were making criminal referrals against the little guys — the hairdressers of the world. And they made hundreds of thousands of them.

So at the peak of the savings and loans crisis — again, one-seventieth the size of this crisis — of those 2,300 total FBI agents, 1,000 of them were working on just one industry, the savings and loan industry, to produce that incredible wave of success that we had. As recently as fiscal year 2007, there were only 120 FBI agents assigned to mortgage fraud, and that’s despite the fact that the FBI itself, in September 2004, warned that there was an epidemic of mortgage fraud — ‘epidemic’ was their word — and predicted that it would cause a financial crisis — ‘crisis’ was their word — unless it was stopped. So what happens instead?  You get tens of thousands of criminal referrals about the small fish. And so every single one of those 120 FBI agents was working those cases.

Holland: Unbelievable.

Black: And there was no national task force. They were divided up into what the military would call “penny packets” — two in this office, three in this office, that type of thing. So there was no conceivable way that they would find fraud at the large institutions, because they never looked.

And actually, that same year, in 2007, the FBI forms what it calls a partnership with the Mortgage Bankers Association — the trade association of the perps. The Mortgage Bankers Association set out — imagine the audacity — to con the FBI, and they succeeded! They ginned up this fake definition of mortgage fraud under which the lending institution was always the victim and never a perpetrator. The FBI bought into this hook, line, sinker and the boat they rode out in.

So we have the incredible anomaly of the first African-American president of the United States of America, with an African-American attorney general, Mr. Holder, adopting the tea party definition of the crisis, which says that the banks were pure and this is the first virgin crisis, conceived without sin in the executive suites. Instead it’s those nasty ultra-sophisticated hairdressers who conned the poor unsophisticated bankers from Harvard and Columbia and NYU to cause this crisis.

Holland: Right. Conservatives are convinced that the Community Reinvestment Act played a major role, despite a dozen studies showing that it did not, and it’s like a zombie myth. You can stab it and you can shoot it and it just keeps walking.

Black: Look at liar’s loans — these are the loans where you don’t verify the borrower’s income, and the industry’s own experts said that these loans were 90 percent fraudulent. Study after study after study has shown that it was the lenders who put the lies in liar’s loans — the lenders and their agents — and nobody ever made a bank make a liar’s loan. It has nothing to do with the Community Reinvestment Act. Because the purpose of it is to inflate the borrower’s income, it takes you out of Community Reinvestment, and no entity — and this includes Fannie and Freddie — was ever required to purchase a liar’s loan. In fact, [liar’s loans] didn’t qualify as credit for affordable housing goals because you didn’t verify the borrower’s income.

So after all these warnings from the industry’s own anti-fraud experts about them being 90 percent fraudulent, and the fact that even the Bush Administration anti-regulators said, “Don’t do these things,” the industry, between 2003 and 2006, increased liar’s loans by over 500 percent. By 2006, 40 percent of all the home loans made that year and half of all the loans called “subprime” were liar’s loans. Remember, there’s a 90 percent fraud incidence in all of this. That means there were over two million fraudulent loans made in 2006 alone.

Now, that’s one way of looking at it, but even more stark is, in the year 2000 — we are talking about over 13 years ago — the group of associations of honest appraisers created a petition and circulated it widely throughout Washington, D.C. and the industry. They went to all the regulators and prosecutors in the industry — it was eventually signed by over 11,000 appraisers. And the appraisers, here’s what they said: ‘There is an epidemic of lenders who are extorting us to inflate the appraisal, and when we refuse to do so, they blacklist honest appraisers and refuse to use them in the future.’  Now, note the date again: 2000. This is over a year before Enron hits. In other words, we got a warning about this crisis before Enron failed.

Okay, so what can we figure out from that?  Number one: it’s coming from the lenders. Number two: no honest lender would ever inflate an appraisal, because the appraisal is your great protection against loss. So, three: the lenders are inflating the appraisal for a reason, which is to cover up losses on the underlying mortgage fraud that they’re also engaged in. Number four: these loans are being sold in the secondary market, so we know that the fraud is propagating through the system. And the only way you can sell to the secondary market is by making what we call “representations and warranties.” And of course you can’t make a rep and warranty that says, “Hi, I’m selling you a fraudulent product.”

You can only sell a fraudulent loan through fraud, and there’s no fraud exorcist, so fraud has to go through the system and it has to come out the other end when they sell the CDOs — the collateralized debt obligations — and the mortgage-backed securities. The Home Ownership and Equity Protection Act of 1994 allowed the Federal Reserve, and only the Federal Reserve, to stop liar’s loans at any time. First Alan Greenspan and then Ben Bernanke refused to use this authority. Bernanke, finally, under congressional pressure, used this authority on July 14, 2008, to kill liar’s loans. But even then, he delayed the effective date of the rule by 15 months, because you wouldn’t want to inconvenience a fraudulent lender.

Holland: Unbelievable. Just unbelievable. Let me ask you this: Up until the dot-com bubble burst in 2000, the size of the financial services industry grew and shrank along with the larger economy. It moved more or less with the business cycle. When the economy was booming, finance grew as businesses needed more loans and people wanted to buy big ticket items. And then when we were in a recession, it tended to shrink. But that never happened after the dot-com bubble burst. Finance was about 8 percent of our economy and it stayed that way until today — it had little ups and downs, but the trend line has been pretty consistent. Bill, finance made up less than 3 percent of our economy in 1950. What does this say about where we are today economically?  What does this tell you?

Black: It tells us that the tail wags the dog, and that it wags the dog into recurrent crises. So it’s like a diseased tail. A tail is of course designed for balance and it’s supposed to help things right themselves. This tail throws folks into the ditch. In addition to the numbers you gave, the percentage of all corporate profits that go to finance is now back up to roughly 40 percent. That is staggering. It should be small, and you should be trying to minimize it, and it should have very low returns overall in your economy. It’s all about power. And it is not just economic power — it’s political power. This is the modern face of crony capitalism. It is the great threat, not just to our economy, but also to our democracy. That’s particularly true in a Citizens United world, in which these banks can use their political power to drive what we’ve seen. I could’ve never imagined that in my lifetime an administration would actually say that there were entities too big to prosecute.

Holland: Right. “Too big to jail.”

Black: Right, too big to jail. I actually developed that phrase before this as a way of trying to embarrass the administration. But I’ve given up. They’re beyond the ability to embarrass. They adopted the phrase.

Holland:  Bill, let me ask you this — and I guess I’m shifting gears here just a little bit. What does the term ‘moral hazard’ mean, and how do you think the fact that we didn’t prosecute any bankers — and that we bailed out the industry — will affect Wall Street’s behavior going forward?

Black:  Moral hazard is a concept that developed originally in insurance and was quickly applied to banking as well. It says when there’s a real asymmetry between risk and reward, you can produce either fraud or wildly imprudent risk, or both, and that either of these things in the banking context can lead to disastrous financial consequences. Even though we have known for centuries that this produces what we who study criminality now call “control fraud” — when the people who control a seemingly legitimate entity use it as a weapon to defraud — suddenly when they get to moral hazard, neoclassical economists only talk about risk. They ignore the fraud component, which is a leading cause of the most catastrophic bank failures and bank crises.

Holland:  And they also only talk about it for the little people defrauding the banks.
Black: Right, the hairdressers.
Holland: The hairdressers. They’re the ones we have to worry about.

Black:  Yes, and the FBI and the Justice Department are the brave, virtuous people who are protecting the poor innocent bankers from the blood lust — I am quoting, by the way, the Washington Post — “the blood lust of the public” that wants to go after these poor innocent bankers. And fortunately, we live in a country like America, where the lawyers or the Justice Department are unwilling to be so unjust as to follow the crass prejudices of the public.

The failure to prosecute under any theory of economics and any theory of criminality means that the next crisis is far more likely, and that it’s going to be far larger, because this accounting control fraud recipe is a sure thing that guarantees that you will be made wealthy immediately as the controlling officers, and there will be no risk — zero. Not a single elite banker who caused this crisis is in prison, period. So you have absolutely maximized what we call a “criminogenic environment,” and a key element of that, as you say, is that we have taken moral hazard — the fraud dimension — and maximized it.

Holland: My final question is, very briefly, about the regulatory response we did get following the crash. Dodd-Frank has been hailed as a significant new reform by some; it has been panned as a watered down nothing-burger by others. Does the truth lie somewhere in between, and how much risk remains in this system?

Black: Right now, less risk is apparent because the economy is so crippled. Once we get back to a boom, the bad stuff will reemerge. So the good news/bad news about the weak recovery is that it’s slowing down the next crisis by continuing the current crisis. Dodd-Frank doesn’t address any of the three central elements that create the criminogenic environment — that produce the recurrent, intensifying epidemics of control fraud that drive our ever-worsening crises. Those three elements are, first, the creation of the systemically dangerous institutions — the so-called “too-big-to-fail” firms. And the administration won’t even begin to be honest about them. It calls them “systemically important,” like they deserve a gold star. But their definition is when — not if, but when — the next one fails, it will, like Lehman, cause a global financial crisis.

These institutions are too big to manage effectively, so there would be a complete win-win-win-win were we to force the shrinkage of the systemically dangerous institutions down to the point where they no longer endanger the global economy. We would, first, reduce global systemic risk. Second, we would make markets far more efficient. Even conservatives say that when there’s a systemically dangerous institution, free markets are a myth, and their metaphor is that it’s like bringing a gun to a knife fight when they compete against anyone else. So we would have better markets. We’d have more efficient banks, because these are too big to manage, and we would remove crony capitalism, one of the leading threats to our democracy. Dodd-Frank doesn’t deal effectively at all with the systemically dangerous institutions. Its idea is to keep them around, which is nuts.

Second big thing is modern executive compensation, which creates the perverse incentive structures and is the means of looting that the CEOs use. That has gotten worse since the crisis and there is nothing effective in Dodd-Frank dealing with either executive or professional compensation. The third area is what we call the three Ds. These are deregulation, de-supervision and de facto decriminalization. We’ve already talked about decriminalization, so that’s as bad as it can get. No prosecutions.

Deregulation, that’s slightly been reversed. We have banned liar’s loans. We have created a new consumer bureau that, you know, time will tell whether it can be effective. But that’s pretty much it in terms of regulation. There’s stuff on the Volcker Rule, and we still don’t know whether it’s going to get out of the industry’s embrace, but we certainly know they’ll be able to evade it under Dodd-Frank. So, deregulation, a little plus, but nothing to brag about. De-supervision is still disastrous. We still have the Holders of the world refusing to prosecute, we still have anti-regulators in most of the agencies. So de-supervision?  Boy, we’ve still got that in spades.”