William Black

From William Black: "There Are No Real Stress Tests Going On" by Yves Smith:

By way of background, William Black is a former senior bank regulator, best known for his thwarted but later vindicated efforts to prosecute S&L crisis fraudster Charles Keating. He is currently an Associate Professor of Economics and Law at the University of Missouri - Kansas City.

More germane for the purpose of this post, Black held a variety of senior regulatory positions during the S&L crisis.He managed investigations with teams of examiners reporting to him, redesigned how exams were conducted, and trained examiners.

Via e-mail, he has confirmed our suspicions about the bank stress tests announced by Treasury Secretary Timothy Geithner: they simply cannot be adequate, given the number and experience of the staff, and perhaps as important, their relationship with the banks…

Read the rest here.

From William K. Black on The Prompt Corrective Action Law by William K. Black:

My comments in the Bill Moyers Journal interview about the “Prompt Corrective Action” (PCA) law (adopted in 1991) have sparked considerable comment in the blogsphere. Here is the portion of the interview transcript that discusses the PCA law.

WILLIAM K. BLACK: Well, certainly in the financial sphere, I am. I think, first, the policies are substantively bad. Second, I think they completely lack integrity. Third, they violate the rule of law. This is being done just like Secretary Paulson did it. In violation of the law. We adopted a law after the Savings and Loan crisis, called the Prompt Corrective Action Law. And it requires them to close these institutions. And they're refusing to obey the law.

BILL MOYERS: In other words, they could have closed these banks without nationalizing them?

WILLIAM K. BLACK: Well, you do a receivership. No one -- Ronald Reagan did receiverships. Nobody called it nationalization.

BILL MOYERS: And that's a law?

WILLIAM K. BLACK: That's the law.

BILL MOYERS: So, Paulson could have done this? Geithner could do this?

WILLIAM K. BLACK: Not could. Was mandated-

BILL MOYERS: By the law.

WILLIAM K. BLACK: By the law.

I first published an article about the PCA law over a month ago entitled: “Why is Geithner Continuing Paulson’s Policy of Violating the Law?” (February 23, 2009).

Read the rest here.

I'm With Bernie

From Sen. Bernie Sanders (I-VT): Why Not Fire Failed Tycoons?

At a Senate Budget Committee hearing, Senator Bernie Sanders (I-VT) challenged Treasury Secretary Timothy Geithner on why Wall Street chief executives, such as Goldman Sachs CEO Lloyd Blankfein, have been allowed to keep their jobs.

"You have a person who made hundreds of millions for himself and he led his institution and helped cause a great financial crisis. We have put as taxpayers $10 billion to bail him out and we have no say as to whether or not he will stay on the job?" Sanders asked Geithner.

"We're not going to fire the leadership?" an incredulous Sanders persisted. "We're going to keep these same guys who caused the crisis in power and who made huge sums of money?

"I think the American people -- if they're going to pour hundreds of billions of dollars into these institutions -- want a new slate of leadership."

What a novel idea! Fire people when they screw up! Of course, how many bosses fire themselves?

Maybe The New Guy Will Get A Better Grade

From All the Wrong Policies: Paulson Gets 'F-Minus' from Former Regulator by Aaron Task:

As bad a year as the stock market is having, Treasury Secretary Paulson is having an even worse one, according to William Black, Associate Professor of Economics and Law at the University of Missouri.

The professor, who was counsel to the Federal Home Loan Bank Board during the S&L Crisis and blew the whistle on the "Keating Five" in 1989, says Paulson deserves an "F-minus" for his role in the financial crisis.

He also notes Paulson steered Goldman Sachs into subprime and alt-A mortgage securities before becoming Treasury Secretary in 2006. Goldman began shorting those instruments shortly after Paulson's departure, he notes.

The current crisis is "not a hundred-year flood, that suggests it's an act of God caused by random forces," Black says. "This was one cause by bad policies, the same policies that have caused prior crises."

From Stocks surge on Treasury chief talk by Alexandra Twin:

Stocks rallied Friday, with the Dow industrials bouncing as much as 550 points, after reports surfaced that President-elect Barack Obama will nominate New York Federal Bank president Timothy Geithner as his new Treasury Secretary.

In particular, Wall Street seemed to welcome Obama's reported pick of Geithner, the vice chairman of the Federal Reserve's policy-setting committee. Geithner was the Fed's point person on the rescue of Bear Stearns and AIG.