Economic Crisis’ Cause: Screwiness Or Criminogenics?

English: Brooksley Born
English: Brooksley Born (Photo credit: Wikipedia)

Posted October 23, 2013

by Jerry Alatalo

“Money, money, money, monnn-ney… MON-ey.”  So goes the song by the Motown musical group The O’Jays, “For The Love of Money”, which came to the radios in the 70’s. To be honest, there are times when one wishes money were never created. Can’t Public Banking become implemented now as the new monetary system and replace the old debt-based, private-controlled central banking model? Well, they say patience is a virtue.

In this post we will find a large contrast in views between former Federal Reserve Chairman Alan Greenspan and Law and Economics Professor William K. Black of the University of Kansas City-Missouri. The very obvious contrast points to, in my mind, an intentional effort by those at the highest levels of management at the Federal Reserve to obfuscate or confuse the people.

In the first video (thanks to Kevin @ YouTube) we find Alan Greenspan on October 22 Daily Show with Jon Stewart. Mr. Greenspan”s book “The Map and the Territory” just came out, and he talks with Stewart about “what went wrong” in the events leading up to the 2008 economic crisis. In my opinion Greenspan speaks in a vague, hazy kind of way filled with generalizations.

The first few minutes before Alan Greenspan walks on are about glitches/problems with internet enrollment in the so-called Obamacare program, good for a few laughs.

Mr. Greenspan says “we” didn’t see it coming-that we thought banks would be better stewards of their capital, that they (the bankers) didn’t understand the risks out there. He goes on to say that markets do “weird” things, and that people are sometimes a little “screwy”. He said that we always thought that the “screwiness” would wash out. First, can the former Chairman of the Federal Reserve be any more vague and non-specific than, in effect, blaming the worldwide economic crisis on “screwiness”?

He goes on to “identify” the problem: in 1970 the New York Stock Exchange made some change that allowed broker/dealers to incorporate, which led to risk-taking that would not have occurred if the partnership arrangements were kept as the majority of brokers and dealers’ relationships-equity would have been protected. Mr. Greenspan suggests the easiest thing to do is increase capital requirements because, when banks fail it “rumbles through the system”.

He goes on to say “that those of us who look at that sort of “stuff” (totally lacking specificity) recognize…” He sums it up by saying that if there is enough regulatory capital, “then they can do a lot of things which you shouldn’t be able to…which you shouldn’t worry about.” I am still trying to determine if, when he said “shouldn’t be able to” and “which you shouldn’t worry about”, this was a sort of gaffe. Did Mr. Greenspan start that sentence and almost say “which you shouldn’t be able to do”, thereby admitting that fraud and criminality will continue even with increased capital requirements, his idea of an easy fix? Has retirement dulled his ability to obfuscate and confuse on his feet, where before he never had to stop in mid-sentence and correct himself?

Mr. Greenspan mentions zero, nada, zilch about the frauds and corruption, or his dealings with Brooksley Born, head of the federal regulatory agency overseeing derivatives, and her very urgent call to regulate the multi-trillion dollar, unregulated derivatives trading transactions-which were a major factor in the economic crisis-and which Born’s suggested regulation Greenspan, Larry Summers and others fought and blocked. Find the essential, astonishing Frontline episode “The Warning” which reports on Brooksley Born and her unsuccessful battle to regulate derivatives trading.

Alan Greenspan and Ben Bernanke are “Wizard of Oz” characters, the men behind the black curtain, who have used smoke and mirrors, obscuration, confusing, overly complex economic blather, and banking jargon as they are high-paid managers for the ultra-rich owners of the Federal Reserve Bank.  Ivory Tower economists who don’t mention the “downsizing” and “workforce reductions” which led to millions of American jobs sent to Mexico and China for low-wage workers. They are Ivory Tower economists who assert that Americans aren’t working because “entitlement programs are too generous”, calling on governments around the world to begin “austerity measures” so that their bosses, the owners of privately owned central banks get paid the principal plus interest.

Contrast Alan Greenspan to Bill Black.

In 2011 Bill Black received an invitation to speak before Congress as part of a panel of experts on the issue of derivatives. He accepted the invitation. Shortly before the panel convened and was ready to speak to Congressmen, Mr Black was “disinvited” because, he was made aware in email communication, he was going to “bash banks”, be “confrontational”, and may “cause damage to the reputations of banks”.

Before this he had testified five times, before both Democrat and Republican committees, about fraud, banking and regulatory matters. He has over thirty years of experience in law, white-collar crimes and economics, and led the effort to convict around a thousand savings and loan executives in the bank crisis of the 1980’s. Mr. Black says that the 2008 crisis is the biggest in 75 years, the economies of America and Europe have suffered devastation, and nothing fundamental has changed.

Mr. Greenspan failed to note in his conversation with Jon Stewart, as Mr. Black does here, that millions of fraudulent “liars loans“, 40% of the mortgages made, were largely responsible for the crisis. Bill Black emphasizes that “liars loans” are fraud and they are crimes. Mr. Greenspan must have missed the “liars loans” meetings.

Mr. Black quotes Mr. Greenspan when he spoke to Brooksley Born about her push for the regulation of derivatives, “I don’t think there is any need for laws against fraud. The market will take care of itself”.

So, was the 2008 crisis caused by, as Alan Greenspan put it, “screwiness”, or as Bill Black sees it, “criminogenics”?

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7 thoughts on “Economic Crisis’ Cause: Screwiness Or Criminogenics?

  1. Interesting post!
    The fact is that whenever there are large sums of money involved, rest assured that there will be some sort of criminal activity, be it fraud, money laundering, some sort of racketeering. People are greedy, that is another fact and why would anyone think that greedy bankers would adhere to some sort of ethics code when they have a history of engaging in unethical behavior? Regulate themselves? Yeah, right! That’ll work.

    Deregulation played a huge role in what we see today, not only in the banking industry, but also in every other aspect of our lives including but not limited to the services that we get, i.e., telephone, gas, electric, cable. At one point, competition was encouraged and that is why laws were in place to ensure against monopolies, but with deregulation, monopolies were born. Banks started acquiring smaller banks through mergers(as did other industries) and the next thing you know, many small, local banks where a person once could walk through the door and know the banker and a handshake would seal the deal(if you weren’t Black of course or some other minority), were gone. Nowadays, you’re a credit score and if you have too many liabilities and red flags against you, you maybe considered a high risk that would make your interest rate go through the roof if you are trying to obtain a loan. It is all a racket and Greenspan knows it. That is one reason why he was hemming and hawing and being as vague as possible in case he might say something that he shouldn’t.

    And don’t forget Bernie Madoff. He stated that the SEC had him on their radar and that with just a little bit of digging, they could have exposed him for the crook he was long before he actually got caught out. But there is this thing called, ‘white collar’ crime and those who engage in a little ‘white collar’ racketeering almost never see the inside of a prison cell. They know that because they have the money and with the banks being ‘too big to fail’, they hold a never-to-expire, ‘get-out-jail’ free card. Nothing is going to change that as you can see with the vagueness displayed by Greenspan who of course, is all in the know.

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    1. Shelby,
      Alan Greenspan’s talking about some 1970 Stock Exchange rule change totally missed, confused, and obscured reality. You may remember the post “Chasing Ben Bernanke” where he was on a 50+ minute video and was undecipherable the entire 50+ minutes. Time to end the Fed and implement public banking-fraud-free, government control of the money supply as a public utility. The centuries old scam by the ultra-rich central bank owners must end.
      Thank you,
      Jerry

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    1. Tanya,
      How are you. At risk of sounding like a simpleton money is obviously a huge issue for humanity, there are theories of monetary systems, and those systems which do the least harm (Public Banking) should be implemented. The major criterion is the measure of total harm and total benefit that humanity will experience through implementation of a monetary system.
      Thank you,
      Jerry

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    1. Henry,
      How are you. Yes, I am a huge fan of Bill Black and can’t come up with enough superlatives. Every person with an interest in knowing “the real deal” of the financial industry should get to know Bill Black.
      Thank you,
      Jerry

      Like

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