William K. Black on ‘Financial Racketeering;’ Government Coverup; a 250% Tax Increase
by ilene - August 13th, 2010 4:05 pm
William K Black on ‘Financial Racketeering;’ Government Coverup; a 250% Tax Increase
Courtesy of JESSE’S CAFÉ AMÉRICAIN
The interview with William K. Black starts at 13:00 in this video and is well worth seeing.
Gresham’s Dynamic: The least ethically inclined have an advantage in the US financial system (in which regulatory capture nullifies enforcement) driven by perverse incentives of oversized bonuses and the failure to investigate and prosecute criminal activity.
In addition to the overhang of unindicted and undeclared fraud that is still in place, distorting the clearing of the markets, there is the issue of an imbalanced economy in which an oversized financial sector exacts what amounts to a draconian tax on the real economy, that is, fees and tariffs and other unproductive drains in excess of anything that the government is levying.
What Do You Get for a 250% Tax Increase?
As I recall the percentage of financial sector profits to corporate profits recently peaked at 41%, from a long run average of less than 16%. Granted, this is a bit theoretical because of the pervasive accounting fraud in the banks and the corporations.
I wonder what the percentage of profit, pre-bonus, is being enjoyed now?
This can be viewed as a form of a tax. If the government raised taxes from 16% to 41% what do you think the impact on the US economy would be? And yet there is little discussion of this, or the racketeering that accompanied such a festival of looting.
Yet conceptually this is what has been accomplished through the deregulation of the banks and the repeal of Glass-Steagall, and of course, regulatory capture. The financial sector acts primarily as a capital accumulation and allocation system, and secondarily to facilitate wealth transferals through pure investment and speculation, the famous school of winners and losers. I would suggest that this latter function has grown out of control like a cancer, and metastasized to drain and debilitate the better part of the political system and the non-financial economy.
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I would suggest that this system is broken, and that there can be no sustainable recovery until it is fixed. How can confidence return when most of those in the know realize that the fraud is still in play? Who can take positions with confidence in such a corrupt…
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How the Servant Became a Predator: Finance’s Five Fatal Flaws
by ilene - October 15th, 2009 12:36 pm
Here’s an excellent, must-read article by William K. Black. Special thanks to New Deal 2.0. - Ilene
How the Servant Became a Predator: Finance’s Five Fatal Flaws
By Bill Black, Courtesy of New Deal 2.0
Roosevelt Institute Braintruster William K. Black explains how the finance economy preys on the real economy instead of serving it. He shows how both have become dysfunctional and warns that we must not neglect the real economy — the source of our jobs, our incomes, and the creator of goods and services — as we focus on financial reform.
What exactly is the function of the financial sector in our society? Simply this: Its sole function is supplying capital efficiently to aid the real economy. The financial sector is a tool to help those that make real tools, not an end in itself. But five fatal flaws in the financial sector’s current structure have created a monster that drains the real economy, promotes fraud and corruption, threatens democracy, and causes recurrent, intensifying crises.
1. The financial sector harms the real economy.
Even when not in crisis, the financial sector harms the real economy. First, it is vastly too large. The finance sector is an intermediary — essentially a “middleman”. Like all middlemen, it should be as small as possible, while still being capable of accomplishing its mission. Otherwise it is inherently parasitical. Unfortunately, it is now vastly larger than necessary, dwarfing the real economy it is supposed to serve. Forty years ago, our real economy grew better with a financial sector that received one-twentieth as large a percentage of total profits (2%) than does the current financial sector (40%). The minimum measure of how much damage the bloated, grossly over-compensated finance sector causes to the real economy is this massive increase in the share of total national income wasted through the finance sector’s parasitism.
Second, the finance sector is worse than parasitic. In the title of his recent book, The Predator State, James Galbraith aptly names the problem. The financial sector functions as the sharp canines that the predator state uses to rend the nation. In addition to siphoning off capital for its own benefit, the finance sector misallocates the remaining capital in ways that harm the real economy in order to reward already-rich financial elites harming the nation. The facts are alarming:
• Corporate stock repurchases…
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Citi Takes Billions in Taxpayer Bailout Money, Then Focuses on Lending to Those Who Don’t Really Need Loans
by ilene - September 25th, 2009 4:15 pm
Citi Takes Billions in Taxpayer Bailout Money, Then Focuses on Lending to Those Who Don’t Really Need Loans
Courtesy of George at Washington’s Blog
The Wall Street Journal reports:
Executives at the New York company plan to narrow the focus of Citigroup’s U.S. branch network to six major metropolitan areas, according to people familiar with the situation. Citigroup also will limit its overall consumer lending in the U.S. primarily to credit cards and "jumbo" mortgages, while catering largely to affluent customers.
Huffington Post writes:
Citigroup, which has received $45 billion in TARP funds — in addition to billions in government asset guarantees — has come up with a brash tax-payer funded restructuring plan: cut U.S. locations and limit most lending to only the wealthy.
Actually, Citigroup got a "secret $230 billion bailout", according to Congressman Alan Grayson.
In any event, as we have been writing for a year, the bailouts won’t do anything to increase loans to those who really need them – average individuals and small businesses. Indeed, just today, the bailout’s Special Inspector General – Neil Barofsky – said that the Troubled Asset Relief Program has failed to increase bank lending. And that, in turn, may mean that the economy won’t recover any time soon.
As Huffington Post puts it:
For U.S. taxpayers, however, the larger question is why taxpayer money should have gone to a bank that is now looking to severely scale back both its lending and retail presence.
Read more at: http://www.huffingtonpost.com/2009/09/24/citigroup-locations-to-be_n_298189.html
Note: I understand that some will argue that Citi is just being prudent, shifting from riskier to safer loans.
But as William K. Black – senior regulator during the S&L crisis, professor of Economics and Law, and an expert on white collar financial crime – says, the banks intentionally made loans to people who are uncreditworthy, because they’ll agree to pay you more, and that’s how you grow rapidly. You can grow really fast if you loan to people who can’t you pay you back.
This combination guarantees stratospheric initial profits during the expansion phase of the bubble. But it guarantees a catastrophic subsequent failure when the bubble loses steam. And collectively – if a lot of companies are…
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The Great American Bankruptcy
by ilene - August 9th, 2009 12:25 pm
Here’s an excellent documentary video called "The Great American Bankruptcy." H/t Tyler Durden at Zero Hedge, who h/tipped Ian. William K. Black, a white collar criminologist, discusses the financial crisis and our pseudo-capitalistic fraud-ridden system. - Ilene
William Kurt Black is an American lawyer, academic, author, and a former bank regulator. Black’s expertise is in white-collar crime, public finance, regulation, and other topics in law and economics. He developed the concept of "control fraud", in which a business or national executive uses the entity he or she controls as a "weapon" to commit fraud.
On April 3, 2009 Black appeared on "Bill Moyers Journal" on PBS and provided critical commentary on the U.S. banking crisis. In the interview with Bill Moyers, Black asserted that the banking crisis in the United States that started in late 2008 is essentially a big Ponzi scheme; that the "liar loans" and other financial tricks were essentially illegal frauds; and that the triple-A ratings given to these loans was part of a criminal cover-up.
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
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