A “Perfectly Legal” Scam is Perfectly Unacceptable to Real Bank Supervisors


New Economic Perspectives has the article A “Perfectly Legal” Scam is Perfectly Unacceptable to Real Bank Supervisors by William K. Black.  Now that you have heard the words of the culprits from my previous posts, let us bring in an expert to tell you exactly what is so wrong with what they did.

Let me give you some excerpts from William Black’s biography from  University of Missouri Kansas City.

Professor Black 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.

So when you get an explanation of what the Fed bank supervisors did wrong, you know it is the voice of experience from a bank regulator who has done it right.    He explains several episodes of the financial crisis that are peripheral to (but essential background information about) the current brouhaha over Goldman Sachs before he gets into their latest fraud.

In case you don’t get to read the article, I will just show you the excerpt that shows exactly how derelict the bank supervisors were.

So, it’s “apparent” that the deal was a scam. Silva knew it was a scam. His team knew it was a scam. As a former senior banking lawyer/regulator who worked with real supervisors let me assure the reader that there can be real supervisors and that no change in law was required for Silva to block a “perfectly legal” scam designed to “artificially enhance” a bank’s reported “capital.” Such a deal is “unsafe and unsound” and it abets an “unsafe and unsound” act. We would have ordered Goldman to terminate the scam and if its senior managers refused to comply we would have brought a “cease and desist” order against Goldman and a “removal and prohibition” order against the senior managers. We would have won both actions. The federal banking regulators have explicit statutory power to act against “unsafe and unsound” banking practices.

I think the point is that the system including the FED is corrupt.  However, the likes of Rand Paul haven’t a clue as to exactly what is wrong.  If you want a Senator to go after the Fed and try to fix it, Elizabeth Warren is one of the people you want.

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