Obama’s pursuit of a dangerous precedent


William K. Black is an Associate Professor of Economics and Law at the University of Missouri-Kansas City an expert in white-collar criminology, and author of The Best Way to Rob a Bank is to Own One.

Black had also served as litigation director of the Federal Home Loan Bank Board and as deputy director of the Federal Savings and Loan Insurance Corporation [FSLIC, since incorporated into the Federal Deposit Insurance Corporation].

The FSLIC went belly up during the Reagan era collapse of the American savings and loan industry, the rotten fruit of the initial wave of deregulation and event esnl extensively covered and researched.

So we noted with great interest Black’s essay, “The Anti-Regulators are Job Killers,” posted at The Big Picture.

This passage, about the most recent wave of deregulation caught our eye:

From roughly 1999 to the present, three administrations have displayed hostility to vigorous regulation and have appointed regulatory leaders largely on the basis of their opposition to vigorous regulation. When these administrations occasionally blundered and appointed, or inherited, regulatory leaders that believed in regulating the administration attacked the regulators. In the financial regulatory sphere, recent examples include Arthur Levitt and William Donaldson (SEC), Brooksley Born (CFTC), and Sheila Bair (FDIC).

Similarly, the bankers used Congress to extort the Financial Accounting Standards Board (FASB) into trashing the accounting rules so that the banks no longer had to recognize their losses. The twin purposes of that bit of successful thuggery were to evade the mandate of the Prompt Corrective Action (PCA) law and to allow banks to pretend that they were solvent and profitable so that they could continue to pay enormous bonuses to their senior officials based on the fictional “income” and “net worth” produced by the scam accounting. (Not recognizing one’s losses increases dollar-for-dollar reported, but fictional, net worth and gross income.)

When members of Congress (mostly Democrats) sought to intimidate us into not taking enforcement actions against the fraudulent S&Ls we blew the whistle. Congress investigated Speaker Wright and the “Keating Five” in response. I testified in both investigations. Why is the new House leadership announcing its intent to give a free pass to the accounting control frauds, their political patrons, and the anti-regulators that created the criminogenic environment that hyper-inflated the financial bubble that triggered the Great Recession and caused such a loss of integrity?

The anti-regulators subverted the rule of law and allowed elite frauds to loot with impunity. Why isn’t the new House leadership investigating that disgrace as one of their top priorities? Why is the new House leadership so eager to repeat the job killing mistakes of taking the regulatory cops off their beat?

Read the rest here.

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