William Black

Dylan Ratigan is well positioned to author a book, designed to be an enjoyable and informative read by normal humans, on the ongoing financial crisis. He is the wunderkind who became Global Managing Editor for Corporate Finance of Bloomberg, the premier news service that specializes in finance, at an exceptionally young age. He was at CNBC while that network was hyping the housing bubble as a non-bubble offering fantastic investment opportunities.

Any analysis that ignores control fraud is certain to distract us from the reforms essential to prevent our recurrent, intensifying financial crises. Ignoring fraud led the authors to propose reforms that are criminogenic.

The ideal result for supporters of the Bush tax cuts for the wealthy is to get them extended in a manner that allows Republicans to escape from the suicidal bargaining position they were in on holding taxes for 98% of American taxpayers hostage and blocking the extension of unemployment benefits, in a fashion in which the Republicans get to take primary credit for all of the tax cuts, and while causing the President to betray his campaign promises and launch an attack on his strongest supporters – an attack taken word-for-word out of the Republican playbook. That is precisely what they’ve achieved. They did not achieve the result through brilliance and they cannot achieve it without cowardice and ineptitude on the part of the Democrats.

Obama channels former Savings and Loan regulator Dick Pratt’s disastrous cover-up strategy.

Dr. Raghuram G. Rajan, is a distinguished professor at the University of Chicago’s business school and former chief economist of the International Monetary Fund (IMF). Readers familiar with Chicago school economics will see that the crisis has not led to a fundamental reevaluation of that school’s policy recommendations. The title of his book captures his thesis – Fault Lines: How Hidden Fractures still Threaten the World Economy. Rajan writes clearly and his book is intended for the intelligent lay reader. His book contains no charts, graphs, or equations, doubtless at the urgings of the Princeton University Press. It is an ambitious book, for it seeks to explain the global crisis and different trends in the real economy and the financial sector in many nations.

Dr. Wolff is a prominent Marxist economist who teaches at U. Mass and The New School. The book is composed of scores of short essays he did for Monthly Review beginning in 2005. The publicity blurb sent to potential reviewers states that Dr. Wolff “predicted the economic meltdown years ago.” The book does not contain specific predictions of the meltdown beyond the omnipresent Marxist prediction that capitalism is inherently unstable. Dr. Wolff’s articles take note of the bubble and nonprime assets in the articles in the book after the collapse of the bubble and after the crisis in nonprime assets were obvious. Readers interested in the scholars that predicted the specific crisis should consult Jamie Galbraith’s article.

Dr. Wolff’s emphasis is explaining his overall Marxist critique of capitalism’s defects. The articles can be read easily by the general reader. No economic expertise is required and Dr. Wolff writes in English without the Marxist jargon that non-specialists find confusing.

The Senate Banking Committee released the findings from its investigation of Washington Mutual – the largest S&L and largest bank failure. My research specialty is “control fraud.” These are frauds led by those that control seemingly legitimate entities and use them as a “weapon” to defraud. Financial control frauds’ “weapon of choice” is accounting. Lenders optimize accounting fraud by following a four-part recipe:

Extreme growth
Making bad loans at high interest rates
Extreme leverage
Trivial loss reserves

[Welcome Simon Johnson, and Host William Black, author of The Best Way to Rob a Bank is to Own One [As a courtesy to our guests, please keep comments to the book.  Please take other conversations to a previous thread.] Thirteen Bankers: The Wall Street Takeover and the Next Financial Meltdown The authors begin their book [...]

Stiglitz documents America (and much of the world’s) descent into crony capitalism (pp. 41-42, 122). He explains that while other bankrupt firms settle claims on credit default swaps (CDS) at 13 cents on the dollar, Paulson and the Fed pressured AIG to pay favored systemically dangerous institutions (SDIs) such as Goldman Sachs 100 cents on the dollar – with the public bearing the cost of this secret subsidy (p. 49). His broader point is that the neoclassical triumph in the battle of ideas (and its triumphalism about winning the battle) led not to the promised utopia of efficient, stable markets and growth, but rather to economic stagnation for the middle class, a catastrophic fall for the working class, and recurrent crises.

Senator Dorgan addresses the most severe crises America needs to confront, going far beyond the specific problem he tackled in Take This Job and Ship It. Each chapter discusses a specific set of related problems and suggests specific steps to respond to the problems.

There is no universal theme to the book, but there is a consistent approach and tone. The author is a prominent Democrat that is critical of the Bush administration and Congress when Republicans dominated it. The tone of his criticism of Republicans is moderate. The book is not a partisan screed. Indeed, he strongly criticizes the leaders of the Clinton administration’s Treasury department. (Those leaders continue to dominate economic policy under the Obama administration.) His critiques combine populist roots and academic training and an accommodation of his state’s (North Dakota) interests (coal).