And that’s why we have a crisis and it came from the very top of these organizations, and was went through—as the FHFA said in its complaint—the largest banks in the world were endemically fraudulent. It is not a few rotten apples. It is an orchard of one percenters who are rotten to the core.
Audience: Yeah! <applauding>
Man in black shirt: I wanna ask you a question. Ahhh… Before we get to our… I just wanna ask you a question for bringing it up from the Savings and Loans to the… Ehem… recent crisis. The problems is not just that the loans were fraudulent but that the banks would not keep the loans. So they had no skin in the game because they could put them into securities.
That’s the thing that Brooksley Born warned against when she was head of the Commodity Futures Trading Commission. That’s why the ah… Clinton administration supported Phil Gramm in reversing that decision. So I would like you, if you would just comment a little bit on the legality of of the… there was Lawrence Summers as our Treasury secretary saying, “No. No law. No regulatory agency will supp… apply to credit default swaps or collateralized debt obligations. Maybe you can talk a little bit about the legal significance in that.
Wiliam Black: Okay. So the first thing should square in California to California energy crisis. Because this same law created the regulatory black hole for energy trading derivatives and Phil Gramm was instrumental in doing it and Wendy Gramm-his spouse- went on the board of which corporation can you guess?
William Black: Enron! And they exploited this to create artificial shortages as a way to massively jack up prices and they create it between that and taking capacity offline a deliberate, non-crisis. Right? There was no crisis. But they created one and devastated the state.
The same thing far broader in the current crisis lead to a trillion dollars. Now, remember, this is after the warnings that this stuff is endemically fraudulent. And this is the most sophisticated financial institutions in the world doing this. This is Merrill Lynch, Lehman Brothers, Bear Stearns creating this non-sense.
So they take garbage that is 90% fraudulent, they get together with the rating agency who they shop to get the triple A rating and supposedly triple A is the best conceivable rating. So complete fraudulent garbage gets created as triple A. It’s sold over much of the world to the unsuspecting part but kept in large part just because it creates bonuses.
So yes, it was the second stage of derivatives. And let me tell you one thing about that law that hasn’t been mentioned. This is the Commodity Futures Modernization Act. In addition to blocking the particular rule that Brooksley Born wanted to protect us, it removed all jurisdiction so that she could not adopt and her successors could not adopt any rule protecting us. That’s horrific! What comes next is even worse.
There are actually a provision of that law that exempts you if you do credit default swaps from State Boiler Room Laws. Boiler Rooms are fraudulent security sales. Can you imagine passing a statute saying, “We hereby immunize you from committing fraud… from pu… being punished for committing fraud.” And if you can imagine it then this is the answer to the question that you asked Robert Reich.
The state attorney generals are being pressured by the Obama administration and by the industry-and by the way, the Republicans are completely silent about this- to immunize, not just that you will not be prosecuted as a bank, they’re trying to immunize them against being investigated. they don’t want you to learn any of the facts because if you do learn the facts, you will insist that those thousands of top bankers, as in the savings and loan crisis, be taken on the Perp walk, be put in prison so they are not here to cause the next crisis.
Audience: Yeah! <applauding>