Bill Black: The Banks Have Blood on Their Hands

We invited Bill Black to return to explain whether the level of systemic risk due to fraud in our financial markets has improved or worsened since the dire situation he painted for us in early 2012. Sadly, it looks like abuse by the big players has only flourished since then.

In the U.S., our regulators have publicly embraced a "too big to prosecute" doctrine. We are restraining, underfunding, and dismantling regulatory oversight in the interest of short-term stability for the status quo. Which, as a criminologist, Black knows with certainty creates an environment where bad actors will act in their self-interest with assumed (and likely real, at this point) impunity.

If you can steal with impunity, as soon as you devastate regulation, you devastate the ability to prosecute. And as soon as that happens, in our jargon, in criminology, you make it a criminogenic environment. It just means an environment where the incentives are so perverse that they are going to produce widespread crime. In this context, it is going to be widespread accounting control fraud. And we see how few ethical restraints remain in the most elite banks. 

You are looking at an underlying economic dynamic where fraud is a sure thing that will make people fabulously wealthy and where you select by your hiring, by your promotion, and by your firing for the ethically worst people at these firms that are committing the frauds. And so you have one of the largest banks in the world, HSBC, being the key ally to the most violent Mexican drug cartel, where they actually did so much business together that the drug cartel designed special boxes to put the cash in that they were laundering that fit exactly into the teller windows so that there would be no delay. This is the efficiency principle of drug laundering.

So these banks figuratively have the blood of over a thousand people on their hands. They are willing to fund people that murder and torture and behead folks. And they are willing to do that year after year, despite warnings from the regulators that they are doing this. And the regulators are not willing to actually take serious action until there has been “true devastation.”

And as time passes, our ability to bring effective justice should we want to atrophies:

I will tell you one of the things from being a former enforcement specialist: If you do not bring cases for year after year after year, it would be like a tennis player who stopped playing tournaments for ten years and never practices, and then he or she goes onto the court. What is going to happen?

They will get crushed by the opposition. So once you have given up enforcing the laws, I can tell you this with my lawyer hat on and former enforcement hat: You fear bringing these cases because you have allowed your skills to deteriorate so badly.

Given the sorry statements from officials like Lanny Breuer, who stepped down as the DOJ Criminal Division Chief earlier this year (he headed up the investigation of the banks and mortgage companies), we may already be at this stage.

Black sees a natural end to this systemic rot: a day where the bad actors no longer trust one another, and the system implodes upon itself:

I can tell you as a criminologist and as a former financial regulator, this is what you need to know about fraud: Fraud involves me, the fraudster, getting you to trust me. And then I betray your trust for my financial gain. And so there is no more destructive asset against trust than elite fraud.

So yes, we have been running a system under which the fraudsters get incredibly wealthy. And now they get incredibly wealthy and they do not even get prosecuted. And if there is a civil case – actually, they get the worst of all worlds. It sounds large for propaganda purposes, but all of us in finance know it is trivial. It is often literally a week of income, where their income is massively increased by the frauds.  The statistics show that there has been a general withdrawal of less sophisticated investors, in particular, from the marketplaces -- and it's because people do not trust the markets anymore.

Here is what people forget: After Lehman Brothers goes, the run that occurred was not Ma and Pa. The run that occurred that, for example, broke the buck in the money market mutual funds: that was a massive run of the most sophisticated financial players, where they were taking out hundreds of millions or even tens of billions, in some cases of money, in some cases, literally, in microseconds. In other words, bankers no longer trusted other bankers. And when that happens, markets do not simply become inefficient; they actually lock up. And that is what happened thousands of times after Lehman collapsed, because bankers would no longer trust other bankers’ evaluation of the assets.

And we have not even discussed derivatives to this point. Which is the not-800-pound gorilla, but the $8-trillion-ton-gorilla that is out there. So we already have the insanity of derivative trades in which both of us book a gain because we have different evaluations for the asset. So we have phenomenal paper gains that cannot be true. When the markets no longer trust each other, then those kinds of transactions do not work anymore, and there is no liquidity, and you are in the equivalent of trying to sell minority shareholder interest in a privately held corporation. How is that going to work out for you? Ever tried to do that?

So all across the globe, all across history, minority shareholders get completely screwed in that circumstance, when liquidity dries up. Well, the same thing can happen to much broader markets, including in particular the derivatives markets.

And if it does, when trust is interrupted, much less eroded, in the ways I have talked about it in the derivatives market, liquidity completely dries up. Anything that functions like a market-maker collapses, and you get whole financial systems that grind to a halt. And they do not happen just a few times. It can happen in thousands of markets roughly simultaneously.

You asked me earlier about Dodd Frank, and I said it had no coherent strategic vision. And a couple of the areas in which it had no coherent strategic vision we have talked about. It did not deal with the international competition-in-laxity. It did not deal with “too big to fail.” And it did not deal with derivatives. So I would say that was strike one, strike two, strike three.

Click the play button below to listen to Chris' interview with Bill Black (47m:23s):

This is a companion discussion topic for the original entry at

This was fantastic! You've shined a bright light on the systemic corruption and how the dots connect globally. Thank you!

It just proves that there are two classes of people. The haves and the ones who will have everything confiscated to the haves. This example of the system gone horribly bad extend all the way up to the President and beyond. Yikes! It is why I just prepare out as long as I can so I have time to figure the game out and not worry about my families necessities and shield the horror stories that become available to me on a daily basis to my Lady. If she wants she can do the work herself. I certainly are giving this not one more second of my time. Not because I am desensitized or jaded but because I have way more fun and am most productive when I spend time with my Lady, family and friends.  Have a great day Brother. I am headed out to my back yard again today to do laps in my 8x8x18" blow up swimming pool. I did 8 laps around the pool yesterday (mostly chasing my wife devil) and was exhausted but got a nice tan! :slight_smile:

When I was growing up in the height of the cold war, stark black and white commercials appeared on our TVs showing Nikita Kruschev warning "We will bury you".
Imagine my surprise when I realized that after the end of the cold war,  our own leadership in conjunction with the transnational banking and corporatists are now fulfilling Kruschev's threat.
These traitors are destroying our own people while taking away any government help for the people while feeding incessantly the powerful few. Untouchables are now de rigor and there is no rule of law, except the privatized prisons want bodies and more government subsidies.
I've likened our present state as the juncture between Milton Friedman's free market and no regulations meme with Myer Lansky's Murder Inc.
That's the spirit that runs the show.
Free markets? I think not. We are not allowed to know what's going on in factory farms. Why not? Are they growing meat in strange laboratories. Why is fast food so cheap? Why isn't the market of people spending money on food not allowed to exist?
Why is the congress in the dark about how much tax-payer money goes into surveilling us?
Why don't we see what is going on in the dark money of derivatives? This will crush us all. ($1.4 Quadrillion in 2008).
For those of you that believe in the fantasy of free markets, let me tell you that it is no more possible to have free markets with no regulations as communism can be successful implemented. You'll end up with what we have right now.
Adam Smith believed in barriers to entry for workers in a specific nation state, now we are being overrun by cheap labor in low and high end work. Our overlords don't want to pay minimum wage, and don't want food stamps either. They don't want you to stop taking out loans for college, but refuse to create good paying work for those who need to pay back those loans.
The banksters must make their bonuses when they screw up the world economy, why they were promised and you know they're so talented……social safety net? Let's let Goldman Sachs have that.

This was informative but I must admit…it feels like I just added another 10lbs to my life backpack. I see no way out for the country and likely the rest of the developed world, and the only way things will get better is if they get much worse. I'm not worried about me but have much concern for my children and the world they will inherit. Part of me wishes we could just get the colapse over with and start rebuilding.

Every time I listen to Bill Black, or read one of his articles, I come away with a clearer and deeper understanding of what is going on, and what has been going on, in the workings of the banking system and its relationship to our government.  He has a tremendous ability to cut through layers of complexity.
It appears to me that the only way to win in this game is to not play.  While we can not completely separate from the system, there are ways of limitiing our contact with it.  Get rid of credit cards. Try not to borrow money.  Pay down or pay off whatever debt you have.  Do your banking through a credit union. Hold investments that do not require participation in the markets.  Have a pantry supply of staples to fight inflation and protect against unexpected disruptions. Grow food.  Seek the items you need through second hand and thrift shops, or from small local merchants, or small producers on-line. Unplug from the two hundred channels of advertizements on cable or dish televsion.  The fewer contacts you have with the banking, wall street, and the artificially created consuption worlds, the less control they will have on your life.  

I can't remember a time when Bill Black said something that seemed the slightest bit controversial to me.  It appalls me that his viewpoint isn't the "duh, of course" policy adopted by our society.  Republicans, who are allegedly so into law and order and Democrats, who are supposedly for social justice, should find easy common ground here with Bill Black - but since modern American politics are just a sham controlled by the big cartels, they don't.
Differentiating points for the main parties are non-money issues - wars on christmas, abortion, gay issues, religion.  But if it involves money, we don't get a choice.  The main parties align almost completely when it comes to protecting the interests of the cartels - banking, sickcare & drugs, processed food, war & defense procurement, homeland "security", energy.

There really are people of moral character out there, and he is one of them.


…the banks are directly responsible for wars, jobs, taxes, agri-manipulation, Oil manipulation, all manipulation. They manipulate the amount of dollars the Fed prints. I would take Goldman Sachs, strip the SOB down to a penny stock and separate out everything and make it a bank again. Then I would do the same to all others. I would. Of course it is way more complicated than that so I would uncomplicate it. Unless of course I was paid handsomely to keep my mouth shut and that would require lots and lots of cash as I have an issue with giving up my freedoms of speech. Something else the bankers are trying to stop.
Lets not kid ourselves, this game goes on forever in one form or another. It just does. Gone golfing now.

That's how payola is done. Everyone has his price. They do it with leaders of other countries (your tax payer dollars at work) and to all those who have any power here.And then there's the club. ALEC and it's lobbyists crafting laws that get introduced by a supplicant congress.
Of course if payola doesn't work, there's always blackmail.
Yes our leadership has learnined much from the costra nostra–but is way more powerful.

Excellent point Dave, I feel exactly the same way.  I don't think most people realise though the extent to which public opinion is engineered. Guys like Black don't and will not get much mainstream media play.
The only solution we have is to rescale the human enterprise.  Perhaps this will not happen willingly or perhaps even consciously, but the universe will have it's way, it seems that peak everything is now driving the bus.  The misnomer of "economies of scale" is being uncovered for what it is, an energy intensive excuse to concentrate wealth and power in a way that is destroying both our planet and ourselves.

To connect conscousness to the human endeavor, to have life in our own hands, to create a meanful exsitance with deep relationships to family, neighbors, community and the natural world around us.  It was not so long ago that selling your labor for wages was considered tantamount to slavery.  What a wonderous thing it will be to reconnect our minds, passion and hands to the creatation of a life of abundance.

Lets seize this present moment of crisis to create life anew.  Lets be aware of corruption around us, but not let it permeate our souls.  Lets stand in the light of a new beginning, one filled with endless possibilities and creatvie joy. We can all do this together.

Treebeard,Beautiful thoughts.  But I can't shake the nagging feeling that I am surrounded in my neighborhood, not by thoughtful and generous PPers, but by selfish, materialistic, amoral, entitled, greedy, coniving "most people" that you describe.  I worry about what the transition will look like and how I will navigate my family through it.  I have to rely on my faith, a core of good people in this country, and perhaps that a heavy dose of true austerity will reawaken most people.
But we still need to be prepared for the temper tantrum that will ensue.
When I was younger, my Sunday School teachers talked about "standing" firm.  That never set well with me, because as a young man, I wanted to do something, to right wrongs, slay dragons, etc.
But as I became older and wiser, I realized that just standing firm takes a great measure of strength, more than running around righting wrongs.  Gandhi understood this, as did Martin Luther King.  
I am preparing to stand firm.
"Be on your guard; stand firm in the faith; be courageous; be strong."
1 Corinthians 16:12-14

Hrunner:  You are absolutely correct in believing that the coming changes may produce a violent and dangerous backlash from those who didn't see what was heading for them.  A part of everything we prepare must include that possibility.  I hope a lot of us are wrong, and that change comes about more slowly, without widespread violence.  Part of me does not believe that all will be lost in a tempest of violence and barbarism.  There will be life after the changes and for those who chose to work at it, it may be a better life than the one we are chasing now.Standing firm is good.  It reminds me of part of another verse.
Romans 5:4  Perseverence produces character and character produces hope.

Thank you for the kind and helpful words, JY.I feel I know our country well enough to know that there is a lot of pent up frustration- We clearly have a growing divide along the lines of:  "I didn't get what's coming to me because some priviledged guy stole from me and is keeping me down" v. "those lazy no-goods just complain and suck off the system".  Everyone seems to have a beef and someone to blame.  Very few have a zen-like attitude and/ or a "I will do what I can" attitude, which is so common at this site.
Seeing riots at Walmart because a toy is out of stock makes me wonder how angry people will be when they don't have enough to buy food, much less Raiders tickets or get their nails done.
But I do believe and hope and pray that whatever tantrum comes about, it will burn itself out quickly.  Maybe only a few weeks.  History teaches that these things usually do, when people look around and comprehend the horror of what they are doing.
Then the rebuilding, with a better life will begin.

One out of five children in this country is already hungry, and most people are quitely putting up with quite desparate situations.  It is surprising that there is not more violence than we have seen.  I have a feeling that most of your neighbors that don't know you may feel about you the way you say you feel about most of them.  The violent backlash occurs when good men and women have spent much to much time standing around doing little to nothing. The level of the backlash is in our hands, we are the world that we see.
The harvest is ready and the workers few. To those that much has been given, much is expected. Lets not set our teeth against our neighbors until there is just cause.  Our one and only hope is each other, without that we are lost.  If we give up on one another then we are in a period of great darkness.  I have been recently been surprised with chance uncounters with some of my neighbors, they were much more aware of things than I would have expected.  We must open our hearts to one another, how we treat the least amoung us is how we will be judged.

The world is waking up in ways that may surprise us all.  The main stream media attempt to engineer public opinion is failing.  The face they present is not the true face of the world, but one born of greed, small mindedness and corruption.  What they present is the darkness that is within themselves. Lets not stand our ground against the violence that we fear from without, but with each other fighting the violence from within.

said it best in "Jose Wales"  "endeavor to persevere"

Yogi wrote:It just proves that there are two classes of people. The haves and the ones who will have everything confiscated to the haves.
To me this article helps me put into context the corruption I see within society. I'm not sure I would restrict the classes to just two, but I understand what you're saying. I've had a few on this site tell me that I should just focus on building my own resillience becuase I can't change others.  I guess that depends on how you define your circle of us and them. It's important to me to see as large of view as I can because it helps me to see how the group is effecting me and how I effect the group. You can change others by your actions, conversations, and relationships, not to mention individuals and groups are changing constantly in relation to new stimuli. How we see ourselves in relation to others is how we will transform.  I agree with Treebeard that a gestalt view is better than a reductionist view. To use a biblical passage we need to be as wise as serpents and innocent as doves, not one or the other.

The lesson of the good sammaritan parable is taught from the perspective of how the sammaritan acted toward the man who had been beaten and robbed (downtrodden), but it is rarely taught from the perspective of the one who was beaten. The man beaten was from Jerusalem. Sammaritans were looked upon as enemies of Jerusalem, or at the very least, people with whom you would not speak or associate. The lesson to be gained from this side of the parable is…when you're downtrodden, can you forgive and accept a giving relationship with those who you originally thought were your enemy?

I will keep trying to learn as much as I can, which in turn helps me walk toward wisdom. I will also try to be as innocent as I can within the context of what I know. Many of you have changed me in the past eight months for which I am grateful.
This doc supports what the Crash Course teaches us. Change Britain to any western country and the story is the same. People have to open their eyes and stop being zombies.  A bit of Money Week promo at the end but still well worth doc.



…here, and I can prepare as best I can in all manners and circumstance. However, their is true evil out there and they are as pack animals and could care less about this parable and that. They take with a vengeance that is quick, forceful, and have no remorse. How do I even wrap my head around this, learn from this unless I have seen it in action. When studying this form of skill set and intellect I have come to but one conclusion: Be first.All the Best.
Off to the candy store with my Great Niece from Texas. She really loves her Uncle Yogi, Because "he really knows how to treat a kid". Her words not mine. She will get all she wants. :slight_smile: