William Black on Financial Fraud

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4.7 • 4.3K Ratings

🗓️ 6 February 2012

⏱️ 82 minutes

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Summary

William Black of University of Missouri-Kansas City and author of The Best Way to Rob a Bank Is to Own One, talks with EconTalk host Russ Roberts about financial fraud, starting with the Savings and Loan debacle up through the current financial crisis. Black explains how bank executives can use fraudulent loans to inflate the size of their bank in order to justify large compensation packages. He argues that "liar loans" were a major part of the crisis and that policy changes made it easy to generate such loans without criminal repercussions.

Transcript

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0:00.0	Welcome to Econ Talk, part of the Library of Economics and Liberty. I'm your host Russ Roberts
0:13.9	of George Mason University and Stanford University's Hoover Institution. Our website is econtalk.org
0:21.2	where you can subscribe, find other episodes, comment on this podcast, and find links to
0:26.5	another information related to today's conversation. Our email address is mailadicontalk.org. We'd
0:33.6	love to hear from you. Today's January 24th, 2012, and my guest is William Black. Professor
0:44.2	of Economics and Law at the University of Missouri, Kansas City, and the author of The Best Way
0:49.7	to rob a bank is to own one. Bill, welcome to econtalk. Thank you. Our topic for today is bank fraud,
0:57.2	and what it can tell us about the crisis and what we might learn from it. Tell us to begin with
1:03.2	about your background in detecting bank fraud. It happened, of course, accidentally like most things in
1:10.4	life. I went over to the federal home loan bank board in April 2nd, 1984 as their litigation
1:21.2	director. What is the federal home loan bank board? Well, it is two agencies ago. It was the primary
1:30.2	federal regulator of savings and loans. It was a successor agency, the Office of Thrift Supervision,
1:39.2	which has recently been killed by the Dodd-Frank bill. And what did you do there? Well, I did
1:48.3	what the title suggested. I was litigation director, and we had independent litigation authority,
1:57.0	so we didn't use the Justice Department. At a very young age, I had a docket of 10,000 cases,
2:04.9	and then a budget for outside counsel of $100 million, which back in the day was a big deal.
2:13.5	But pretty quickly, I became heavily involved in two other things. Again, accidentally, we had a
2:21.1	massive run on the largest savings loan in America, American savings, and it was a $6 billion run.
2:32.1	This is not long after Continental Illinois had been brought down by a $6 billion run.
2:39.9	I ended up on the emergency task force, and so I was working with the business types
2:47.6	and with the field folks. Supervision was really done in the field, not out of Washington,
2:54.7	DC. So I started learning a great deal about these institutions, and the head of the agency
	...

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