If you want to learn WHY Bill and Hillary Clinton are so close to Wall Street...

[Octafish]

13. No it hasn't, and not even by one side. Ask William K. Black.

Dr. Black is a forensic economist who helped put thousands of Savings & Loan crooks behind bars in the 80s and 90s for Poppy Bush and Bill Clinton administrations. That Trillion dollar bailout was peanuts compared to the Banksters of '08. Black coined the phenomenon where the CEOs are crooked "Control Fraud." For some reason, no one from the Bush or Obama administrations have called him back to government service. Here's what he reports:

The 11th Lesson We Need to Learn from Charles Keating’s Frauds: Bring back Glass-Steagall

by William Black
New Economic Perspectives, April 15, 2014

On April 2, 2014, as news broke of the death of Charles Keating, the most infamous savings and loan fraud, I posted an article entitled “Ten Lessons We Must Learn from Charles Keating.” (The April 2 date was ironic, because it was the 27th anniversary of the meeting at which the senators who would become known as the “Keating Five” began to seek to intimidate the savings and loan regulators on Keating’s behalf.)

I failed to explain perhaps the most important lesson we should have learned from Keating and Lincoln Savings. One of the subtle aspects of the savings and loan debacle that is often overlooked is that we ran a real world test of the importance of the provisions of the 1933 Banking Act known as the Glass-Steagall Act. Glass-Steagall prohibited “commercial” banks that received federal deposit insurance (created by the same 1933 banking act) from owning equity positions in nearly all financial assets (“investment banking”). With very limited exceptions, a commercial bank could not own real estate, companies, or stock in companies. (Banking regulators, hostile to Glass-Steagall despite its immense success, would later add many exceptions.) The ideas behind Glass-Steagall’s separation of “banking” from “commerce” always made eminent sense from conservative and progressive perspectives. Commercial banks received a federal subsidy through deposit insurance, so it made no sense for them to be allowed to compete against regular businesses that lacked that subsidy. It would distort markets to allow such a subsidy.

SNIP...

Glass-Steagall represented another lesson learned from the Great Depression – conflicts of interest matter. There were obvious potential conflicts of interest in combining commercial and investment banking. If a bank investment in a company was going bad, the temptation would be to loan the company large amounts of money to try to delay or prevent its failure. Similarly, if a loan customer was experiencing a liquidity problem and could not repay its loan the temptation could be for the bank to buy newly issued stock in the company.

S&Ls, however, could operate under radically different rules during the 1980s. State chartered S&Ls had the investment powers permitted by the states, while remaining eligible for federal deposit insurance. Texas led the Nation in a type of investment, the acquisition, development, and construction (ADC) loan. While ADC loans were nominally structured as loans, it was the norm in Texas that they were in economic substance (and for accounting purposes) properly classified as “investments” rather than “loans.” I will not explain the details of ADC loans in this column. I will note briefly only several implications of ADC lending. First, ADC loans (that were actually “investments”) were the single greatest cause of losses in the S&L debacle. Second, Keating’s unholy jihad against our reregulation of the industry was concentrated on our effort to regulate “direct investments” that included direct ownership positions and most ADC loans. Third, the accounting for ADC loans was a classic example of a “Gresham’s” dynamic in which “bad ethics drives good ethics out of the profession.” The accounting profession tried repeatedly (the EITF issued three notices to practitioners) to end the rampant false classification of ADC loans as true “loans” rather than “investments.” Each of these efforts failed because the fraudulent S&L and bank CEOs were almost invariably able to find an audit partner at a top tier audit firm to bless ADC deals as a “loans” even when they were obviously investments. Fourth, when classified, improperly, as loans the worst ADC “loans” were the nearly perfect “ammunition” for accounting control fraud. If they were classified properly as “investments” they would have been a far poorer fraud scheme. Fifth, banks, particularly in Texas, made enormous amounts of ADC loans that were improperly classified as “loans.” This allowed them to evade Glass-Steagall.

Dick Pratt, the Chairman of the Federal Home Loan Bank Board, was a theoclassical economist so he had the agency’s econometricians’ study which state’s S&Ls reported the highest profits so he could use that state’s asset powers as the model for federal deregulation. He led the drafting of the Garn-St Germain Act of 1982, which used Texas as its model for federal deregulation. Texas led the nation in deregulating ADC loans. Pratt, like all good theoclassical economists, ignored fraud (except when he was leading it – see the chapter in my book on “goodwill” accounting). He failed to understand that Texas S&Ls reported the highest earnings because ADC loans were such ideal fraud ammunition.

Pratt also failed to understand the implications of the regulatory “race to the bottom” that he would trigger through federal deregulation. California responded to Garn-St Germain with the Nolan Act (Nolan, fittingly, would later be convicted of corruption). The Nolan Act allowed a California chartered S&L to place 100% of its assets in direct investments. Hundreds of real estate developers, including Charles Keating (who infamously called the Nolan Act “a license to steal”), rushed to get a California S&L charter through merger (Keating’s purchase was funded entirely by Michael Milken’s Drexel Burnham Lambert) or the grant of a new (de novo) charter.

CONTINUED...

http://neweconomicperspectives.org/2014/04/11th-lesson-need-learn-charles-keatings-frauds-bring-back-glass-steagall.html#more-8091

So remember, Jitter65: Just because people say something over and over doesn't make it so. The rest of the article fills in the details on Why keeping the Wall Street out of the casino matters to the US taxpayer. We the People, thanks to S&L deregulation and no Glass Steagall, have had to pick up their bill twice.