Barron's Interviews William Black, associate professor of Economics and Law

William Black, associate professor of Economics and Law at the University of Missouri, Kansas City

He was a deputy director at the Federal Savings and Loan Insurance Corp. during the thrift crisis of the 1980s. He believes that unless the current administration changes course dramatically, it will destroy the Obama presidency. The Bush administration was worse but they are out of town. He says we have failed bankers giving advice to failed regulators on how to deal with failed assets. The current economic team of Geithner and Summers were important architects of the problems. The PPIP program is worse than a lie with Geithner pandering to the interests of a few select group of banks. He is flouting the law that requires quick corrective action to deal with insolvencies. His plan essentially perpetuates zombie banks by mispricing toxic assets that were mispriced to the borrower and mispriced by the lender, and which only served the unfaithful lending agent. The IndyMac, Bear Stearns and Lehman situations tell us the real losses will be roughly 50-80 cents on the dollars. Most of America's biggest banks are insolvent. The government does not want to admit the depth of the problem because it would place some of the biggest financials into receivership. The people running these banks are some of the best connected in Washington. The big international institutions need to be broken into smaller units that can be managed effectively. We don't necessarily need new regulations but folks who will enforce the ones already on the books. We need to return to a system that takes the competitive advantage away from the cheats.

Comment:

The Corruption in the Financial System and Obama's Failure to Reform

This interview with William Black in Barron's is an articulate and reasonably detailed summary of our own view of the current crisis from an exceptionally well-informed and experienced source.

The big question in our own mind is the depth of complicity and the motivations of the government, the media and major institutions in continuing to support this financial corruption through silence or participation.

Is Obama really merely listening to the wrong advice from highly placed sources in the Democratic Party? And how sincere are they? The record of corruption in the Obama Administration in the form of conflicts of interest and tax evasion is already the smoke that warns of fire.

All good questions, more relating to the length of time to a cure rather than its essential character.

The banks must be restrained, the financial system must be reformed, before there can be a sustained economic recovery.