William Black
Kansas City, MO
November 29, 2011

available from Alternative Radio

You can listen to William Black speak for himself here.

William Black is Associate Professor of Economics and Law at the University of Missouri-Kansas City. He was litigation director of the Federal Home Loan Bank Board and senior deputy chief counsel of the Office of Thrift Supervision. He is the author of The Best Way to Rob a Bank Is to Own One.

The focus of this talk is not on the plight of those who are unemployed but why people are unemployed in a situation of what is still the wealthiest country in the world, and why one aspect of America, the 1%, are getting incredibly wealthy.

The bright lie that you’re hearing is that it’s the bank CEOs, the ultra-wealthy Americans, who are the productive class. They are the opposite. When they operate as they are supposed to operate, under their models, they are parasites. But they rarely operate that well. Normally they operate to destroy wealth and destroy jobs. And they are the massive destroyers of both. The idea that we owe them thanks is an obscenity. The idea that we owe our jobs to them is an obscenity. That the wealth of the nation comes from their efforts is a lie, that we must not drive them overseas. But they are fine in driving all other businesses in America overseas.

It’s only a crisis if it’s their jobs. We must not tax them, we must not criticize them, and we assuredly must never regulate them.

This enormous lie of the productive class has spawned a whole series of other lies that beset our nation. That we simply have to accept that tens of millions of Americans should be unemployed. That we should simply accept that it’s acceptable that 20% to 25% of all children in America are in poverty. That we cannot afford to educate our children anymore, we cannot afford health care for everyone, we cannot afford to pay for Social Security. That our kids have to come out of college with massive debts that leave them behind the eight ball for 20 years, and that only our top graduates can get good jobs, and they’re the only ones who deserve to get good jobs. All of these are lies. But these are the lies that at least we sort of know are being sold. We have many more hidden lies that are so embarrassing we try never to admit them in society.

That is, that it’s really okay that the median white family has wealth 20 times that of the median black family. I’ll say that again: 20 times larger median wealth. And 18 times larger than the median wealth of a Latino family. And that it’s okay for the unemployment rate for blacks to be twice that of whites. Indeed, that’s not only acceptable, that’s kind of appropriate, goes the line.

So what we need to do is what the Society of Friends, the Quakers, uniquely, in their theology say, and that is, we have an ethical duty to speak truth to power instead of pandering to power. The economics profession overwhelmingly serves the 1% and panders to that power. Here’s, in fact, what a very conservative French economist, Frédéric Bastiat, said a long time ago.

When plunder becomes a way of life for a group of men living together in society, they create for themselves in the course of time a legal system that authorizes it and a moral code that glorifies it.

That is precisely what we have. We now have looting from the C suite, the CEO, the CFO level, with impunity. And we have a system of so-called ethics or philosophy that delights in the impunity of the elites to defraud us.

I’m going to bring you a vision of what it looks like to the 1%. I’m not going to put words in their mouths. I’m going to quote their words, in context, extensively to show you what they think about us. This is the view from the 1% in what should be one of the most infamous memoranda in the world, a Citicorp 2005 document. This went to their private wealth group, private banking group. To get private banking, basically you have to have an income or wealth of a million dollars. So this is the elite of the elite that this goes to. And you have to envision the jolly tone of all this.

In early September we introduced the idea that the U.S. is a Plutonomy—a concept that generated great interest from our clients.

What’s a plutonomy? A plutonomy is when you have rule by the wealthy and where the wealth of the nation immensely disproportionately goes to a very small group.

Citigroup’s wealthy clients were thrilled to hear that the U.S. was ascending to [this] exalted state…., [that is, their definition of a plutonomy] where economic growth is powered by and largely consumed by the wealthy few.

So they send this message out to their wealthiest clients, who respond with great interest to this idea. Note that small idea that the economic growth is supposedly powered by the wealthy few. So you already have this great lie that starts everything—the great lie that they are somehow a unique productive class.

[T]he top 1% of households in the U.S. (about 1 million households) accounted for about 20% of all U.S. income in 2000

—by the way, since that time this has gone up considerably—

slightly smaller than the share of income of the bottom of 60% of households put together.

So that top 1% back in 2000 was equivalent roughly to the bottom 60% in terms of income. Again, this is much worse since then.

That’s about 1 million households compared with 60 million households, both with similar slices of the income pie!

Notice the exclamation point.

Clearly, the analysis of the top 1% of U.S. households is paramount.

We don’t even have to analyze you folks anymore. You don’t count. Only the 1% count. And once you get to wealth, which is far more unequal than income, this is the disparity:

…the top 1% of households also account for 33% of net worth, greater than the bottom 90% of households put together.

The top 1%—and this is worse since these statistics were computed—more than the bottom 90%.

It gets better. It gets better or worse, depending on your political stripe.

So tell me, what political stripe delights in the 1% having everything? The 1%. Exactly so. They are delighted.

It gets better.

Remember the current campaign about “It gets better”? They have their own campaign about “It gets better.” We’ll get even wealthier.

The top 1% of households account for 40% of financial net worth, more than the bottom 95% of households put together.

So that stock market stuff, that almost exclusively went to the top 1%.

But it really didn’t go to the top 1%. As Citicorp analysts helpfully tell us, it really went to the one-tenth of the 1%. Citi then warns that focusing on the top 1% masks the fact that their share of the pie is

almost entirely driven by the fortunes of the top 0.1%, roughly 100,000 households.

Citi goes on to praise the changes in taxes and the changes in senior executive compensation that have driven the tremendous increase in the share of the pie taken by these 100,000. One of our family rules is you can never compete with his unintentional self-parody. If we had written this stuff, people would have said, “This is absurd, class-bashing, da-dah-da-dah-da-dah-da-dah-da- dah.” No, they really do think this way. When they’re writing and talking to themselves, this is how they really talk about us.

They have a wonderful phrase that they’ve minted, The Managerial Aristocracy. Remember, they’re writing this to The Managerial Aristocracy, which obviously has no sense of humor and no sense, absolutely no sense, of morality or any of that stuff in any of the major religions about difficulty in getting into heaven.

[W]hile in the early 20th century capital income was the big chunk for the top 0.1% of households, the resurgence in their fortunes since the mid-eighties was mainly from [—what if we wrote this phrase?—] oversized salaries.

This is how they think about it themselves, as oversized salaries.

The rich in the U.S. went from coupon clipping, dividend-receiving rentiers to a Managerial Aristocracy [—and note the next word—] indulged by their shareholders.

You don’t even have to go to the Catholic Church in the old days to buy an indulgence. This is really quite wonderful. So it’s a Managerial Aristocracy.

Modern executive compensation has produced not just the 1% but the one-tenth of 1%. The C suite is taking virtually all of the gains in wealth, even from the people lower down in the food chain.

Remember that Bastiat warned that a moral code would arise glorifying the plunder. Cue Citicorp.

Society and governments need to be amenable to disproportionately allow/encourage the few to retain that fatter profit share. The Managerial Aristocracy, like in the Gilded Age, the Roaring Twenties, and the thriving nineties, needs [—needs? This is like when your 12-year-old daughter comes and tells you she needs—] to commandeer a vast chunk of that rising profit share, either through capital income, or simply paying itself a lot.

It “needs to commandeer” this. Commandeer is a word you use when you seize something you’re not entitled to. And what they need, therefore, is a philosophy to be brooded about by those schlubs in the media and such who are stooges for the 1% that says, “Oh, yes, okay, good. Outsized income, vast chunk by simply paying yourself a lot? Sounds good to us.”

And what’s the great excuse for this that Citicorp offers?

These are brave entrepreneurs taking risk.

Unlike the rest of us, who don’t have any risks in our lives, the CEOs, as it turns out, are the people who are most at risk in America. And how many people think that has any existence in any plane of reality?

We think that despite the post-bubble

—the bubble they’re talking about is an earlier bubble; this is the high-tech bubble of 1990s and such.

We think that despite the post-bubble angst against celebrity CEOs….

If we called them “celebrity CEOs,” oh, that would be class warfare. What do they call them internally? Oh, yes, they’re celebrity CEOs.

…the trend of cost-cutting, balance sheet-improving CEOs might just give way to risk-seeking CEOs, releveraging, going for growth and expecting disproportionate compensation for it.

This is written in 2005, when they are causing through their frauds the housing bubble to hyperinflate. What did they do? Massively increased risk, releveraged—that means have lots and lots of debt—and grew really rapidly, and then looted the place through. This is the road map that Citi laid down. And its exactly what they did—if you just add one little world, the F word. This is the F word you can use in polite society, except in economics, where there’s a tribal taboo against it. It’s called fraud.

This is a direct quotation from the same memorandum, their ode to inequality.

We project that the plutonomies…will likely see even more income inequality

—by the way, they were right again—

disproportionately feeding off a further rise in the profit share in their economies. capitalist-friendly governments, more technology-driven productivity, and globalization.

Because globalization in this context means we send the jobs abroad to cut costs and increase that capital profit share.

Really, you can’t make this up. They do it so much better than if we tried to do it. They then go to this line. And if you’re following it, this is the Atlas Shrugged, Ayn Rand-ish type nonsense. They ascend to poetry, which is hard for bankers.

The earth is being held up by the muscular arms of its entrepreneur-plutocrats, like it or not.

I don’t know if you’ve noticed this, but we bailed them out. And we bailed them out to the tune of trillions of dollars. So if they were supposedly holding the Earth, they kind of dropped the ball, type of thing. But, of course, they were never holding the Earth, they were never creating the profits. It’s the people in this room who are creating the profits, many through a lifetime, many on the journey, as students and such.

So welcome. And you now have a new phrase for yourself, because you now know what they call you, us. We are the “multitudinous many,” which at least is alliterative. No money comes with it, you will notice, but we exist.

In a plutonomy…there are rich consumers, few in number but disproportionate in the gigantic slice of income and consumption they take.

Again, if we wrote this and said that, that would be class warfare. Inside the tent they’re quite happy to admit that that’s exactly what they take. This is not sharing the pie; this is: We get the pie and we take it. And then “There are the rest,” the 99%,

the “non-rich,” the multitudinous many, but only accounting for surprisingly small bites of the national pie.

Again, they say it directly in ways we could never say. They know that is the system is completely rigged to give them “gigantic slice[s]” of the pie and to give everybody else “surprisingly small,” and diminishing, “bites.” Remember, they told us plutonomy will create ever greater income inequality. And not even to the benefit of the 1% so much as the benefit of the one-tenth of 1%. I don’t know what they’re going to live with when the rest of us have been wiped out. And they don’t know either, because they certainly don’t know how to work.

This is the bonfire of the inanities. Since we think the plutonomy is here, is going to get stronger, its membership swelling from globalized enclaves in the emerging world

—this is like one of those novels, exciting, it’s got a hunk on the cover, I guess—

we think a plutonomy basket of stocks should continue to do well. These toys for the wealthy [—okay, that’s worth emphasizing—] toys for the wealthy have pricing power and staying power. They are Giffen goods,

which is an obscure economics concept: more desirable and demanded the more expensive they are. Remember, they’re writing this memo to the one-tenth of 1%, and they’re telling the one-tenth of 1%, You’re a bunch of morons. You are completely interested in who has more toys when they die. That’s your version of life. And you overpay deliberately for your toys so you can brag about how much money you overspent getting that car, that plane, that luxury limousine, etc., etc., etc. You are the most disgusting people we can imagine. Thank you for sending us your money. Bastiat turns out to have been an optimist.

This is Citicorp again:

At the heart of plutonomy is income inequality.

So you want an admission? Talk about an admission. The definition of plutonomy—the thing they love, the thing their clients love—the heart, the core of it is income inequality. It’s not something temporary, it’s not something incidental to the model. The heart and soul of their model is producing massive inequality.

Societies that are willing to tolerate/endorse income inequality are willing to tolerate/endorse plutonomy.

So let’s think about the difference between those two words: tolerate and endorse. Bastiat’s point was that you would get a whole crop of people who would endorse and try to claim that this was good, to plunder. Does anybody know any columnists like this? Does anybody know any politicians like this? Does anybody know a network like this? This is their heart and soul. And that’s horrific.

But notice what they also say. It’s not enough that there are the groups that endorses this obscenity. This obscenity can only continue from those who tolerate. As soon as we refuse to tolerate, it will end. So as horrific, as despicable as their own words make them out, we don’t need them to fix this. We the 99% can fix it. We have to stop tolerating a system that is based on an enormous lie, that is based on consigning huge chunks of America—and the rest of the world, by way—to unemployment and poverty.

That is precisely why they are trying to make it so difficult for the 99% to vote. This is why you see effort in state after state to keep you from the polls. Because it’s the next sentence that is explains it.

An examination of what might disrupt plutonomy, or worse, reverse it

— Citicorp has taken a stand. Gee, I’ll bet you didn’t know that they were in favor of plutonomy until we got to this point in the memo. But here it slips out that they’re all in favor of it.

Will electorates continue to endorse it or will they end it?

We can end it. That’s what Occupy really is fundamentally about. That’s what raised, in political science jargon, the salience. We now find that inequality is being discussed in the media more than 10 times as much as it was before the Occupy protest began.

It would be bad enough if the Citicorp memorandum was true, that these people really held up the Earth for the rest of us and then took virtually all the profits. But it isn’t true. That is the great lie. Because it is these folks who are the great job killers. They became wealthy, overwhelmingly, not through skill, not through risk taking, not through hard work, not through individual brilliance, not through any of this Ayn Rand nonsense, but through good old-fashioned fraud. They are destroying the world, not holding it up. They are the great job killers. They are the engines of mass destruction of societal wealth. They promote social Darwinism. They are Bastiat’s nightmare made real.

So let me start talking about how all of this came about in terms of this disaster and how these people became wealthy. I’ll just take the most recent crisis, although I’ll refer briefly to some comparisons to the savings and loan crisis. The FBI warned in open testimony in the House of Representatives in September 2004, over seven years ago, when there was plenty of time to stop it, that there was an epidemic of mortgage fraud and predicted that it would cause a financial crisis if it were not stopped. Those are their words. It was picked up, as I say, in the national media.

We’ve seen this before, in the savings-and-loan crisis. This NCFIR acronym stands for the national commission that looked into the causes of the savings- and-loan crisis. I’m quoting from the official report.

The typical large savings and loan failure grew at an extremely rapid rate, achieving high concentrations of assets in risky ventures. Every accounting trick available was used. Evidence of fraud was invariably present, as was the ability of the operators to milk the organization,

by which they mean loot it through executive compensation. At the typical large failure fraud “was invariably present.”

Two of the best economists in the world looked into this, and they published an article in 1993. The title of it pretty much says it all: “Looting: The Economic Underworld of Bankruptcy for Profit.” Plunder, per Bastiat. Looting is when the CEO loots his corporation, the corporation fails—that’s a bankruptcy—but he walks away wealthy. Have we seen any of that? All the time. The regulators saw this in the savings-and-loan crisis and began cracking down promptly. This is what George Akerlof and Paul Romer said. In fact, they made this the concluding paragraph to their article in order to emphasize it.

Neither the public nor economists foresaw the savings-and-loan deregulation of the 1980s was bound to produce looting, nor, unaware of the concept, could they have known how serious it would be. Thus, the regulators in the field, who understood what was happening from the beginning, found lukewarm support at best for their cause.

They’re being polite. We found total opposition.

Now we know better. If we learn from experience, history need not repeat itself.

So we knew what had caused it, we had an early warning from the FBI in September of 2004, and this is what happened instead.

In the savings-and-loan debacle, which I say here was 40 times worse, just the losses in the household sector in this crisis, according to the national commission that investigated the causes, just the household sector are $11 trillion. A trillion is a thousand billion. The savings-and-loan crisis cost $150 billion. So if you just took the household-sector losses—and there are far more losses—it’s actually 70 times larger than the savings-and-loan crisis. In the savings-and-loan crisis, our agency, that Office of Thrift Supervision made well over 10,000 criminal referrals, produced over 1,000 felony convictions in cases designated as major. Indeed that understates the degree, because we prioritized the absolute worst 500 to 600, and we prosecuted virtually all of them. We got a 90% conviction rate. It can be done, but it’s hard. You need systems and you’ve got to work cooperatively.

So what did the same agency, the Office of Thrift Supervision, do in this crisis where, remember, there was an epidemic of fraud identified as early as 2004? They made a grand total of zero criminal referrals. You can do the math. They weren’t about to make referrals.

The concept that people who wore nice suits could be criminals? Of course they can’t. They are the 1%. In fact, they are the only-tenth. In fact, they’re the 1/1000 of 1%. They must be good people.

At its peak we had 1,000 FBI agents working savings-and-loan cases alone. As recently as fiscal year 2007 we had a grand total of 120 FBI agents, one-eighth as many agents, for a crisis actually much larger than 70 times greater. There were well over 1 million cases a year of mortgage fraud. What are 120 agents going to do if they’re assigned to look at a million a year? This is like going to the beach, throwing handfuls of sand into the ocean, and wondering when you can walk to Hawaii. It ain’t ever going to happen. Every year you’re a million cases farther behind.

You have to go at the crooks, the crooks in the C suite. That is what they absolutely refuse to do. Because they had no criminal referrals. And there are no police on elite white-collar criminals.

Here’s a thought experiment. What if you had, say, in 2001, August, called up the Houston Police Department and said, “I think some really bad things are happening in Enron. Can you look into that for me?” We have roughly a million cops. How many of them look for elite white-collar criminals? Zero. Does the FBI patrol a beat? No. They’re in offices in various places. The only folks who are there, who can be there, are the regulatory cops on the beat. No. All of them had been pulled.

Where are all the cops now? Doing pepper spray. We won’t go after the real criminals, but we’ll go after peaceful protesters. In New York alone they had roughly 1,000 police assigned on the big crackdown day. Eight times as many FBI agents as we have looking at the little people, never at the big people in this crisis. As a result, we have no convictions of anybody senior on Wall Street. The only convictions we have is for somebody doing coke, type of thing, and they weren’t even terribly senior.

The FBI, to their credit, realized this was a disaster, realized it couldn’t possibly work, that every year you were more than a million cases farther behind. So they went to the Justice Department and they said, “We have to change the way we’re doing this. We have to have a national task force that prioritizes and we have to go after the major criminal lenders.” At which point Attorney General Mukasey—this was under President Bush, but don’t worry, I have no good things to say about his successor, President Obama—refused to create a national task force and said, famously, “This is simply white-collar street crime.” It’s just all trivial stuff. We can’t be bothered to look at any of the big folks.

How many people remember the 1990-1991 crisis in non-prime lending? It’s sort of a quick question because there wasn’t really one. Like all good frauds, it arose in Orange County, California, and we were the regional regulators for California and the West. And we said, “This is insane. You’re doing loans that are overwhelmingly fraudulent, that must lead to enormous losses. You can’t do this. So the leading place, which was called Long Beach Savings, gave up its federal charter, gave up Federal Deposit Insurance, became a state mortgage bank for the sole purpose of escaping our jurisdiction. Long Beach not only made liars’ loans and all kinds of fraudulent loans, it had a nice twist. It targeted minorities. Because it’s easier to do this to people who know can’t read English, for example, when you provide documents in English.

We gave a parting gift to them: a criminal referral to the Justice Department for discrimination in lending, which the Justice Department could still do, even though the place wasn’t federal. They found discrimination in lending. Then 49 state attorney generals, the attorney general of the District of Columbia, and the Federal Trade Commission all sued this entity for the third strike, because they were doing the same thing. After each time, of course, they said, “We’ll never do anything bad again.” They settled for over $400 million.

Then the CEO of that entity, which had changed its name to Ameriquest, which some of you will recognize, was, A, indicted, B, sued in personal capacity, or, C, made ambassador to the Netherlands. Got it in one. So we made him our ambassador to the Netherlands. And I bet you can guess why we made him our ambassador to the Netherlands. He was the leading contributor to President Bush. So what if he targeted minorities and was a three-time loser on fraud and caused hundreds of millions or billions of losses to people and cost tens of thousands of people their houses. Not my house. No problem. That was bad, but that’s politics.

You want to know why we knew there was going to be a crisis? Because, remember, Ameriquest, three-time losers, every day, every week, all year, what it does is fraudulent loans, where it is predatory and aims at minorities. That’s its reputation. Two entities rushed to acquire it and its personnel, who commit these frauds. Those two entities were Citicorp and Washington Mutual. This is the most notorious, abusive, illegal lender in the world, and two of our most prestigious banks rush to acquire them. I know it will shock you, but when they did that, Citicorp and Washington Mutual immediately began doing massive amounts of fraudulent loans. That’s when you knew that there was going to be a disaster.

It was followed by massive foreclosure fraud. The foreclosure fraud involved—really simple—we file an affidavit. An affidavit is done under oath. The affidavit is supposed to support the foreclosure. The affidavit in about five key spots was a lie. And they admitted it was a lie. By the way, the government didn’t discover this. Big law firms didn’t discover it, attorney generals didn’t discover it. Some very small law firm just finally took a deposition and said, “When you say this, what was your basis?” Whereupon—you can go online and see this on videotape—the person says, “Oh, no. I just was told to say that.” So they committed a felony, actually five different felonies typically, and they did it 10,000 times a month for over a year. So well over 100,000 felonies times 5, if you want to make it even bigger.

What would happen to any of us if we did that? Nobody has been indicted by the federal government. But the federal government is actually trying to negotiate a deal to give these frauds not only immunity from the criminal law for the foreclosure frauds but for the underlying frauds in making the fraudulent loans. It’s trying to give them immunity not just from prosecution but even from investigation so that we’ll never have the facts. That is how far we have descended into crony capitalism. Indeed, we have the Washington Post complaining, How dare the state attorney generals get in the way of giving this kind of immunity?

I told you about the FBI warning. The industry’s own experts gave this warning about liars’ loans. First a little data on liars’ loans. We know overwhelmingly it was the lenders who put the lies in liars’ loans. And they grew massively. You see that AltA, which is a euphemism for liars’ loans, grew 340% between 2003 and 2006. Except that this is not an accurate statistic, because this author, the Federal Reserve Bank of St. Louis, which is really right-wing, thinks that subprime loans can’t also be liars’ loans. And that’s simply false. In fact, by 2006, half of all the loans called subprime were also liars’ loans. So that’s actually well over a 500% growth in liars’ loans.

Anyway, the higher level of home originations after 2003 was largely sustained by the growth of subprime and liars’ loans. What does that mean? That means the bubble, folks. This is what hyperinflated the bubble. It was the liars’ loans overwhelmingly. By 2006 roughly one out of every three home loans in America made that year was a liars’ loan. The industry’s own antifraud experts reported to the industry that 90% of liars’ loans were fraudulent. Think about that again. Ninety percent. Here’s the other key: nobody—categorical statement—nobody ever mandated or pushed any lender to make liars’ loans. No governmental entity ever did so. Fannie Mae and Freddie Mac were never required to make liars’ loans. So this is a really great natural experiment, as we call it, to determine why the lenders were making these loans.

Why would you continue to make loans like this if you were told that 90% of them were fraudulent? Would any honest lender do that? Do you know what the industry did in response to the FBI warnings and their industry’s own warnings? They massively increased the amount of liars’ loans they made. That is only consistent with one explanation—that they intended the frauds to occur. This is the actual language of the warning: “They are open invitations to fraudsters.”

That’s a pretty in-your-face warning: If you make these loans, their own experts said, you are making an open invitation to them to commit fraud. And this is the third part: “The stated income loan deserves the nickname used by many in the industry, the ‘liar’s loan.’”

Step back and think about that as well. I showed you how Citicorp talks behind closed doors when it’s talking to the top 1% or top tenth of 1%. This is how the lending industry talked to itself behind closed doors. It called them fraudulent loans, it knew they were fraudulent loans. And you have people telling us we can’t prosecute this? This is a relatively straightforward prosecution.

What we have, to come back to Bastiat, is a complete collapse in ethics. Again, it’s not just the perpetrators; it’s the folks that allow it to happen. Which is to say, us. If we allow it to happen, it will happen. It will get ever worse. So this is the national commission to investigate the causes of this crisis:

We conclude that there was a systemic breakdown in accountability and ethics. The integrity of our financial markets and the public trust in those markets are essential to the economic well-being of our nation.

How many people have seen the Frontline documentary “The Warning”? You can see it for free on the Frontline site. I highly recommend it. But you will see in that documentary that Alan Greenspan, actually in the very first meeting with Brooksley Born, who was trying to regulate credit default swaps, said,

We’re clearly going to disagree, because you think fraud provides a basis for regulation.

Most people kind of do.

Only the Fed had authority, under an obscure kind of law called HOEPA, Home Ownership and Equity Protection Act, to regulate all entities making mortgage loans. And the great, great bulk of the entities making the liars’ loans were not federally regulated. So only the Fed could have stepped in and used that authority. And Greenspan refused to do anything, even after all these warnings about fraud. Because, after all, fraud can’t exist. And who are you going to believe, Ayn Rand or the facts? Greenspan was an Ayn Rand devotee.

I’ll end on this note. All of us, I would guess, other than some maybe really young people, have worked for businesses. This is not hostile to businesses, to prevent fraud, to prevent this mass unemployment that it caused. In fact, effective regulatory cops on the beat are the only thing that make it possible in finance for honest bankers to stay in business. Again, this was explained by that same economist who got the Nobel Prize, George Akerlof. He said,

Dishonest dealings tend to drive honest dealings out of the market. The cost of dishonesty, therefore, lies not only in the amount by which the purchaser is cheated. The cost also must include the loss incurred from driving legitimate businesses out of existence.

So we are the people, insisting on the rule of law, who are the real friends of honest businesses. The other folks are the death of honest businesses.
If you think that this is something that only economists have figured out, and only did it recently, there’s this guy named Jonathan Swift, who two centuries ago pointed out,

Where fraud is committed or connived at or hath no law to punish it, the honest dealer is always undone and the knave gets the advantage.

That is exactly what happened. The knave, the plunderer, the looter, the bankster got the advantage.

I will leave you with a fraud recipe which explains why we have mass unemployment, mass destruction of wealth. This is what Akerlof and Romer referred to as “a sure thing.” If you follow this recipe, three things in life are guaranteed. I’ll explain. Here’s the recipe:

1. Grow like crazy as a lender.
2. By making really, really, really crappy loans, but at a premium yield. That just means high interest rate.
3. Have extraordinary leverage. That just means a lot of debt.

Remember that memo by Citicorp? Grow like crazy, releverage, high-risk assets? And put aside next to no loss reserves. Akerlof and Romer says this is a sure thing in producing three events:

1. You are mathematically guaranteed in the short term to report record albeit completely fictional income;
2. With modern executive compensation, the top officers are guaranteed to become extraordinarily wealthy; and,
3. —let’s think through that recipe again—it also maximizes losses and produces disasters.

If we wanted to create a formula for producing massive losses, grow like crazy, make really crappy loans with extraordinary leverage, which increases the losses, and no reserves against the ultimate disaster that’s coming. That would be the perfect recipe.

And what happens if a bunch of us follow the same recipe, at the same time? We hyperinflate the market. And where normal businesses, knowing there was a glut, would cut back, under the fraud recipe, what do you do in a bubble? You go faster. You just hit the accelerator to the floor and keep it there.

Does any of this involve risk as we conventionally think of risk? No, it is a sure thing. These people hate risk. They want to make sure that all the risk falls on the 99%. They want a sure thing. This is the recipe that they used in finance to produce the massive wealth.

And, of course, it kicks through other things. All the lawyers and the top accounting firms produce their one-tenth of the 1% in the key partners as well from this same dynamic.

Now you know from the inside view at Citicorp, in their explanation to the wealthy, that that is exactly how they want it. That is what they are determined to continue. Their great fear is precisely all of you taking the time to come and express your statement that you will not allow it to continue, you will stop it.

They cannot defeat the 99% if the 99% act. Yes, it is the oldest of lessons from labor. With unity in numbers we have strength. We still have important aspects of democracy. It is slipping into crony capitalism. Crony capitalism always destroys and perverts democracy, if it’s allowed to continue. But we can take back the nation.

Thank you very much for all of your support.

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