PAUL JAY: Welcome to The Real News Network.
I'm Paul Jay in Baltimore.
And welcome to this week's edition of The Black Financial and Fraud Report with Bill
Black.
He joins us now.
Bill's an associate professor of economics and law at the University of Missouri-Kansas
City.
He's a white-collar criminologist, a former financial regulator, and author of The Best
Way to Rob a Bank Is to Own One.
Thanks for joining us, Bill.
BILL BLACK: Thank you.
JAY: So what do you got for us this week?
BLACK: Well, first we have Standard Chartered, one of the largest banks in the world, and
one that claimed great virtue but is another one that has exploited the cesspool that is
the City of London, which won the competition in laxity by having the weakest regulation
in the world of any major money center.
So Standard Chartered got caught by the New York prosecutors, and it turned out they not
only were violating all kinds of laws and money laundering and sanctions and such, but
they actually had training sessions on how to fill in the reports deceptively to fool
the regulators and disguise the crimes.
And the New York prosecutors, to their credit, regulators, went forward and got a very significant
penalty, and the federal folks were embarrassed into taking an action.
And the state action was sufficiently vigorous that something really unusual happened.
And we can see today one of the benefits of that unusual thing happening.
The unusual thing was that there was an actual admission in the settlement document by the
bank.
So, most typically, the Justice Department and the Securities and Exchange Commission
do these useless settlements in which the defendant neither admits nor denies anything
in it, and, you know, there's no way you can use that to do anything effectively.
So Standard Chartered, though, signs one that says, yes, we did it, and we did it on purpose,
we violated the law.
Yesterday the Standard Chartered head is being asked in a press conference, hey, did anyone
get fired for running all these deliberate frauds?
I mean, these are massive frauds measured in the at least hundreds of millions of dollars,
quite possibly billions of dollars.
And he answers, no, we certainly didn't do anything intentional.
Little clerical errors, you know, happen from time to time.
Well, the Justice Department went berserk, because, of course, they'd signed this agreement
saying, yes, in fact, they did violate the law, and they did so intentionally, knowingly.
And so the head of Standard Chartered has actually had to issue a press release doing,
oh, I'm sorry, I'm sorry, I was completely wrong, yes, we did it intentionally.
But, of course, that leaves the question: so why did nobody lose their job?
And apparently, nobody even loses their bonuses for these massive violations.
JAY: How about the other question?
Was anybody charged?
I mean, if they've acknowledged they did it deliberately, isn't that illegal?
BLACK: Oh, yes, but they're a too-big-to-prosecute bank, and we are now treating too-big-to-prosecute
banks as if their officers were too big to prosecute.
And indeed we treat their former officers that have already left employment as if they're
too big to jail.
So this is a baby step by our Justice Department, and as I said, they don't even get primary
credit for it.
It was the State of New York that pushed this thing and got stronger requirements.
But this is just the limited example of why it pays to actually force the defendants,
the massive defendants who have violated the law, to admit that they've done so.
JAY: And do you think the way the Obama administration has sort of tipped their hat so that people
know that they believe in this too-big-to-prosecute, has that not also affected the media, that
everybody says, oh, there's not really going to be much out of this, so why should we make
much out of it?
I mean, the media seems to lay off these issues, where you'd think there'd be big front page
scandalous stories.
BLACK: Yeah, you would think that actually this was the story of the decade, that the
Justice Department of the United States of America took the official position that there
was a group of institutions--a group of institutions which, by the way, make about 40 percent of
corporate profits in America--that could commit crime with complete impunity, that their officers
commit the crimes with complete impunity, and that they could walk away wealthy because
of their crimes.
JAY: And I'm not saying this as a--it's going to sound like a joke, but I actually mean
it more deeply than a joke--it's precisely because they have 40 percent of corporate
profits they're in this position never to get charged, because you can spread that money
around, and politicians are always out looking for money.
BLACK: It's that, and it is the fact that once the institutions get this large they
become systemically dangerous.
And so the regulators fear taking them on because they fear--well, actually, their statement,
their definition of these systemically dangerous institutions is that the next time one of
them fails--and it's when, not if--it will cause a global financial crisis.
Now, that, of course, is the broader insanity.
Why would you live--there are roughly 20 of these in the United States and roughly 40
outside the United States.
Why would you live with 60 swords of Damocles constantly hanging over the global economy
instead of getting rid of them since they're also incredibly inefficient?
They're too big to manage, too big to regulate, too big to prosecute.
That means they're too big to exist.
JAY: Well, let's talk another bizarro situation, which is a sort of reflection of the same
problem, what's going on in Cyprus.
BLACK: Okay.
So Cyprus is a great one.
Cyprus, of course, is a very tiny country with international issues because of the division
between ethnic Greeks and Turks, and we have a military occupation, a portion of Cyprus
by Turkey that isn't recognized by the rest of the world.
And in the midst of all this, we have a banking crisis associated with but not completely
determined by the Greek financial crisis.
And so we have the good old troika again of European institutions that are--come in and
going to deal with things.
And we have the fact that there's a German election coming up, and domestically the Germans
are fed up with paying bailouts, even relatively tiny ones that would be needed in Cyprus.
So they led the troika charge--this is the E.U.
institutions--that said, you, Cyprus, have to come up with a big chunk of the bailout,
and we say that you should charge the depositors for the bailout.
Now, they included in this the insured depositors, the people under the EUR 100,000 insurance
limit, which is kind of strange, because just about a week ago the Europeans with great
fanfare said, hey, we have a policy on how to deal with bank failures, and our policy
is the insured depositors will never suffer any loss.
And the Cypriot government promised their people all through these negotiations, one
thing that will never happen is there will be no charge to insured depositors.
So, of course, what did the Europeans insist upon?
A charge to depositors, including insured depositors.
JAY: Which means the small--people with relatively small amounts of money.
BLACK: That's right.
And lest you think that the Cypriot government are the good guys in all of this, the Cypriot
government at that point says, well, if we're going to have to charge depositors, we're
going to charge the insured depositors, the little guys, a pretty hefty fee: 6.6 percent
of their deposits they're going to lose.
And they did that because they wanted to reduce the losses to the really big depositors beyond
the insurance limit.
And they kept that percentage loss down to 9.9 percent, which they felt psychologically
it was critical to keep it under 10 percent, because it turns out that Cyprus's primary
strategic plan for economic development is to be the money launderer for the scum of
the earth.
And in particular, they really like the Russian oligarchs, who are bleeding money out of Russia,
evading taxes, and doing God only knows what worse with the money as well.
And so Cyprus's government, their big strategic thing was not to protect the little Cypriot
depositors but to protect the big Russian depositors, whereupon the Cypriot people went
crazy and they adopted a wonderful thing.
They started writing "no" on the palm of their hand and holding up their hands in public
to make this protest.
And the measure became so unpopular that when the parliament of Cyprus voted on it, it didn't
get a single vote in favor of the plan, so there all these kinds of negotiations.
And by the time anyone, you know, is looking at this, God only knows what the new plan
will be, but it is one completely screwed up interchange driven both by insanity at
the E.U.
level, IMF, and the Cypriot government.
And now we have Slate's Matt Yglesias giving two cheers to all of this insanity, saying
that it was a well-structured plan, that it was a good thing that they were causing depositors
to suffer losses.
He wished the losses to the small depositors were smaller, but still wanted them to have
losses, and then proposed: hey, why doesn't Cyprus solve the problem by just selling its
claim to the remainder of Cyprus to the Turkish government?
JAY: Brilliant.
And then the other thing they're talking about is to stop the Russians from all pulling their
money out of the Cypriot banks, bartering off or handing off sections of the Cypriot
energy fields off the coast, which apparently could be quite rich.
BLACK: And this follows discussions in German parliament about demanding that Greece sell
islands to the creditors to--you know, basically this is what happens when you give up a sovereign
currency and adopt a non-sovereign currency like the euro: you lose essential attributes
of sovereignty, and you end up in a situation in which literally you're being coerced to
put your country up for sale.
JAY: And, of course, alongside this will be some kind of severe austerity measures in
other areas of the life of the people of Cyprus, because in the final analysis they're going
to try to make them pay for all this.
BLACK: Yes.
And an important gauge in Europe that when it goes below 50, it signals increasing recession
or contraction, has just gone down substantially, showing unexpected weakness even in Germany
and France.
So people are now--economists are now revising their projections to believe that the recession
in the Eurozone is going to last longer and be more severe.
JAY: Craziness.
Alright.
Thanks for joining us, Bill.
BLACK: Thank you.
JAY: And thank you for joining us on The Real News Network.