The DISH

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Vol. 12 Issue 15…Dedicated to the Dialogue on Race…April 12, 2009

Black on the Red Cover-Up

By John Burl Smith

One of many Americans, who were astounded by the Bush administration's response to the nation's financial crisis, William K. Black has written extensively about the governmental cover-up of the red ink drowning America's banking system. The election of Barack Obama was seen as a chance, not only address to the historic problems of slave descendants and righting of the ship of State, but also an opportunity to dam the red ink gushing from Wall Street. However, it is becoming increasing clear that Mr. Obama has jumped into the raging red torrent without a life line or jacket for the American people, simply to save his biggest financial contributors.

Appearing on Bill Moyers Journals, Associate Professor of Economics and Law at the University of Missouri - Kansas City (UMKC), Black provided a jolting analysis and assessment of the causes and culprits of the current economic crisis which has shaken confidence in the integrity of Obama's economic team and congressional oversight. According to Black, like the Bush administration, the Obama economic team, led by Timothy Geithner, is engaged in a massive cover-up of the fraud that was and still is rampant in the banking industry.

Prof. Black revealed that had the "Prompt Corrective Action" (PCA) law been faithfully applied this crisis would have been avoided. Far too extensive to be adequately covered here, Black's interview makes clear, based on the PCA, that those in charge of fixing the bank crisis are either complicit in bank fraud, involved in the cover-up or extremely ignorant of a law that defines their job under the current circumstances. For instance, over the last few weeks, Congress and the White House argued over how to handle the "excessive bonuses," while the PCA states specifically how to handle the situation.

The problem, according to Black is, "Timothy Geithner and other regulators have refused to follow the law as it pertain to mandatory provisions which 'require minimum and automatic supervisory action' and 'mandatory closure' of banks before they become insolvent. As head of the New York Fed and a colleague of then Secretary Paulson, Mr. Geithner and other top federal banking regulators were complicit by failing to comply with the PCA law."

More astoundingly, during congressional hearings, not one Congressman asked Geithner or other regulators about their enforcement of PCA provisions of troubled banks. Moreover, Geithner is now offering a stress test for troubled banks, rather than enforcing the law already on the book. Here again the problem is integrity. Geithner's efforts seem designed to avoid exposing the cover-up and how he, as Chairman of the New York Fed, did not follow the PCA in regulating banks under his jurisdiction.

The division between the US and the EU at the recent G-20 meeting at which President Obama wanted Europeans to follow his lead and throw money at their banks was a tip off. The US fought international regulation of banks to avoid opening up US bank books to foreigners' scrutiny and exposing the cover-up of US banks' insolvency.

Congress passed the PCA law (1991) to correct problems exposed during the S&L debacle. They believed regulators bowed to political or industry pressure ("regulatory capture") and delayed placing failed banks into receivership, which greatly increased cost to taxpayers. Congress identified "supervisory delay in closing insolvent banks," as the problem and mandated "prompt corrective action." The PCA provisions of FDICIA created a structured system of supervisory responses. Once tangible equity capital dropped below two percent of total assets, bank would be forced into receivership within 90 days. The massive recapitalization of banks evaded enforcing PCA.

"Prompt corrective action" by bank supervisors is aimed at minimizing expected losses to the deposit insurer and taxpayer by limiting supervisors' ability to engage in forbearance -- leaving the senior officers that caused bank failure in control. Economists and white-collar criminologists broadly agree that "forbearance" creates particularly severe risks to the taxpayers. It also prevents efforts to obtain an honest evaluation of assets and criminal referrals. So, promptly placing failed banks in receiverships reduce taxpayer costs and systemic risk. The PCA was also designed to reduce banks' incentive to engage in moral hazard. "Moral hazard" can lead to both "reactive" control fraud and wildly imprudent risks. Such potential problems were recognized and recommendations to policy makers in countries like Japan, Korea and Mexico were adopted.

However in the US, resolution include: (1) the government assuming control of the failed bank, firing the senior managers and removing equity holders from any governance role, and (2) the government returning the bank's assets to private control through some combination of sale to a healthy bank or banks, new equity issue, or liquidation.

Specifically, no bank may make a capital distribution (dividend or stock repurchase) if after the payment the bank would fall in any of the three undercapitalized categories. Such banks must submit a capital restoration plan for approval by the bank's supervisor. Significantly, undercapitalized banks face growth restrictions including no "bonuses and raises" to management. Critically, undercapitalized banks must be placed in receivership within 90 days.

Black asks, "So, the fundamental question is why has the nation been forced to pay for this disastrous Paulson/Geithner policy of covering up these huge bank losses, while leaving CEOs and senior officers that caused the losses, often through fraud, in power? How many who voted for Mr. Obama believed he would continue Bush's failed financial regulatory policies?"

There is a "consensus among economists and white-collar criminologists that failing banks should have been placed into receivership rather than being re-capitalized by government. Given the terrible cost to taxpayers due to 'forbearance' during the early years of the S&L debacle, Japan covering up its bank losses, and the great success of US re-regulating S&L industry," why has Mr. Obama adopted this failed red ink strategy? "Re-regulating the S&L industry was not simply an economic success; it restored integrity, honest accounting, prompt receiverships, and rooted out control frauds. This led to over 1000 felony convictions related to the S&L debacle - the greatest criminal justice success in history against elite white-collar criminals." For anyone who desires to read the interview go to www.pbs.org/moyers/journal.

Bit of History

Charles Ponzi (1882 - 1949)

Born Carlo Pietro Giovanni Guglielmo Tebaldo Ponzi in Lugo, Italy on March 3, 1882, Charles Ponzi's family may have once been wealthy and perhaps part of the aristocracy, at least according to the tales told to him by his mother when he was a child. She charged him with restoring the family's name and fortune. Ponzi joined his father briefly as a postal worker, a job that ended with his acceptance to the University of Rome La Sapienza. Unfortunately, his circle of friends did not take the pursuit of education seriously. A follower, Ponzi joined his friends in treating the experience like a "four-year vacation" of "bars, cafés, and the opera." Ponzi failed to acquire a degree.

Hoping to make his fortune in America, where "the streets were paved with gold" or so he was told, Ponzi arrived aboard the S.S. Vancouver in Boston on November 15, 1903. Having gambled away most of his savings during the voyage, Ponzi arrived in the US with $2.50 in his pocket. Ponzi quickly learned English and spent the next few years doing odd jobs along the East Coast. After taking a job as a dishwasher in a restaurant, where he slept on the floor, Ponzi worked his way up to the position of waiter; he was fired for shortchanging the customers and theft.

In 1907, Ponzi moved to Montreal, where he became an assistant teller in Banco Zarossi, a bank started by Luigi "Louis" Zarossi, who paid 6% interest on bank deposits - double the going rate. Ponzi rose to bank manager only to learn the bank had made bad real estate loans and that Zarossi was funding the interest payments by using money deposited in newly opened accounts. The bank failed and Zarossi fled to Mexico with a large portion of the bank's money. A penniless, Ponzi was later arrested for forgery and spent three years in a prison near Montreal.

After his release in 1911, Ponzi returned to the US. Caught in a scheme to smuggle Italian illegal immigrants across the border, he spent two years in Atlanta Prison, where he became a translator for the warden. Upon his release from prison, Ponzi returned to Boston, where he met and married Maria Gnecco.

Ponzi worked at a number of businesses, including his father-in-law's grocery, before hitting upon an idea to sell advertising in a business listing. Unable to sell the idea, his company failed. When he received an international reply coupon (IRC) in a letter from Spain inquiring about his catalog, Ponzi decided he could make money by buying these coupons in one country and selling them in another. Ponzi borrowed money to send to relatives in Italy, where postage was relatively cheap; he planned to redeem them in the US. This form of arbitrage, profiting by buying an asset at a lower price in one market and selling it in another was not illegal.

However, when he tried to redeem the coupons in the US, he ran into an avalanche of red tape. Nonetheless, Ponzi sought investors for his scheme, promising them double their investment in 90 days. Ponzi started the "Securities Exchange Company," setting up shop on School Street.

The business grew and Ponzi hired agents, paying them generous commissions for every dollar they brought in. By July 1920, Ponzi had made millions. People were mortgaging their homes and investing their life savings in his company.

Ponzi lived luxuriously. His rapid rise naturally drew suspicion. After printing a favorable article on Ponzi's company on July 24, 1920, the Boston Post's acting publisher Richard Grozier and city editor Eddie Dunn were suspicious and assigned investigative reporters to check Ponzi out. He was also under investigation by the Commonwealth of Massachusetts.

By August 1920, Ponzi's house of cards had come crashing down. On August 12, Ponzi surrendered to federal authorities; he was charged with 86 counts of mail fraud to which he pleaded guilty to a single count and was sentenced to five years in federal prison.

After serving three and a half years, Ponzi was indicted on 22 counts of larceny by the state of Massachusetts. Ponzi sued, claiming that as a federal prisoner he could not be tried by the state. The case, Ponzi v. Fessenden, made it all the way to the Supreme Court. In a 1921 decision, the Supreme Court ruled that plea bargains on federal charges have no standing regarding state charges. It also ruled that Ponzi was not facing double jeopardy because Massachusetts was charging him with larceny while the federal government charged him with mail fraud.

In October 1922, he was tried on the first 10 larceny counts and was eventually sentenced to seven to nine years in prison as "a common and notorious thief." In 1925, Ponzi was released on bail while appealing his conviction; he went to Jacksonville, Florida and launched the Charpon Land Syndicate, selling swampland in Columbia County and promising investors 200 percent returns in 60 days. Indicted by a Duval County grand jury in February 1926, he was charged with violating Florida trust and securities laws. A jury found him guilty and the judge sentenced him to a year in the Florida State Prison. Ponzi appealed his conviction and was freed after posting a $1,500 bond.

Ponzi traveled to Tampa where he shaved his head, grew a mustache, and tried to flee the country as a crewman on a merchant ship bound for Italy. He was caught in New Orleans and sent back to Massachusetts to serve seven more years in prison.

Ponzi was released from prison in 1934 and ordered deported to Italy, where he jumped from scheme to scheme. Benito Mussolini gave him a job in the financial section of his government. However, he mismanaged things so badly that he was forced to flee to South America--but not before taking an undisclosed amount from the Italian treasury.

Ponzi spent the last years of his life in poverty, working occasionally as a translator. His health suffered: A heart attack in 1941 left him considerably weakened. His eyesight began failing, and by 1948 he was almost completely blind. A brain hemorrhage paralyzed his right leg and arm. Ponzi died in a charity hospital in Rio de Janeiro on January 18, 1949. (Sources: http://forum.wgbh.org/lecture/ponzis-scheme-true-story-financial-legend and http://wikipedia.org)

Venue for an Artist

Running Backwards

By Mumia Abu-Jamal

Few sciences are more complex than economics, for despite the plethora of formulas claiming to define its workings, economics remains a bedeviling mystery that confuses and confounds the best minds time and time again.

That's often because our economic ideas are formed not only by our experiences but by our beliefs, and as such, we defend our ideas based not on evidence, but on our theoretical constructs -- again, what we believe.

We are free marketeers, or Keynesians; we follow the theories of Adam Smith, Henry George, David Ricardo or Karl Marx the way we follow our favorite basketball team, win or lose. Sometimes those theories blind us to the bigger game of life outside our doors.

Much of the current economic crisis is the direct result of the economic theory of deregulation, made, not under George Bush alone, but in the waning days of the Clinton administration. For it was in 1999 that Clinton's treasury secretaries, first Robert Rubin, and later Larry Summers, advocated the repeal of the Glass-Steagall Act, a 1933 law which prohibited commercial banks and investment banks from functioning in the same house.

The reason? None other than ole FDR. President Franklin D. Roosevelt explained as much in his famous "Fear Itself" inaugural speech of 1933, when the nation was reeling in the grips of the Great Depression. Roosevelt said,"...there must be a strict supervision of all banking and credits and investments; there must be an end to speculation with other people's money..."

In November 1999 President Bill Clinton signed into law the Gramm-Leach-Bliley Act, essentially repealing Glass-Steagall, by tearing down the brick wall between commercial and investment banks. The securities industries went on a tear, making millions, billions and then tens of billions on speculation with other people's money-- until the house of cards came crumbling down in November 2008.

The speculation business didn't just become toxic. It was poison in the 1930's, and came back to life in the late '90's more poisonous than ever.

By then, both political parties were parties of deregulation, for both were instruments of corporate power, and both were the authors of today's Great Recession, if not the Depression to come.

News You Use

Durban Review Petition

An online petition drive seeks to address the absence of the US at the upcoming Durban Review Conference. Below are excerpts from the petition, which can be read in its entirety and signed at www.petitiononline.com/Durbanii/petition.html. If you agree and sign this petition, please copy and paste the URL for mass distribution.

To the world citizens...US Refusal to Participate in Durban Review Conference: African Americans and People of Color Speak for Ourselves!

The election of Barack Obama as US president was an important development in the direction of democracy. It represented an ideological blow against the hold of racism and white supremacy on national political elections. Many Blacks and People of Color worldwide have great hopes that his election among other things, represents a leadership willing to take a strong stand against racist US and global policies, systems and governments.

The refusal of the Obama administration to participate in the Durban Review Conference on racism to be held in Geneva on April 20 to 24, 2009, without preconditions that restricts the conference from addressing the issue of Reparations and the racist and genocidal nature of Israel's oppression of Palestine, is truly a big disappointment. It not only departs from one of the important meanings of the Obama election - unifying a political majority in opposition to racism; it represents a total disregard for the collective agreement of the vast majority of the world on the issue of Reparations and is an act of complicity with violations of human rights as stated in the United Nation's Charter.

While the United States and western governments boycott the Durban Review Conference, the impact of the international economic crisis continues to deepen the historic vestiges of centuries of racism, devastating poverty, and all forms of discrimination and injustice upon People of Color inside the US and throughout the world. It is a major cause of the ethnic cleansing which we have witnessed in parts of Africa, resulting in the deaths of millions.

Little attention has been given to the fact that in the U.S. alone, it was Black and Latino communities who were the targets of the unjust and discriminatory subprime loan schemes of Wall St. and the financial markets. These loans preyed upon the legitimate aspirations of millions of Black and Latino families for adequate housing and home ownership. Various analyses of the housing market crisis indicate that Black and Latino communities are disproportionately impacted and will "lose between $164 billion and $213 billion" as a result of predatory lending, thrusting thousands into economic crisis, homelessness, poverty, devastation.

We are witnessing the speed of the US government in granting trillions of dollars of the people's funds, to bail out the banks and corporations which are part of the historical chain perpetuating the oppression and violation of human rights against Africans, African descendants and Peoples of Color nations and communities. Yet the US refuses to address the demand for reparations by the victims of oppression, as an essential component of the equality and democracy it claims to champion inside the US and internationally.

We have submitted petitions and made appeals to the US government to participate in this important conference, without success. Its participation in a preparatory meeting, gives a false impression that the US government is really committed to ending racism inside the US and around the globe. In the US's refusal to attend this conference, we see a continuation of the policies of the previous administrations, magnified by the Bush administration, of refusing to be accountable to democratic standards and decisions arrived at by the UN and other international bodies.

We therefore call on the Durban Review Conference to recognize the voices of African American and People of Color delegations and coalitions from organizations and social movements throughout the US in this important deliberation, to arrive at a report that frames, mandates, informs, reviews and reinforces accountability to international conventions and standards on human rights.

Hood Notes

Foreclosure Fraud

Millions have already lost their homes to foreclosure. According to the Hope Now Alliance, some 2.9 million people were 60 days or more past due on their mortgages as of January 30, 2009. An estimated six million households are expected to face foreclosure in the next several years. Add to this toxic financial mix are the foreclosure con artists that prey on homeowners desperately seeking to save their homes.

Finally the regulators are issuing warnings and promising to clamp down on foreclosure fraud. In a joint announcement on Monday with the Justice Department, Federal Trade Commission, Department of Housing and Urban Development and the Illinois Attorney General, US Treasury Secretary Timothy Geithner declared war on foreclosure scam artists. According to Geithner, "American homeowners have been through enough in the past few years. The last thing they need is to get scammed as they struggle to keep their homes. These predatory scams callously rob Americans of their savings and potentially their homes. We will shut down fraudulent companies more quickly than before. We will target companies that otherwise would have gone unnoticed under the radar."

The Federal Trade Commission has sent warning letters to 71 companies it says were running suspicious advertisements and has filed five new civil cases to halt illegal loan modification scams. Attorney General Eric Holder says the FBI is investigating about 2100 mortgage fraud cases.

Despite the beefed up efforts to prosecute foreclosure fraud, homeowners must be vigilant to avoid becoming victims. There are thousands of enterprises operating to bilk the unsuspecting. Be particularly leery of advertisements claiming to help consumers "Get out of debt, stop foreclosure now and payday loans in one hour." People, if it sounds too good to be truly it probably is!

Disgruntled feels: Conflicted! Some folks are operating under the misconception that being black makes President Barack Obama beyond black scrutiny. We should bite our tongues and not criticize him, even when he does things we disagree with. Hogwash! As president, Mr. Obama is in charge and should receive the same degree of scrutiny and suspicion by blacks that we visited upon his predecessors. Mr. Obama is doing nothing special to help the black situation; he has earned no special consideration. Blacks should in no way be conflicted about this.

Disgruntled says: The country has gone to hell in a hand basket. Fraud abounds from the west coast to Maine. Big and little crooks, scheming and scamming, are being arrested and charged with money crimes. Even federal prosecutors are bending the rules. In dismissing the corruption conviction of former Alaska Senator Ted Stevens (R), US District Judge Emmet Sullivan scolded the Justice Department lawyers for mishandling witnesses and withholding evidence. He appointed a special prosecutor to investigate the Justice Department lawyers. Note, this turn of events in no way exonerates Stevens, who could very well be guilty. It is just the prosecutors did not operate within the law to secure the overturned conviction. I would not be surprised if one or more members of the federal prosecution team was working behind the scenes for the candidate that won Steven's former Senate seat to join the other crooks in that august body of criminals. The system is broken; the foxes are in charge of the henhouse!

Disgruntled wants to know: A massive fraud has been perpetrated against the American people and a significant portion of the rest of the world. The sheer scale and magnitude of this Ponzi scheme make what Bernard Madoff did pale in comparison. Former US Treasury Secretary Henry Paulson, his successor Timothy Geithner, the Federal Reserve and others in the Obama administration are colluding with the criminal financial sector to cover up the nature and scope of this fraud. Our Congress is either asleep or complicit. Question is, when will the American people awake and demand jail time for these criminals, rather than allow them to continue to sup at the trough of the US treasury?

Mailbox: E-Mails, Faxes and Phone Calls

Email www.ap.com ...Idaho man pleads guilty to major VA fraud case...A former Idaho sheriff's deputy who falsely claimed he was paraplegic has pleaded guilty in a $1.5 million disability fraud case that a US attorney said is the largest in Veterans Affairs Department history. James M. Sebero accepted an agreement with prosecutors and pleaded guilty Monday to charges of wire fraud and making a false statement. Sebero, a former Bonner County, Idaho, sheriff's marine deputy, agreed to forfeit personal assets and to pay $950,000 in restitution, and could face 20 years and a $250,000 fine when he is sentenced July 10.

Email www.msnbc.com ...Red Cross: Medial ethics violated at Gitmo....Medial personnel who monitored the harsh CIA interrogations of "high value" prisoners at secret overseas sites violated medical ethics, the International Committee of the Red Cross says in a report. The 2007 report, based on interviews with 14 detainees who were held at the secret sites before being transferred in September 2006 to the prison at Guantanamo Bay, Cuba, said the health personnel monitored detainees as they were subjected to techniques such as waterboarding - which simulates drowning - and prolonged stress positions. In some cases, the Red Cross reported, medical staff recommended stopping the treatment; in others they "recommended its continuation, but with adjustments.

Email www.ajc.com ...Conn. AG questions credit rating companies...Connecticut Attorney General Richard Blumenthal is questioning why up to $400 million in federal bailout money is going to the big three credit rating agencies that he says helped create the economic meltdown. Blumenthal on Monday said that he is investigating why a $1 trillion government bailout program designed to unfreeze credit markets steers money to Moody's Fitch and Standard & Poor's and shuts out their six smaller competitors. He said the companies may have violated antitrust laws, and he alleged they overrated toxic assets before the meltdown.

Email www.msnbc.com ...SEC: Texas Ponzi scheme targeted Chinese-Americans...A Canadian man who dubbed himself the "Chinese Warren Buffett" faces federal charges of running a Ponzi scheme that targeted primarily Chinese-Americans and has left millions of dollars of unaccounted for, the Securities and Exchange Commission announced on Monday. A federal judge in Dallas last week granted the SEC's request for emergency relief for investors, freezing the assets of Weizhan Tang, 50, of Toronto, and several of his businesses, including Texas-based WinWin Capital Partners LP, and Bluejay Investment LLC. Tang raised between $50 and $75 million from about 200 investors for his Canada-based hedge fund, Oversea Chinese Fund Limited Partnership, and operated a Ponzi scheme with the hedge fund since at least 2006, according to the SEC.