In this expert insider's account of the savings and loan debacle of the 1980s, William Black lays bare the strategies that corrupt CEOs and CFOs - in collusion with those who have regulatory oversight of their industries - use to defraud companies for their personal gain. Recounting the investigations he conducted as Director of Litigation for the Federal Home Loan Bank Board, Black fully reveals how Charles Keating and hundreds of other S&L owners took advantage of a weak regulatory environment to perpetrate accounting fraud on a massive scale. In the new afterword, he also authoritatively links the S&L crash to the business failures of 2008 and beyond, showing how CEOs then and now are using the same tactics to defeat regulatory restraints and commit the same types of destructive fraud. Black drives home the larger point that control fraud is a major, ongoing threat in business that requires active, independent regulators to contain it. His book is a wake-up call for everyone who believes that market forces alone will keep companies and their owners honest.
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Another title might be, "mud wrestling in a tangled snake pit over the privilege to steal other people's money." Yet another, "a bipartisan masterpiece of machinations and sleaze: following the bread crumbs, naming names, good and bad, and among the bad, the incredibly slippery." A few slither away with big money, and the final bill, in a familiar story, is handed to the taxpayer, with Congress hacks helping the perps, greatly enlarging that bill, and altogether making us all measurably poorer for life. This may be a by-product of every go-go era, and go-go-eras have produced some great good for the public. This book focuses on the exploiters of such times, and I think we probably have another such prosperous phase of the cycle coming (so watch out). Did Alan Greenspan really say he thought there shouldn't be fraud laws (as attributed here, as having been remarked to Brooksley Born?) If so, wow. People plus econ theory can go to some very abstract, exotic places. That is, until one realizes: many hacks in the private and public sectors have their bread fundamentally buttered with information asymmetry: they actively embrace the view of a world of suckers and the suckered. The manipulators (and their house theory-propounders) make huge fortunes from it, want it, and must think the defrauded get what they deserve. Why should we slow down and take note of the fools who just haven't paid the information costs of being kingpins (and thus, in a sense, deserve their losses, and bargained for them)? It is an interesting ethos and set of questions. Some version of it is also a central cash flow machine for a huge political and business elite, despite the protestations of many (hauling out the easy bumper sticker phrase) that this is merely the magical free market in operation. (Adam Smith knew better, castigating fraud and what is now called agency problems, but who really reads him? Might as well watch the adult cartoons on TV creatively cherry-picking his writings.) After all, the market finds its equilibrium at some point, and by then, the winners have unassailable amounts of winnings, free and clear and oh-so-cleverly stashed. The armies of well-greased syncophant experts see to that. Except that the defrauded in this latest round of this phenomenon (2008) are unprecedented numbers of the rest of us, especially via the system of government-(taxpayers)-as-insurance-for-the-macro-economy joined at the hip with continuing permissiveness of fraud. Watch it unfold again now: now whenever everybody's fear of macro-disaster subsides, the next echo of this familiar financing bubble will take off. Since interest rates can't and won't be lowered soon, the answer (proposed by many) to juice up the economy will be sharp financial deregulation. And again, as in this book, the downsizing of things like bank examiner budgets. The regulated businesses will again be touted by regulators as "our clients." And surprise, into many cronies' pockets, vast amounts of cash will flow. Everybody will feel (at least potentially) rich and studly for a little while, then comes the inevitable denouement. (I can't assume from this small sample that the cycles will continue to shorten and steepen. But it concerns me.) And it feeds back into both major parties' coffers, and some very big political names, keeping the dance going longer, for bigger looting and losses, as this book shows. This book spends most of its time in a blow-by-blow of the '80s S&L affair in which this author was a prime participant from the government enforcement side. (This is not the entire history: the inquisitive reader can look for more background as to why S&Ls were in the ditch they were, for which the answer SEEMED to some, and some in good faith, to deregulate, to give some slack to the floundering industry, to climb out of its ditch. As usual, bipartisan fingerprints were all over the mess from way back. That larger history isn't quite all here, and isn't the apparent intention of this book, which is much more about the direct trench warfare.) People with an interest in this subject and its players will find it pretty absorbing (some will find it maddening, either at the author and those he praises, or those he pillories, or maybe some mix thereof). Having shown the most connected '80s crooks dispatched finally, after a titanic struggle finally winding up in climactic hearing scenes in Congress, it picks up speed to tie together a bigger picture historically and economically (from the author's particular viewpoint) in about the last one-fifth of the book. He is quite critical of public choice theory and other conservative concepts that, I think, can be very meaningful and important. But I don't get the sense of a blinkered ideologue. It was my honor to meet one of this book's heroes, Edwin Gray, later Bank Board Chairman, informally, in the early Reagan era. He infuriated a lot of well-connected people by actually doing his job, even after severe pressure was brought by many powerful and connected people. We can compare this civil servant, ungainly character traits and all, with the party hack later put into the regulators' ranks who, per the author, could not shut up about the fancy tricked-out interior and sound system of arch-crook-banker Charles Keating's jet. The latter sort of naive young apparatchiks were intentionally salted into the ranks of the regulators, by those for whom government is always and everywhere nothing but "the problem." Why not, in that vein, hire cops who are in awe of Pablo Escobar's car collection? And yet, next to the magnitude of crony cash flows these days, and the bitter rhetoric and broken consensus-reaching process, one can feel nostalgic for Reagan and his ability to work across the political spectrum and often lead in very good and productive directions, too. He was not simply a one-trick pony, as many of the cartoonish supposed imitators are now. But in the shadow of any and every system, some strange critters can grow.