Professor William Black Fails Bethany McLean for Issuing Hall Passes to Goldman Sachs and Wall Street
I first heard of William K. Black over 20 years ago. As the man who had stood up to “the Keating 5,” Black had been the hero of the S&L crisis (in which I gained some early experience: hence my awareness of him). Later, as a professor of law and economics at University of Missouri in [...]

I first heard of William K. Black over 20 years ago. As the man who had stood up to “the Keating 5,” Black had been the hero of the S&L crisis (in which I gained some early experience: hence my awareness of him). Later, as a professor of law and economics at University of Missouri in 2005, Black wrote a book about control fraud,  “The Best Way to Rob a Bank is to Own One,” available here. You should read it.

Yet I had never heard Black speak until one night in 2009, when he appeared on Bill Moyers. How refreshing it was to watch the tabloid analyses be replaced at last with discourse about the system itself (and remember that while the following claims seem barely controversial now, in 2009 they were still largely heretical):  Banksters. Fraud versus trust. Elites. Moral hazard and pathological incentives in the financial system (e.g., lending firms’ Ninja Loans + investment bankers pooling mortgages + captured ratings agencies = toxic waste = systemic risk).  In 2004 the FBI warned on mortgage fraud, but the Machine failed to react. Bank lobbyists. Glass Steagall. Brooksley Born and Credit Default Swaps. Bailout of the elites. Bank CEOs. Cover-up. Strategy to keep the public from understanding how bad the problem is. Prompt Corrective Action law: Nationalize zombie banks. WHERE IS OUR PECORA COMMISSION? Scared of insolvent banks being revealed. Mimicking the strategies of Japan’s Lost Decade.  AIG-to-Goldman bailout.  Increasingly horrific give-aways of taxpayer money. Stop hiding the losses.  The current bleak numbers still vastly underestimate the fraud problem.

He had me at “control fraud.”  I leave it to the community of readers to judge the familiarity of the other claims he made:


Alas, Bethany McLean and I are not so sympatico, and in fact have had a challenging relationship. Her side of the story is told  here:

Is Overstock the new Amazon?


DeepCaptures’ side, here:

Bethany McLean: your benefit of the doubt is hereby revoked

Rocker Partners and Bethany McLean: the smarmiest guys in the room

David Einhorn, Cheryl Strauss, and the “Unavailable” Bethany McLean

One interesting aside: in the last year I have had numerous journalists bring up to me Bethany’s emails wherein she schemes with a hedge fund (obtained by DeepCapture from a New Jersey courthouse and published in Bethany McLean: your benefit of the doubt is hereby revoked). Apropos of nothing, these journalists have told me that they know about it and see it as a tremendous breach of journalistic ethics. So there it sits, an open secret, although not, apparently, a secret anymore, but just something about which one whispers. (Just as Jim Cramer’s video sat on DeepCapture for a couple of years drawing no comment, until Comedy Central confronted Cramer with it).

In any case, this week on CNBC Maria Bartiromo had William Black and Bethany McLean on as guests.  Truly remarkable performances were delivered by all, albeit for different reasons.

Maria Bartiromo opens by inviting Black to respond to the decision by the Justice Department not to pursue criminal charges against Goldman Sachs for its role in the financial crisis in general, and in selling financial products from whose failure Goldman profited.

Black begins with the obvious: Generating liar loans and packing them for resale is fraud. There is no evidence that there was a significant federal investigation, or that a grand jury was convened. There is an absence of  accountability.  Goldman has been given a pass by Obama and Bush.

Bethany responds with a dulcet confidence that suggests she thinks she knows what she is talking. Her analysis: I don’t think anybody is giving  Goldman Sachs a pass to be honest. I think this is a tough case to make. I do think integrity needs to be restored to the financial system, but you don’t do that by bringing a case that shouldn’t be made. Goldman Sachs didn’t make liars’ loans -  they actually among the Wall Street firms were not on the ground making mortgages. So if you can’t bring a case against Countrywide how can you possibly bring a case against Goldman Sachs?  … From an overall perspective Goldman Sachs as a firm lost money in the mortgage business. Awfully tough to bring that case to a jury and win, I think… I’m not giving Goldman a pass or any of Wall Street a pass. I think I’m with Bill on that. But I don’t think this was a criminal case.  I think Goldman’s customers should make the call: Do we want to do business with this firm? …

Naturally, Bethany’s vapid apologetics draw Maria Bartiromono’s stammering, nodding, approval: As you said earlier, stupidity does not mean criminality.

Bethany: Greed and venality do not make a criminal case.

There are two remarkable items about Bethany’s performance. First, note that air of confidence she maintains, when in fact (as will become clear) she has no idea what she is talking about. Second, note that Bethany is apparently unaware that the man she is debating debating on-air, William Black, knows a lot about what she is talking about. In fact, he is one the nation’s experts on precisely the issue she and Maria are trying to gloss over: the plausibility of federal prosecution of white collar crime at financial institutions.

Professor Black tries continues like a gentle professor with two slow students: Critical area here…. First, I’m the type of person that was involved in training the FBI agents, the assistant US attorneys, serving as the expert witness in these successful prosecutions where we had a 90% successful rate. Clearly people are not understanding fraud mechanisms. In accounting control fraud the firm – loses – money. Indeed that is one of the defining elements because the way you maximize it is by making bad loans. And Goldman did make liar’s loans, it did it through subsidiaries and Goldman purchased loans that it knew to be fraudulent, and it packaged them and sold them as if they were good loans. This belief that this is the first virgin crisis in which fraud was not driving it is amazing. Nobody believes it about the savings and loan debacle. No one believes it about the Enron era fraud. And given what you’ve seen in the last three weeks, how can you believe it out of the current…”

Bethany appears to panic slightly, before locking into a repetitive and droning regurgitation of the bromide talking points she just delivered a moment before (which amplifies my suspicion that some Goldman PR flack handed them to her to memorize).

Behold final analysis of legal culpability in the greatest financial collapse of our lifetime (so far), per Bethany McLean (verbatim): Maria, I think there was a hue and a cry and a lot of political pressure to bring charges in this case. And I think that if they could have, they would have. And I don’t think that any of our interests are served… I think it’s just as dangerous to bring a case that shouldn’t be made as to not bring a case that should be made. Neither one helps with the integrity of the financial system. I agree – peoples’ behavior during this crisis was unethical, it was abhorrent, it was every word you can come up with for ‘wrong.’ Butt if you are going to bring a case against Goldman Sachs you have to bring a case against every single other Wall Street firm as well as every mortgage originator as well as every home owner who lied on his or her mortgage application. You cannot single out one firm and say we are going to charge Goldman and we’re not bringing charges against everybody else. That’s wrong.

Maria Bartiromo: That’s a great point.

William Black (like a professor exasperated with dull students he can no longer humor): No it’s not a great point. It’s a terrible point. You’ve got to start with somebody. Your first prosecution is always your first prosecution. And you can always say where there’s been an epidemic of fraud…

Bethany’s nails-on-a-chalkboard apologetics have received a fair bit of shocked attention this week, revealing her biases more barely than is customary (though frankly, it struck me from the first sentence she uttered the first time she called me, an utterance meant to convey to me that she was a Mean Girl and a hedge fund shill). Asserting without argument that there was political pressure to bring charges against Goldman, Bethany appears literally incapable of considering the possibility that the political pressure ran in the opposite direction, and that in fact “political pressure” may be the only thing that has kept Goldman from prosecution for years.

But personally, I think Bethany is really not incapable of considering such a possibility, which means that her adamancy has other motive.

Daily headlines disappoint with lack of prosecution, making clear that this will go down as history’s “first virgin financial crisis” (in Professor Black’s phrase) in which fraud played no role.  When you read these headlines, imagine Bethany McLean, or someone very much like her, standing in an oak-paneled room in Washington, DC, droning through the same set of talking points to some senior decision-maker, and that decision-maker getting slowly snowed in under the same dulcet non sequiturs as appear in this remarkable exchange….

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