Aug 31, 2005
He was up for tenure.
At the same time, he was out with a blockbuster book on corporate crime.
Not a good combo for William K. Black.
Black's book -- The Best Way to Rob a Bank is to Own One: How Corporate Executives and Politicians Looted the S&L Industry (Texas University Press, 2005).
The school where Black taught -- up until a couple of months ago -- The LBJ School of Public Affairs at the University of Texas.
Last year, the faculty at the LBJ School voted to grant Black tenure.
Fourteen out of fifteen of the outside reviewers -- including University of California Berkeley's George Akerlof, winner of the 2001 Nobel Prize for Economics -- gave Black positive reviews.
One -- UC Berkeley Professor of Economics Emeritus James Pierce-- ripped him to shreds.
Based on that one negative review by Pierce, the University of Texas denied Black tenure.
The LBJ School's acting dean, Retired Admiral Bobby Ray Inman, did not return calls seeking comment for this article.
During the 1980s, Black was deeply involved in the wars between federal regulators and a group of what Black labels as "control frauds" -- led by Charles Keating. (Black defines a control fraud as someone who uses control of the business entity to loot the entity.)
Black worked for the regulators.
It was a brutal and nasty battle.
And Black was on the front lines.
* The then Speaker of the House, Jim Wright, who was forced out of office in part because of the scandal, swore and screamed at Black and referred to him as "that red-headed SOB."
* Keating's holding company sued Black in a Bivens action, alleging $400 million in damages, claiming that Black violated the company's constitutional rights. (Dismissed with prejudice.)
* Keating ordered his chief political fixer, as his "highest priority," to "get Black. . .kill him dead."
* The FBI investigated Black at Keating's instigation.
It appears now, that after so many years, the war between the two sides has started again.
After the savings and loan debacle, which cost U.S. taxpayers at least $150 billion, a federal commission was set up to investigate the origins, causes and solutions to the fiasco.
Pierce headed the commission.
And in 1992, he plucked Black from the Federal Home Loan Bank of San Francisco, where Black was general counsel, to be his deputy.
Black and Pierce came to agree on the causes of the savings and loan debacle -- massive control fraud.
But they disagreed vehemently on whether such a massive fraud could be pulled off without federal deposit insurance.
Pierce argued that deposit insurance made the savings and loan scandal unique -- that without it, such a massive fraud could not occur.
Black countered at the time that while deposit insurance attracted fraudsters to the savings and loan industry, it could happen without such federal insurance.
Deposit insurance wasn't essential to such massive frauds because the fundamental dynamic of control fraud is accounting fraud, Black argued.
"And accounting fraud doesn't rely in the least bit on deposit insurance," Black told Corporate Crime Reporter. "And every major savings and loan control fraud engaged in accounting fraud. If you could get a clean opinion claiming massive profits for entities that in fact were insolvent in the savings and loan industry, there was no reason to believe that you couldn't get it in other industries as well." (For the complete 9-page interview with Black, see 19 Corporate Crime Reporter 34(6), September 5, 2005, print edition only)
In his letter to the LBJ School, Pierce mentions that he worked with Black at the commission that wrote the government's report on the savings and loan scandal.
But he does not mention the dispute he had with Black.
Pierce concludes that Black's research record "would not gain him tenure at Berkeley and does not merit tenure at any serious public policy school." (Akerlof comes to the exact opposite conclusion, saying that Black's promotion "should be automatic" and predicting that Black's book "will be a classic.")
Black said that he was "thunderstruck" by Pierce's review, which uses the word "ignorant" twice in referring to Black.
Black now says that he believes the reason that Pierce wrote such a negative review of his work is that Pierce was proven wrong by the frauds of recent years.
And that his book exposes Pierce's complicity in the current wave of frauds -- without naming him.
"The current wave of control fraud has done great systematic damage," Black writes in the preface to his book. "It need not have happened, had we learned the appropriate lessons from the S&L debacle. Unfortunately, the lessons we learned made us more vulnerable to control fraud, not less. This occurred because the conventional economic wisdom about the S&L debacle is fallacious."
In a letter to the LBJ School, Black said writes that "Dr. Pierce knew that the fates had been unkind to him."
"His predictions had failed in the most public fashion possible. . .The new wave of control frauds occurred in uninsured sectors and it dwarfed the wave during the S&L debacle. . . .From Dr. Pierce's view, the publication of my book was a nightmare. But then he was asked to do a tenure review. He knew the impact of a negative letter from a former superior and UC Berkeley professor would have in a tenure process. The tenure review letter was his last best chance to discredit me before my book was published. Denying me tenure was sure to severely damage my academic reputation and discredit his leading (indeed, his only) critic. UT Press might even decline to publish the book if I were denied tenure."
Why didn't Black name Pierce in his book?
"That proved a key blunder on my part," Black told Corporate Crime Reporter.
Black said he kept Pierce's name out of his book "out of what can only be considered now misplaced loyalty."
Black told Corporate Crime Reporter that he is in negotiations with the University of Texas and has met with acting Dean Inman to work out some kind of compromise.
But he is not ruling out litigation.
Black is executive director of the Institute for Fraud Prevention based at the University of Texas. He says that Inman is supportive of the Institute.
"I am trying to work out a peaceful resolution," Black said. "I'm trying to give them a little bit of time to do this."
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