President Obama’s financial regulation proposal is doomed to fail.
Because it was developed by people who don’t believe in regulation.
That’s the take of William K. Black, a profess of law and economics at the University of Missouri-Kansas City.
Black believes that the only way to prevent future financial meltdowns is to have in place a regulatory system and prosecutorial system developed by people with a proven track record.
People like Michael Patriarca. And William Black
First thing Black would do?
Implant at every financial regulator an office of the chief criminologist.
“If you look at the largest single area of losses in banks – it has been control fraud,” Black told Corporate Crime Reporter last week. “But of course, institutionally, none of these financial regulatory agencies are set up well to even spot or stop these kinds of fraud. They don’t have the training, they don’t have the background, they don’t have institutional structures that focus on the criminality.”
“So, you would institutionalize. You put in place someone who knows about fraud, the literature about crime and criminology. They need to think, before they deregulate, whether they are producing what we refer to as a criminogenic environment – an environment that is going to produce widespread crime.”
There are currently nineteen banks that the government says are too big to fail. Black would reduce that number to zero – by shrinking their size.
He would also beef up financial enforcement units across the country – and rehire the 500 FBI white collar agents who were shifted over to work national security cases post-911.
And he would send them undercover into troubled banks.
“Once you get in, you are going to discover literally on day one that the underwriting has been removed,” Black said. “You are going to discover no later than day two that the internal controls are gone and that indeed people get in trouble for saying no to bad loans. By week one, you will have identified several people who used to work at six other big places. That’s how this industry worked. And they will tell you the names – oh yeah, Fred is the disastrous CFO over there.”
Black would also turn the executive compensation system on hits head.
“You say – you can’t get paid except on the basis of long term performance,” Black said. “You can get your $200,000 a year. And then you show us you produce the long term performance. And you show us that the long term performance gains were due to your efforts, as opposed to everyone in the same industry producing the same results.”
[For a complete transcript of the Interview with William K. Black, see 23 Corporate Crime Reporter 26(13), June 29, 2009, print edition only.]