So, in a nutshell, he wasn't talking about holding companies on the Moyers show. He was talking about institutions that are insured under FDIC.
And the law is mandatory in that it required the government to choose "prompt corrective action" that is the least cost. And while there is a little loophole of flexibility there, the Obama admin is not using that loophole so it doesn't even apply. And even if they wanted to, the deadline has run out.
That is gist of my correspondence with Professor Black. He also went on to write a detailed explanation which he posted today at the Bill Moyers Journal website. I will post it in its entirety below.
But before I do I want to make one point. Even if there's a hole in Professor Blacks legal argument, which I suspect the White House council's office would argue here was, one thing should be very clear:
Bill Black was not "lying." The tendency to smear every critic of the Obama administration's policies, as opposed to just disagreeing, reminds me of the Bush White House under Karl Rove.
And here is the core of Black's response:
I was the staff leader for Federal Home Loan Bank Board Chairman Ed Gray's successful reregulation of the S&L industry. That reregulation provided the tools that allowed the agency to place in receivership many of the worst control frauds. Gray inherited (and for a time supported) a dominant strategy of covering up the scale of the S&L industry's insolvency. He personally recruited vigorous senior regulators such as Michael Patriarca and Joe Selby to reverse that strategy. The PCA law was adopted largely in response to the enormous cost to the taxpayers of our predecessor's failed strategy of not closing insolvent S&Ls.
The new law had an impressive start, thanks in great part to the transformed reregulatory spirit. How many readers recall the 1991-92 subprime crisis? It didn't happen because we took prompt regulatory action against subprime S&L lenders that were following practices (e.g., qualifying borrowers at the teaser rate, offering "neg am" mortgages, etc) that we knew would lead to widespread failures.
The broadcast of Bill Moyers Journal interview has raised enormously the public's awareness of the PCA. A commentator has responded by arguing that the PCA law does not mandate that the regulators place insolvent banks into receivership. I am delighted that the debate has turned to focus in part on the issue of why virtually all economists and white-collar criminologists believe that it is essential to take prompt regulatory action to resolve failed banks, particularly ones that are insolvent due to "control fraud", i.e., where the person that controls a seemingly legitimate entity uses it as a "weapon" to defraud. In the financial world accounting fraud is the "weapon of choice."
Banks owned by holding companies are fully subject to the law
The commentator's primary concern can be answered briefly because it criticizes a claim I never made. S(he) notes that banking holding companies and insurance companies are not subject to PCA. I did not say that they were. As the interview excerpt shows, we were talking about "[savings] institutions" and "banks" that can be put into "receivership" (I'm going to use "bank" here to refer to any FDIC-insured depository institution.) The FDIC (and if it lacks the funds, the U.S. Treasury) is only legally obligated to pay depositors of FDIC-insured banks up to the deposit insurance limits. The federal banking regulators have receivership powers only over federally insured depository institutions. The FDIC and the U.S. Treasury have no obligation to pay the debts of bank holding companies or insurance companies - and shouldn't be paying those debts.
The commentator uses this strawman argument (refuting a claim no one made) to imply that the fact that PCA doesn't apply to bank holding companies means that the federal financial regulators did not have to comply with the PCA law. S(he) lists a series of companies, primarily large bank holding companies (BHCs) and declares that their existence means: "So, pretty much all of the really big players don't fall under the PCA in the first place." Bank holding companies, of course, are called that because they own banks - and the U.S. banks they own are subject to PCA. The fact that a bank is owned by a holding company is irrelevant to the PCA's requirements; it provides no immunity from the PCA. BHCs are "really big players" because they own massive banks subject to the PCA. The banks are the "really big players" and they are subject to the PCA law. When we put insolvent banks into receivership their BHCs and affiliates lose all control of the bank. The FDIC has sole control of it.
This matters profoundly on two levels: First, Black is establishing that the bottom line on this financial crisis and how to deal with it is not unknowable complexity, regarding which we must trust technocratic experts who helped bring us the crisis in the first place, nor are critical debates over the current technocratic approach dismissible as an "ideological dispute" Rather, the issue here is a matter of law, and a rather recently created law (at least compared to the 1930s) that is fully responsive to the modern financial system.
Second, this dispute underscores the extreme danger of falling into the rightwing pattern of reflexive hero-defense, launching personal attacks on anyone who dares to criticize Obama or his administration. It's extremely ironic that freeper-like attack on Black was titled "Please be smarter than the Freepers". The author of that attack ought to take their own title to heart.
I have been a fairly persistent critic of Obama since at least 2006, primarily because he seems to buy into the hegemonic ideological framework established by conservatives over the past 40 years, much in the manner of Clintonian triangulation and Tony Blair's "Third Way", rather than standing clearly outside that framework and attacking its very foundations.
While some may legitimately defend his position in doing this, I do not believe that anyone can legitimately defend him going so far in this direction that he turns his back on the rule of law. Yet this is but one of several fronts on which it seems disturbingly clear that Obama is continuing the Bush tradition of picking and choosing which laws to follow, and which to ignore.
This is a very dangerous direction for Obama to be going in, particularly because he has shown such promise in renouncing much of the worst that the Bush regime stood for. To criticize and oppose him when he instead continues Bush's worst practices in other ways is not to tear him down, but rather to do exactly what true patriots ought to do--to press their leaders to do the right thing, and vindicate the rights of all.
In that sense, the issues raised in this case directly parallel the increasingly troubling direction that Obama has taken in dealing with illegal wiretapping, and the misapplication of secrecy law, as discussed by Glenn Greenwald on Monday in "New and worse secrecy and immunity claims from the Obama DOJ":
When Congress immunized telecoms last August for their illegal participation in Bush's warrantless eavesdropping program, Senate Democratic apologists for telecom immunity repeatedly justified that action by pointing out that Bush officials who broke the law were not immunized -- only the telecoms....
Taking them at their word, EFF -- which was the lead counsel in the lawsuits against the telecoms -- thereafter filed suit, in October, 2008, against the Bush administration and various Bush officials for illegally spying on the communications of Americans. They were seeking to make good on the promise made by Congressional Democrats: namely, that even though lawsuits against telecoms for illegal spying will not be allowed any longer, government officials who broke the law can still be held accountable.
But late Friday afternoon, the Obama DOJ filed the government's first response to EFF's lawsuit (.pdf), the first of its kind to seek damages against government officials under FISA, the Wiretap Act and other statutes, arising out of Bush's NSA program. But the Obama DOJ demanded dismissal of the entire lawsuit based on (1) its Bush-mimicking claim that the "state secrets" privilege bars any lawsuits against the Bush administration for illegal spying, and (2) a brand new "sovereign immunity" claim of breathtaking scope -- never before advanced even by the Bush administration -- that the Patriot Act bars any lawsuits of any kind for illegal government surveillance unless there is "willful disclosure" of the illegally intercepted communications.
In other words, beyond even the outrageously broad "state secrets" privilege invented by the Bush administration and now embraced fully by the Obama administration, the Obama DOJ has now invented a brand new claim of government immunity, one which literally asserts that the U.S. Government is free to intercept all of your communications (calls, emails and the like) and -- even if what they're doing is blatantly illegal and they know it's illegal -- you are barred from suing them unless they "willfully disclose" to the public what they have learned.
This is not in any sense "change we can believe in," and those who supported Obama on that basis need to speak out loud and clear for these policies to be abandoned. Instead, we see many attacking those who are pointing out the contradictions, just as Bush sycophants refused to consider criticisms of his policies, and thus helped to pave the way for his disastrous end, which has taken them down as well. We must do everything in our power to avoid a similar end.
p.s. The fact that TocqueDeville's diary also made the DKos rec list is a clear sign that those who regard DKos as a total waste of time are also mistaken, also reacting in a knee-jerk manner. Depending on your priorities, it might not be a place you want to devote much time to, but it's still a repository of enormous value, for all the flaws that such a wide-open public forum is inevitably heir to. |
