William Black is uncovering some of the ugliest distortions in our financial system. It is quite clear that power and financial leverage create much opportunity to take more than seems appropriate and Black is right, no-one was looking.

I also agree with Black on having to reinstate Glass-Steagall and a proper regulation of derivative instruments.

However, William Black focuses mostly on the sub-prime example and the question he doesn’t address is why they got away with it. Wasn’t the market supposed to find out and punish unsound businesses and practices? Of course partly to blame is regulation itself but as I show in “Eye of the Storm” the demand side was entirely blinded by their institutional structures and risk management tools and gobbled up all that garbage. Regulation would not have been able to avoid Ninja loans (it would have to be the kind of regulations that the GOP is right to rail about) but since the market mechanism was broken, the market itself didn’t realise what it was doing (that is where we have to regulate, at the root).

Thus, the point of fraud is a very accurate description of what went on in subprime at the very end. However, ultimately the description is incomplete

Regarding Black’s emphasis on a system wide cover-up, it certainly sounds like a conspiracy theory. While I doubt grand scale conspiracies very much it has to be said that it is interesting to see that the same methods and policies continue to be applied by the very people that were responsible for the crisis while reasonable voices were shoved to the sidelines and still to a large degree are not consulted. Most of those experts would suggest quite different policies. I am personally disappointed by the plans Obama is presenting with a seasoned veterans John Volcker and Larry Summers on board.

Maybe something happens to people when they go to Washington, some sort of electromagnetic alterations of their brain circuits. An astonishing example of this is Alan Greenspan who changed his entire belief system when he ascended the Chairmanship of the FED in 1987. The Alan back in 1967 would have turned in his grave. The Alan Greenspan in 1967 analysed the mistakes made before the great Depression in a manner that would have flunked the Alan at the FED. The Alan in 1967 would completely disagree with what he did once in office and he would disagree with much of what Ben Bernanke says and does.

Black is of course right when he points to the Japanese experience as a very real path following current policies. And of course he is right when he points to the unbelievable conflicts of interests that are created by the very people in charge of bailing out their own businesses. The Bush administration was certainly immune to any decency and honesty. I have no reason to believe that the same would happen under an Obama Presidency. However, to date, his administration does certainly treat the financial sector with silk gloves. I would guess that is a result of insecurity about the inner workings of finance and a fear that everything would melt down. A fear however, that is unfounded.