Reprinted from neweconomicperspectives.org by Devin Smith
William K. Black
January 29, 2016 Bloomington, Minnesota
I am writing to announce the formation of a new group and a policy initiative that we hope many of our readers will support and help publicize. Gary Aguirre, Bill Black, Richard Bowen, and Michael Winston are the founding members of the Bank Whistleblowers' Group. We are all from the general field of finance and we are all whistleblowers who are unemployable in finance and financial regulation because we spoke truth to power and committed the one unforgivable sin of being repeatedly proved correct.
Economists rely largely on "revealed preference" -- we think what you do matters more than what you say. For nearly seven years, every financial firm has known about my three colleagues. They are famous for their skills, courage, and integrity. Every financial firm claims that it now wants to make integrity their credo. Any financial firm that actually was committed to making integrity its credo, as opposed to its spin, would have long since hired my colleagues. Similarly, any government regulator, enforcer, or prosecutor that was serious about restoring the rule of law on Wall Street would have recruited us.
Our group is releasing four documents today and they will appear here at NEP over the next couple of days. The first outlines our proposals, all but one of which could be implemented within 60 days by any newly-elected President (or President Obama) without any new legislation or rulemaking. Most of our proposals consist of the practical steps a President could implement to restore the rule of law to Wall Street. As such, we expect that candidates of every party and philosophy will find most of our proposals to be matters that they strongly support and will pledge to implement.
The second document fleshes out and explains the proposals. We ask each candidate to pledge in writing to implement the portions of our plan that they specify to be provisions they support. Again, we invite President Obama to do the same.
The third document asks each candidate to pledge not to take campaign contributions from financial felons. That group, according to the federal agencies that have investigated them, includes virtually all the largest banks.
The fourth document explains why we formed our group is and contains our bios. I am personally proud and honored to be associated with my colleagues in this endeavor. We are (and have been) actively reaching out to encourage other bank whistleblowers to join our group. The bank whistleblowers share some common traits, but are also highly diverse and we want our group to reflect that full diversity. We cannot, however, in good conscience fail to act now given the urgency of the problems caused by the collapse of personal accountability for Wall Street elites. Our economy and our democracy are both imperiled by that collapse and require urgent redress. Please help us to get our proposals to every candidate, the media, and the public.The Bank Whistleblowers' Group's Plan of Urgent Financial Change
January 29, 2016
We are a newly formed organization of financial sector whistleblowers dedicated to holding the elite financial leaders who led the fraud epidemics that caused the financial crisis and the Great Recession personally accountable and to helping to implement the urgent changes necessary to prevent or at least reduce the frequency and harm of future crises. Our group has expertise in finance, banking, real estate, accounting, underwriting, economics, law, securities, criminology, regulation, and financial derivatives. We also have international expertise.
We are releasing four documents today. This first document provides the outline of our plan that would allow any newly elected President (or President Obama) to restore the rule of law and end "too big to fail" without any new legislation or rules within 60 days. The second document explains and fleshes out the outline of our 60-Day Plan. The third document is our proposal to encourage the candidates to pledge that they will not take contributions from banks (and their officers) that the federal government, after investigation, have found to have engaged in fraud or other felonies. The fourth document explains who the whistleblowers are and provides our bios and contact information.
Our group is predominately former bankers who worked at fairly senior levels for enormous financial institutions. We do not hate banks or bankers as a group. We know, however, that when elite fraud is not stopped by the regulators and the prosecutors it is likely to create a "Gresham's" dynamic. The Nobel Laureate George Akerlof was the first economist to describe this dynamic in 1970.
"[D]ishonest dealings tend to drive honest dealings out of the market. The cost of dishonesty, therefore, lies not only in the amount by which the purchaser is cheated; the cost also must include the loss incurred from driving legitimate business out of existence."
We can confirm Akerlof's warnings about fraud. Indeed, we can testify from personal knowledge that when bad ethics is encouraged it will over time tend to drive good ethics out of individual firms. Fraudulent senior bankers deliberately create a Gresham's dynamic within the firm and in hiring "independent" professionals in order to drive honest employees out of the bank and to suborn outside professionals that are supposed to act as external "controls" to serve instead as fraud enablers. At places like Countrywide, thousands of employees left annually because they refused to abuse their customers. Only by restoring the rule of law to Wall Street can we allow honest banks and honest bankers to dominate Wall Street.
Similarly, the financial regulatory agencies are often dominated and rendered feeble by leaders who are the products of the "revolving door" or plan to use that "door" to increase their income. We have seen first-hand how that "door" can impair once great agencies.
Our goal of restoring accountability to Wall Street is not controversial. Indeed, there is unanimity among the candidates for the presidency that accountability for Wall Street elites has disappeared and urgently needs to be restored. But that same unanimity among candidates has existed for over a decade. Beginning with DOJ's failure to prosecute the elite bankers that aided and abetted Enron's senior managers' looting and destruction of Enron in 2000-2001 -- the consensus on the need to restore accountability has failed to produce accountability for elite bankers for over 15 years. Every political leader says they want to help honest bankers succeed. Nearly every political leader agrees that the "revolving door" corrupts Wall Street's regulators. The movie The Big Short has a scene at a pool that is designed to be emblematic of the public perception that the SEC (and, by extension, the other federal financial regulators, the FBI, and the DOJ) is staffed by lawyers whose goal in life is to be hired by Goldman Sachs. One of our major insights is how law enforcement priorities with regard to financial elites have become sharply perverse as the financial regulatory agencies' input to the FBI and DOJ have virtually ceased through the destruction of the agencies' criminal referral process and been replaced by misdirected law enforcement priorities pushed by the elite bankers. We propose concrete steps to return our priorities to the most damaging financial frauds, which are always led by elites.