Revisiting the 2008 Financial Collapse and the Role of the Federal Reserve

Do you want a very good, and not too lengthy, overview of what largely caused the financial collapse in 2008? Here you go, in less than 20 minutes.

William Black is a former bank regulator who’s seen firsthand how banking systems can be used to commit fraud — and how “liar’s loans” and other tricky tactics led to the 2008 US banking crisis that threatened the international economy. In this engaging talk, Black, now an academic, reveals the best way to rob a bank — from the inside.

Pay special attention to this: Congress gave the Federal Reserve the authority to stop the kind of fraudulent loans that largely caused the collapse, and they… did… not… stop them. They refused.

Congress, it may strike you as impossible, but actually did something intelligent in 1994, and passed the Home Ownership and Equity Protection Actthat gave the Fed, and only the Federal Reserve, the explicit, statutory authority to ban liar’s loans by every lender, whether or not they had federal deposit insurance. So what did Ben Bernanke and Alan Greenspan, as chairs of the Fed, do when they got these warnings that these were massively fraudulent loans and that they were being sold to the secondary market? Remember, there’s no fraud exorcist. Once it starts out a fraudulent loan, it can only be sold to the secondary market through more frauds, lying about the reps and warrantees, and then those people are going to produce mortgage-backed securities and exotic derivatives which are also going to be supposedly backed by those fraudulent loans. So the fraud is going to progress through the entire system, hyperinflate the bubble, produce a disaster. And remember, we had experience with this. We had seen significant losses, and we had experience of competent regulators in stopping it. Greenspan and Bernanke refused to use the authority under the statute to stop liar’s loans. 

Why?

Because the Fed is a privately-owned institution that exists to protect the major international banks from harm, and to maximize their profits. Those fraudulent loans were exceedingly profitable for the banks to originate, and they were sold to unsuspecting investors (and the taxpayers, through Fannie Mae and Freddie Mac) who ultimately bore the brunt of the pain. Banks win, people lose, a perfect scenario for the sociopaths of the Federal Reserve.

The Fed actively and passively facilitated the largest white collar crimes—in fact, the most egregious financial crimes of any sort—in all of history.

Addendum: William Black’s very brief and out of place “Tea Party” allusion near the end is an unfortunate, naked ideological swipe with no substance. That was the one glaring and nonsensical misstep in a very good presentation.