Which annoys the hell out of proven financial-crime fighter Bill Black. Athletic and red-bearded, Black looks more like a lumberjack than a scholar, criminologist and bureaucrat who in 2005 authored The Best Way to Rob a Bank Is to Own One, the definitive history of the S&L debacle as well as an insider's report. A legend among regulators, he faced down House Speaker Jim Wright and the "Keating Five" senators (including McCain), who fought tooth and nail to protect that corrupt industry, and he also overcame stiff resistance from within the Reagan administration and from Keating himself. Wright, who later resigned in disgrace over ethics charges, called Black a "red-bearded son of a bitch." Keating hired detectives to get dirt on Black. When that failed, the thrift magnate told his Washington lobbyists to "kill him dead," which he probably meant figuratively, in the sense that Keating wanted Black's power shut off. It wasn't, and Keating, though he was as plugged into the Republicans as Franklin Raines is to the Democrats, ended up doing hard time.

Black always has a big smile and a ready joke, but he burns with the intensity of an Old Testament prophet, especially against "control fraud," the lawlessness that emanates from the top of legitimate businesses and causes bigger financial losses, he has said, than all other forms of property crime combined. Corporations practice control frauds with crooked accounting and perverse compensation systems, using bonus formulas that lead executives to loot their companies rather than serve them.

Now an associate professor of law and economics at the University of Missouri-Kansas City, Black has continued the fight against fraud and for regulatory controls as a consultant to a gamut of agencies from the FBI (where he trained agents in white-collar forensics) to the World Bank.

In 2007 the Office of Federal Housing Enterprise Oversight hired him to investigate the problems at Fannie Mae. His 70-page report plainly outlined how Raines and his lieutenants used "fraudulent accounting" and "perverse incentives," and took "unsafe and unsound risks" that "collectively caused Fannie to violate the law and deceive its investors and regulators."

Almost two years before the financial crisis broke in late 2008, Black, the FBI and others outlined the structural problems that would wreck the economy, but Washington did nothing and continued to exercise "regulatory forbearance." In fact, the crisis did not have to happen, and there was certainly no need for the panicky response to it by Washington in the fall of 2008.

Black vents particular ire at Timothy Geithner, who as New York Fed chair fiddled while Wall Street imploded; Henry Paulson and Geithner again, who as Treasury secretaries refused to enforce a key banking law; and Alan Greenspan and Ben Bernanke, who as Fed chairs were supposed to regulate banks, especially the renegade mortgage units. The two Fed chairs closed their eyes to excess and continued to blow easy money into the bubble.

The key statute that Treasury flouted under Paulson and Geithner is the Prompt Corrective Action (PCA) law. Congress passed it in the wake of the S&L scandal in 1991, and the first President Bush signed it. It's probably the best, fairest and clearest piece of financial legislation since the New Deal. Under the law Federal Deposit Insurance Corporation (FDIC) examiners initially rate banks as "Well Capitalized," "Adequately Capitalized," "Undercapitalized," "Significantly Undercapitalized" and "Critically Undercapitalized." The tags determine the examiners' actions, if any. Undercapitalized banks must build up their capital and get FDIC approval for acquisitions and opening new business lines. When a bank becomes significantly undercapitalized, a regulator can order serious sanctions, ranging from firing management to restricting stock sales and forcing divestitures. Critically undercapitalized banks must be placed in receivership, unless the FDIC determines that some other action like a merger or sale would better protect the depositors. That's it in a nutshell — obviously there was a whole lot more that regulators were allowed to do, like forcing a change in accounting systems and blocking bonuses. Bottom line: The PCA worked like a charm.

In the entrepreneurial Reagan-Bush era, the banking system had become a mess. Often more than a hundred banks failed annually (as has happened this year). After the PCA, banks cleaned up and failures became rare — only a handful per year and sometimes none. U.S. Treasury secretaries even pushed the PCA idea to Japan during its "lost decade."

But in the U.S., after the second Bush's election in 2000, the PCA began to wither from disuse, especially because of opposition from the megabanks and the laissez-faire policymakers. Toward the end of the Clinton administration, Washington caved in to the financial lobby and passed new laws that promoted risk. Congress repealed the Depression-era Glass-Steagall Act, which had drawn a sharp line between commercial banks and investment banks. Another new law immunized securitizers from lawsuits even if their products were rubbish. A third new law permitted the wildest form of derivatives — "naked" credit default swaps — side bets on CDOs that could be placed by investors who didn't even own the bonds. The old prudent conservative banking model gave way to the sleek megabank casino, which was fine with the Fed. Ben Bernanke, then a Fed regional governor, spoke in 2004 of the new "Great Moderation," which the industry took to signal a period of ultra-lax regulation.

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