William Black’s Proposal for “Systemically Dangerous Institutions”

George Washington of Washington’s Blog, posted Black's recent proposal on Naked Capitalism. Black is Associate Professor of Economics and Law at the University of Missouri – Kansas City, and the former head S&L regulator, and author of the book, The Best Way to Rob a Bank is to Own One. Black' has been a lonely voice in the wilderness warning that the entire financial collapse, from sub-prime mortgages, to rating agencies, to the creation and handling of credit default swaps, is fraught with criminal fraud that both the Bush and now the Obama administrations have refused to deal with.

The Obama administration is continuing the Bush administration policy of refusing to comply with the Prompt Corrective Action (PCA) law. Both administrations twisted a deeply flawed doctrine – “too big to fail” – into a policy enshrining crony capitalism.


The Treasury has fundamentally mischaracterized the nature of institutions it deems “too big to fail.” These institutions are not massive because greater size brings efficiency. They are massive because size brings market and political power. Their size makes them inefficient and dangerous.

Under the current regulatory system banks that are too big to fail pose a clear and present danger to the economy. They are not national assets. A bank that is too big to fail is too big to operate safely and too big to regulate. It poses a systemic risk. These banks are not “systemically important”, they are “systemically dangerous.”

And here are just a few of the twenty specific policy proposals Black makes:

1. Not be permitted to acquire other firms

3. Be subject to a premium federal corporate income tax rate that increases with asset size

4. Be subject to comprehensive federal and state regulation, including:

c. Annual tax audits by the IRS

d. An annual forensic (anti-fraud) audit by a firm chosen by their primary federal regulator

9. A ban (which becomes effective in 18 months) on having an equity interest in any affiliate that is headquartered in or doing business in any tax haven (designated by the IRS) or engaging in any transaction with an entity located in any tax haven

10. A ban on lobbying any governmental entity

11. Consolidation of all affiliates, including SIVs, so that the SDI could not evade leverage or capital requirements

14. A ban on the purchase, sale, or guarantee of any new OTC financial derivative

18. A requirement to establish “hot lines” encouraging whistleblowing

I think this has to be trumpeted all over the tubez: "These institutions are not massive because greater size brings efficiency. They are massive because size brings market and political power. Their size makes them inefficient and dangerous."



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hey Tony

I'm glad you wrote this up. I saw it earlier, via Naked Capitalism.

I guess he is also interviewed in Michael Moore's new film.

Glad to see you, missed you "around here".

The capitulation by Obama begins.

First, health care reform. Now, financial regulatory reform. The one strong aspect to the Obama Administration's financial regulation proposal - Consumer Financial Protection Agency is already being weakened. The Administration and Congressman Barney Frank have decided to drop the 'plain vanilla' requirement which would require financial institutions to offer simple and plain financial products to consumers.

Here is a nice compilation of articles from Ed Harrison at Naked Capitalism.


RebelCapitalist.com - Financial Information for the Rest of Us.

I was watching Michael Moore last night

and he said Obama's bigger campaign contributor was Goldman Sachs.

Yeah, the CFPA is under attack but for me, the real reforms are in derivatives as well as corporate governance, executive compensation.

Did you read Bill Black's recommendations. They read like a manifesto.