Ineptitude or Malfeasence? -- William K. Black on the Banks

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As has already been widely commented on, economist William K. Black was interviewed by Bill Moyers on his Bill Moyers' Journal show on Sunday. What Black had to say was damning. A prominent regulator during the Savings and Loan fiasco of the 1980s, he insists that subprime lending, securitization and the insuring of bad debt through insufficiently capitalized credit default swaps were not instances of ineptitude but of malfeasance.

If this is true, and this seems obvious,then, as Black argues, efforts to recapitalize and re-regulate banks are not only misguided, but are a form of willful folly. Those who gamed the system once, by trading off almost unimaginable short term gain for longer term disaster will at least try, and quite likely succeed, in doing so again. The breathtakingly self-serving behavior of financial institutions taking advantage of bailouts and accounting rule changes amply demonstrates this.

Government does not need to 'nationalize' banks to correct their behavior. It has regulatory powers that can be made accountable and effective. And where banks or other financial institutions, whether through circumstance or error, are found to be insolvent by effective accounting standards, they can be put into receivership and reorganized. Our degrees of freedom here are not zero.