Jeffrey Sachs Channeled His Inner Bill Black and Obama and Holder Ignored Him Too

William K. Black
Kansas City, MO: December 4, 2014

Yves Smith, the nom de guerre (and plume) of the finance expert who created and runs the
invaluable blog Naked Capitalism, wrote an introduction to a piece roughly 18 months ago that
mentions me. The points she made in that introduction, including the reason she invoked my
name, are important but the lapse of time since she wrote it teaches us another important lesson.
Here is the introduction.
One of the things that Matt Stoller has stressed that the possibility of reform is remote
until breaks within the elites take place.
Jeffrey Sachs, Columbia professor and director of the Earth Institute at Columbia, is a
controversial figure for his neoliberal stance on macroeconomics and his role in
promoting the use of shock therapy in emerging economies. But it is also important to
recognize that criticism from a connected, respected insider has more significance than
that of someone like Bill Black, who has made a career of taking on bank fraud but has
never reached a top policy-making level.
I think Matt Stoller is right, though I can personally testify that remote does not mean
impossible. The powerful response to savings and loan debacle was not led by elites. The
elites acted overwhelmingly to try to stop our reregulation of the industry and our taking on the
CEOs leading the frauds. It was critical that the head of our regulatory agency, Edwin Gray, led
the reregulatory effort. It was overwhelmingly an effort by over 2,000 of us, none of us remotely
elite, that led to our successes in regulation, supervision, enforcement, and prosecutions.
Though far from elite, we contained the debacle before it caused even a minor recession by
shutting down a raging epidemic of accounting control fraud committed primarily through
fraudulent commercial mortgage lending, prevented an incipient epidemic of liars loans in 1991,
and produced the greatest success in convicting financial elites in history. All of this was done
over the fierce opposition of the elites even though it Ed Gray and Joe Selby their careers. Many
of us were attacked repeatedly by the corrupt elites.
Yves Smith is right that Sachs is a connected, respected insider and that his criticism has vastly
more significance than Bill Black. She is also right about that my criticisms (though more
expert than Sachs) have less significance precisely because I never reached a top policymaking level.
The setting for Sachs remarks was important.

Professor Jeffrey Sachs, Columbia University

Fixing the Banking System for Good conference
Philadelphia Federal Reserve
April 17, 2013
We have an elite speaking to other elites at a conference dedicated to Fixing the Banking
System for Good. Here are several key takeaways about what Sachs said about elite bank fraud.
Sachs introduces the topic of why we have recurrent, intensifying financial crises with a
discussion of the dual depravity of effectively repealing Glass-Steagall and then President
Obama appointing the people who brought us that disaster to positions controlling our response
to the financial crisis where they promptly screwed up again.
Glass-Steagall [worked] successfully for quite a long time, and its removal was a
very, very cynical play by Rubin, Summers, Clinton, Gramm and others who all had very
strong interests, personal interests, in the outcomes of that deregulation, and exploited the
gaps that they created, and then to the chagrin of some of us at least were invited right
back into the White House in early 2009, after they had made this calamitous mess, to be
the ones supposedly to fix it. And I know that Summers, for example, continued to really
institute moral hazard policies right and left by fighting against any limits on
compensation of these [bankers].
Sachs then showed he was just warming to his subject.
I would add this other point, which is that a lot of whats happened actually and whats
been revealed is in my view prima facie criminal behavior. Its financial fraud on a very
large extent. Theres also a tremendous amount of insider trading, and you can even
watch it when youre living in New York, how that works.
So its not so mysterious, but we dont even act take John Paulson, for example.
Paulson worked together with Goldman Sachs to defraud massively many European
banks which bought the toxic mortgages that Paulson had put together. When this Abacus
deal was taken up by the SEC, Goldman ended up paying a small fine. The chair of
Goldman, of course, continued in his position and continued at White House state
dinners, and Paulson wasnt even mentioned once in any of the proceedings, and he took
home a $1 billion dollar paycheck the next year, even as Goldman was paying a roughly
$700-million-dollar fine, if I remember correctly, for the abuse that Paulson was part of. I
cant believe, no matter what the financial regulations, we cant do better than that.
Thats really pathetic.
Sachs was not clear in distinguishing John and Hank Paulson (no relation) during this discussion.
John ran a hedge fund. Hank ran Goldman Sachs before President Bush named him Treasury

Secretary. The audience response to these statements was to ask Sachs about Glass-Steagall.
Sachs response to that question ended with Sachs coming back to the crooks.
The final point, of course, is separating the politicians from the crooks, but maybe thats
so close together that they cant actually be separated. Maybe its just the same
community.
The audience reaction was to again ignore the criminality and ask a general question about
international macroeconomic policies.
It was only after Sachs answered that question (and on his own initiative emphasizing the
destructiveness of tax havens) that the token ethical finance guy spoke to thank him for raising
the subject of morality.
Audience: My name is Dennis Peacock[e], and I represent the faith-based side of
macroeconomics, and I just want to congratulate you that you pulled us back to the reality
that in spite of all the complexities and theories and mechanics that we deal with in
economics, that economics is really about values and the values and ethics of people.
Thank you very much.
Needless to say, the Philadelphia Fed doesnt invite or attract a crowd that emphasizes financial
morality. Its hard to knock a really slow pitch like this out of the park, but Sachs did his best.
Jeffrey Sachs: Well, thank you very much for saying it and practicing it. I do believe
by the way, Im just going to end here because Ive been told I have to run to the U.N. in
fact right now I believe we have a crisis of values that is extremely deep, because the
regulations and the legal structures need reform. But I meet a lot of these people on Wall
Street on a regular basis right now. Im going to put it very bluntly. I regard the moral
environment as pathological. And Im talking about the human interactions that I have.
Ive not seen anything like this, not felt it so palpably. These people are out to make
billions of dollars and nothing should stop them from that. They have no responsibility to
pay taxes. They have no responsibility to their clients. They have no responsibility to
people, counterparties in transactions. They are tough, greedy, aggressive, and feel
absolutely out of control, you know, in a quite literal sense. And they have gamed the
system to a remarkable extent, and they have a docile president, a docile White House,
and a docile regulatory system that absolutely cant find its voice. Its terrified of these
companies.
If you look at the campaign contributions, which I happened to do yesterday for another
purpose, the financial markets are the number one campaign contributors in the U.S.
system now. We have a corrupt politics to the core, Im afraid to say, and no party is I
mean theres if not both parties are up to their necks in this. This has nothing to do with
Democrats or Republicans. It really doesnt have anything to do with right wing or left

wing, by the way. The corruption is, as far as I can see, everywhere. But what its led to
is this sense of impunity that is really stunning, and you feel it on the individual level
right now, and its very, very unhealthy.
I have waited for four years, five years now, to see one figure on Wall Street speak in a
moral language, and Ive not seen it once. And that is shocking to me. And if they wont,
Ive waited for a judge, for our president, for somebody, and it hasnt happened. And by
the way its not going to happen anytime soon it seems.
Over 18 months have gone by since Sachs unleashed this broadside. On May 2, 2013, in the
Wall Street Journal, Sachs launched an even stronger attack. During that time we have seen a
major financial institutions fraud made public at least monthly. But Sachs point about waiting
in vain for four, five years to see one figure on Wall Street speak in a moral language can
now be extended to six years which is what Sachs predicted. But that same shocking failure
includes our President, his administration, and the financial anti-regulators.
It is a sick indicator of the degraded state of regulation that William Dudley is alone in
describing the corrupt culture of Wall Street (though he refuses to use the word corrupt).
When Dudley, President of the NY Fed, is your least dishonest anti-regulator, you know that the
anti-regulatory culture in finance is profoundly corrupt. Dudley is a Government Sachs alum
who is infamous for openly stating his refusal to allow the NY Fed to respond to Wall Streets
corrupt culture and rampant fraud by acting as the essential regulatory cops on the beat, but
instead should act like a fire warden telling us to make an orderly exit from the finance
industry before it is consumed by the flames of fraud. But not to worry, as Geithner made
infamous, the real function of the U.S. Treasury and the Federal Reserve in their fire warden
capacity is to foam the runways with massive subsidies so that the elite bankers can walk
away when they loot their banks so badly that the banks crash. To add to the obscenity,
Geithner admitted that foaming the runways was done under the cynical pretext of helping
people who suffer third-degree burns from the raging fraud epidemics led by elite bankers,
Sachs public evisceration of our most elite bankers was widely reported in financial
publications. It should have been front page news nationwide and should have prompted other
financial elites and the media to use the f (fraud) word and the c (criminal and corrupt)
words to describe the banking elites. It should have provided the political cover our cowardly
lion (President Obama) needed to roar. Daily Kos has a fine article showing the exceptional
parallels between the disgraceful policy proposals and propaganda attacking the poor that FDR
eviscerated in his October 31, 1936 speech during his first reelection campaign. He famously
welcome[d] the hate of the corrupt bankers of his era. Sadly, in the financial sphere, Obama
consciously decided not to follow FDRs example of integrity, courage, success, and service to
the Nation.