Democracy Now!, 10/19/2011

1. Interview w/ William Black, white-collar criminologist, former financial regulator, professor of economics &law at University of Missouri, author of The Best Way to Rob a Bank is to Own One Democracy Now!, 10/19/2011

2. Regulation, Regulatory Capture, and Differential Punishing Revisited

3. Regulation and deregulation in society • regulation: a principle, rule, or law designed to control or govern conduct • deregulation implies a loosening of social control • Durkheim applied the concepts to the domain of morality • anomie is a social condition characterized by the lack of moral regulation, when standards of right and wrong are unstable and unclear

4. Modern US financial regulation can be divided into two historical periods • 1940s-1970s: Regulatory Expansion • 1980s-present: Deregulation • Deregulation – in the economy – is the removal or simplification of government rules and regulations that constrain the operation of market forces • Regulatory captureoccurs when a state regulatory agency created to act in the public interest instead advances the commercial or special interests that dominate the industry or sector it is charged with regulating

5. Key events in US financial regulation • 1940s-1970s - Regulatory expansion: highly regulated financial institutions, high capital requirements, capital controls, etc., took us out of historical boom-bust cycles • Glass-Steagall Act (1933)mandated a separation between commercial banking (handling deposits and lending) and investment banking (buying/selling securities, underwriting, etc.) • 1980s-present - Deregulation: placing faith in free markets, regulation was loosened, and regulatory agencies downsized; began as part of “Reagan revolution” but continued under Democratic and Republican administrations alike • Financial Services Modernization Act (1999): tore down Glass-Steagall's wall separating commercial and investment banking • Commodity Futures Modernization Act (2000): banned regulation ofderivatives • Derivative: a financial contract with a value linked to the expected future price movements of the asset it is linked to - such as a share, currency, commodity or even the weather. Derivatives allow risk about the price of the underlying asset to be transferred from one party to another. • Banks became increasingly leveraged, use of derivatives & high-frequency trading expanded, resulting in high volatility • 2010:Dodd-Frank Wall Street Reform & Consumer Protection Act • Critics charge law is weak, many provisions won’t take effect for years and details of implementation still unclear • Does not fundamentally address incentive structures that promote risk taking -- i.e., the criminogenic (financial) regulatory structure • Systemic risk created by Too Big To Fail (TBTF) banks remains – as TBTF banks are now bigger

6. Fraud at highest levels caused the crisis • Fraud: intentional deception for personal gain or to damage another individual • Fraud is a crime and civil law violation • “[T]he essence of fraud is, I get you to trust me, and then I betray that trust for gain” • Fraud, particularly at the elite levels, destroys trust • “And when you destroy trust, you destroy economies, families, democracies.”

7. Accountability must start with the regulators • In the savings &loan (S&L) crisis, there were over 10,000 criminal referrals to the FBI • In this crisis, there were zero criminal referrals • “If you don’t get people pointing the way and pointing to the top of the organization, you don’t get effective prosecutions” • In peak of S&L crisis, 1,000 FBI agents were assigned • This crisis has losses 70 times larger than S&L crisis • As recently as 2007, we had 120 FBI agents—1/8 as many FBI • “And they looked not at the big folks, but almost exclusively at the little folks.”

8. The crisis was not inevitable • “Liars’ loans caused this crisis—and it’s overwhelmingly lenders that put the lie in liars’ loans.” • Liar’s loan: a stated income loan is a mortgage where the lender does not verify the borrower's income by looking at pay stubs, W-2 forms, income tax returns, or other records. Instead, borrowers are simply asked to state their income, and taken at their word. • FBI warned, in open congressional testimony in Sept 2004, there was an “epidemic of mortgage fraud” and predicted it would cause a “financial crisis” • “And the regulators did nothing, because you had the Alan Greenspans of the world who were selected because they were leading opponents of effective regulation in the US” • “You create a self-fulfilling prophecy of regulatory failure, and then turn around and say, ‘Well, you can’t trust the government. It fails’."

9. Trial by Fire: Media Constructions of Corporate Deviance Ch. 30, Gray Cavender and AoganMulcahy (1998)

10. Q: Why does public outrage over crime rarely extend to corporate wrongdoing? • A: It’s the influence of the crime news frame • News frames are tacit theories “about what exists , what happens, and what matters” (Gitlin 1980: 6) • Crime news frames are used to analyze two cases of media coverage of corporate crime: (1) a regulatory investigation and trial involving GM pickup trucks (2) An NBC program about the trucks

11. Crime news frame consists of recurring elements in news coverage • Attribution of responsibility • Individualization of responsibility • Reaffirmation of moral boundaries • Promotion of resolution

12. Findings on impact of the crime news frame • The crime news frame, echoing crime fiction, may increase the news-worthiness of corporate wrongdoing • The frame also may limit the salience of corporate deviance and the ability of the media to control it • News frames favor simple explanations for organizational and structural-level problems • They also make it easier to wipe slate clean, through denials, scapegoats, and resignations

13. Corporations, Organized Crime, and the Disposal of Hazardous Waste: An Examination of the Making of a Criminogenic Regulatory Structure Ch. 40, Andrew Szasz (1986)

14. Resource Conservation & Recovery Act (1976) • Federal regulation to guarantee the safe disposal of hazardous waste • Established standards to classify substances as hazardous • Authorized states to register corporate generators of hazardous waste and license hauling and disposal firms • Mandated the creation of a manifest system to document the movement from the generator, through, through the transporter, to the licensed disposal site

15. The relationship between legitimate and illegitimate entrepreneurship • Organized crime elements in garbage hauling & landfilling quickly entered hazardous waste disposal market • Corporate generators of hazardous waste discharged their RCRA obligations by entering into relationships with firms dominated by organized crime

16. Criminogenesis • Criminogenesis is the production of crime or criminality • The most common explanations for organized crime involvement in hazardous waste disposal - lax implementation and enforcement – are incomplete • Analysis of the formation of RCRA shows corporate generators helped create a criminogenic regulatory structure

17. RCRA manifests – written documentation – on disposal were unreliable • lack of agreement on what substances were hazardous • firms generating less than 1 metric ton of hazardous waste per month were exempt from RCRA regulation • some firms the generated hazardous waste have either failed to cooperate w/EPA requests for data or failed to identify themselves to the EPA as regulable generators • firms that appear to be in compliance may not be reporting accurately the types and amounts of hazardous waste they generate

18. Organized crime participation in hazardous waste disposal industry • Organized crime was ideally suited to develop illegal hazardous waste practices to the fullest • Where garbage hauling and landfilling was historically controlled by organized crime, movement into new hazardous waste market was an extension of current activity • In NJ, organized crime had control through ownership of garbage hauling firms, through ownership or control of landfills, and through labor racketeering • Threats and violence were used to persuade others to join the infrastructure or get out

19. Political and social-structural conditions enabled criminal “colonization” of the hazardous waste disposal industry • Lax implementation, incompetent and/or corrupt enforcement in both interim licensing and manifest oversight were critical

20. Generators strategically intervened in the legislative debate over the form of policy • Generators, led by petrochemical firms, fought for and achieved a regulatory form that would minimize responsibilities and liabilities for potential violations • Firms lobbied hard against regulation • opposed intervention in production decisions • denied legal responsibility for the ultimate disposal of hazardous waste, relying on subcontracting