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Economists: U.S. should remove top bank execs over foreclosure mess

Two economists, William K. Black and L. Randall Wray of the University of Missouri-Kansas City, are proposing a solution to the foreclosure mess: They want the federal government to take control of the banks and oust their top executives.

"We should remove the senior leadership of the banks and replace them with experienced bankers with a reputation for integrity and competence, i.e., the honest officers that quit or were fired because they refused to engage in fraud," Black and Wray wrote in an essay on HuffingtonPost.com on Oct. 22. The posting
has been circulated widely on the Internet and has prompted strong reaction from fans and critics of their radical proposal.

The professors said Bank of America should be the first to be taken into receivership. Here's how their plan would work:

A receiver is appointed on Friday. The bank opens for business as normal (from the bank's customers' perspective) on Monday. The checks clear, the ATMs work, and the branches all open. The receiver's managers direct the business operations, find the true facts about the bank's operations, senior managers, and financial condition, recognize the real losses, and make the appropriate referrals to the FBI and the SEC so that the frauds can be investigated and prosecuted.

"If the government does not hold the fraudulent CEOs responsible, who is supposed to stop the epidemic of elite financial fraud? The Obama administration's answer is the fraudulent CEOs themselves, at a time of their choosing. You can't make this stuff up," Black and Wray said.

Over the weekend, the professors summarized criticism of their proposal:

First, it is claimed that while there were some bad apple lenders, much of the fraud was committed by borrowers. Our proposal would let fraudulent borrowers remain in homes to which they are not entitled, punishing the banks that were duped. Second, the biggest banks are too important to foreclose. And third, it is not possible to resolve a "too big to fail" institution.

They also rebutted these points, calling them "spurious arguments."

By Ariana Eunjung Cha  | October 26, 2010; 10:21 AM ET
Categories:  Housing  
Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati   Google Buzz   Previous: Fed boss: Regulators looking into foreclosure mess
Next: Lawyers in gold rush to defend companies caught in foreclosure crisis

Comments

this is why so many liberals relised Obama is a republican

Posted by: newagent99 | October 26, 2010 11:41 AM | Report abuse

I have heard of the new economic theory of too big to fail, but I now understand their is a new one:

Too big and fragile to prosecute.

In the savings and loan debacle hundreds went to jail.

In the current foreclosure mess widespread fraud has been uncovered by the banks, mortgage companies, trust vehicles and other corporate entities, has been uncovered, there are no incitements being handed down.

The only thing we are seeing is a whole lot of civil RICO class action complaints. Funny thing is for a civil RICO there has to be underlying criminal fraud. How come a few small civil defense lawyers can find it, and so much of it that there are large class action suits in lots of jurisdictions, yet the regulators are still talking about paperwork errors?

First it was too big to fail,
now
Too big and fragile to prosecute.

Why are US financial institutions immune from the laws of man, the laws of the universe and gravity?

Posted by: Anonymous | October 26, 2010 4:48 PM | Report abuse

You can't be serious. Your solution to alleged illegal private property seizure is to have the government perpatrate the largest private property seizure in the history of the world. This country has lost its mind. This is what the courts are for, morons. We don't want the government touching private property of any kind. If the banks fail for this LET THEM FAIL! Then investors can take losses in the comfort that they didn't do enough to understand the company they own. But to suggest that the government seize them is Fascist.

Posted by: cetarro | October 26, 2010 7:28 PM | Report abuse

We could do that, but first we have to give Joe Biden the boot and replace him with Hugo Chavez (we want a pro, who knows what he's doing when it comes to seizing private property, not an amateur).

Posted by: toshiro1 | October 26, 2010 9:36 PM | Report abuse

How come US Attorney General Eric Holder's office hasn't even issued a statement on this? WHERE THE HECK ARE THEY?

Posted by: Anonymous | October 27, 2010 1:06 AM | Report abuse

And while we're (citizens) at it, nationalize energy including petroleum and put honest people in charge as opposed to greedy plutocrats. Make the "commons" truly that with public ownership and oversight. Screw plutocracy.

Posted by: Anonymous | October 27, 2010 8:54 AM | Report abuse

WITH A WIMP LIKE OBUMMER WHO BAILED THEM OUT AND A CRIMINA LIKE OBUMMER THIS IS NOT GOING TO HAPPEN UNTIL WE VOTE OBUMMER OUT. THAT IS WHEN CHANGE WILL FINALLY HAPPEN

Posted by: mikegrossh | October 27, 2010 9:26 AM | Report abuse

I wouldn't know whom to vote for.
I agree with the Professors that
there is evidence of fraud, even
rampant fraud. The Financial Crisis Inquiry Commission or
FCIC has set-up a website at
fcic.gov . Given more time,
I plan to read the testimony of
Vicki Beal of Clayton LLC and
D. Keith Johnson, formerly an excutive at Clayton LLC.

Posted by: John Locke | October 27, 2010 7:36 PM | Report abuse

"We don't want the government touching private property of any kind. If the banks fail for this LET THEM FAIL!" - cetarro

Cetarro, you're confusing receivership with nationalization. Closing failed banks, removing their officers and placing them in bankruptcy proceedings where they get restructured or liquidated is NOT nationalization.

Posted by: williambwilliams | October 27, 2010 9:33 PM | Report abuse

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