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."
Ariana Eunjung Cha
| October 26, 2010; 10:21 AM ET
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