Tuesday, March 22, 2011

Naked Capitalism: Regulatory Capture Is Alive & Well (

So yesterday I skewered Republicans for their lack of support of a Fiduciary Standard among all financial advice providers. Today I give equal time to their friends across the aisle, the Democrats.

Yves Smith over at Naked Capitalism Blog has a great article on Regulatory Capture:

Sleaze Watch: NY Fed Official Responsible for AIG Loans Joins AIG As AIG Pushes Sweetheart Repurchase to NY Fed

You can read the post, but the two doozies are:

Masaccio at FireDogLake was suitably outraged at this spectacle of a regulator getting a job with the biggest lobbying group in the industry he regulates…..and staying in his current oversight role:

The Washington Post reports that David H. Stevens will be taking over as head of the Mortgage Bankers Association. Stevens currently serves as Assistant Secretary for Housing in the Department of Housing and Urban Development, and as the Commissioner of the Federal Housing Administration. He has a conflict of interest so deep that he should be fired at once…

Allowing Stevens to stay on the job, and saying that it comports with ethics rules, is proof that the term “ethics” has lost all meaning. He is working on a settlement that in some news stories calls for a penalty of $20 billion, which only banksters think bears any relationship to the horrifying damage caused by these sharks, through jacked-up fees, fraudulent court filings, dual-track loan modifications and other sleazy tricks played on suffering homeowners. He comes from the industry, and is heading to the group that put out slimy reports condemning any steps that might aid homeowners, including judicial modification of mortgages in bankruptcy.

Why is he not immediately fired for cause? President Obama can’t even use his standard excuse, that we should look forward, not at the past. I’m looking forward, and I see a totally compromised person negotiating the future of millions of Americans.

So, a current official charged with heading the FHA (the main provider of all mortgages in the US right now) is leaving to head the Mortgage Bankers Association (an organization that has worked against consumers and modifications). This is a clear case of Regulatory Capture and a major ethics violation (or at least it should be).

As if that wasn't bad enough...more NY FED/AIG Corruption:

Aside from the hidden bailout, is that the NY Fed official who was responsible for overseeing Fed loans to TARP recipients, including the AIG loan, Brian Peters, joined AIG in late January. See this letter to the Committee on Oversight and Government Reform, based on subpoenaed information from the Fed, p. 8, the e-mail cited in footnote 31, for a sighting of Peters in action. Given the extensive interactions between the Fed and Treasury on the fight with Ken Lewis over his threat to walk from the Merrill purchase (the two were working in tandem here, and pretty much on all the major TARP recipients who got Fed loans), and the continued close cooperation between the Treasury and the NY Fed, it isn’t hard to imagine that Peters has good knowledge of and relationships with the key actors at the Treasury as well as at the NY Fed.

There is more to this Peters story, click the link to read it, but it is directly related to the current bid by AIG to buy assets from Maiden Lane II (owned by the Federal Reserve....The Taxpayers).

Obama promised change - so far all we've gotten is a further deepening of the financial services industry into government. This cannot end well. I guess I'd be more encouraged if there were an alternative, but the financial services industry owns the Republican party as well.

If this post seems to political - take out all references to Dem and Repubs and focus on the issue at hand - Regulatory Capture, the process where the industry being regulated hires those who have power over them and then uses those people to push their own agenda.

If you don't believe this is relevant I suggest you watch the documentary Inside Job, by Charles Ferguson.

Scott Dauenhauer CFP, MSFP, AIF