Where were regulators when banks were failing:
When ANB Bank of Arkansas failed last year, it was easy to blame executives whose pursuit of high-adrenaline growth led to the bank’s demise. But now other key culprits have emerged in ANB’s collapse: the government officials who were supposed to be policing the bank.
The inspectors general at the U.S. Treasury and the Federal Deposit Insurance Corp. (FDIC) have both issued reports saying that bank failures surged because regulators in some cases didn’t step in and prevent hazardous behavior, and in others actively helped banks hide their growing problems.
As early as Wednesday, the Obama administration is set to release details of a new regulatory framework for the vast and complex financial system of commercial and investment banks and brokers that has evolved in the last few years. However, the recent reports from the inspectors general highlight that bank regulators failed to do their job properly even when supervising far simpler banking institutions, showcasing the difficulty the administration faces in ensuring the new supervisory system will work effectively.
Good piece. I’m wondering if Obama’s cautiousness will mean that the new regulatory structure they are proposing will not go far enough.
Englischlehrer
but are teh possible negligent parties from the government whose job was to regulate this greed still in those positions?
Howard Stern has “Bang my Dad” on right now, adult kids trying to get their parents laid with a mom/daughter combo from the Bunny Ranch.
At least someone is out there helping the average John, er Joe.
camchuck
Anyone who read Tabbai’s AIG article knows what a fraud the OTS was. Also, Madoff was handed to the SEC on a silver platter (7 times) as far back as 2001.
Tinkering around the edges on regulation won’t do anything.
Charity
And the Republicans want LESS regulation, when apparently the regulators we had weren’t doing anything! Sure, that’ll solve everything…
I imagine there are a lot of young jobless college graduates who would LOOOOOVE to work as regulators under an Obama administration now.
The Grand Panjandrum
Jesus. I still remember when a million dollars seemed like a lot of money.
cleek
Queen of fakes and imitators
Time’s the regulator.
DemonDem
Obama has a VERY delicate balance to make – he needs to put in place a regulatory framework that covers all asset types (i.e.derivatives and collateralized debt), that protects the broader economy from this kind of greed and childish behavior, and that is actually effective (unlike the current structure).
At the same time, he needs to make sure regulations don’t suffocate financial institutions, because at this point, our collective future (and all of our retirement money) is tied up in market performance (this is stupid, but its a gordian knot that will take a LOT of time to undo, and that’s if you can find anybody willing to take on that task. Finally, he needs to not spook the investment community in a fragile economy, because the reality is, they are the ones with money to put back in the system.
Its easy to get worked up and insist on more regulation or punishmnet for the greedy bastards who did this, but economic policy, like foreign policy, has a lot of moving parts that play off of one another, and you sometimes need to do business withy bad actors to get what you want. IMO, Obama is being about as aggresive as he can without creating other problems elsewhere in the system.
Barry Soetoro
Somewhere, John Galt’s followers laugh at your silly blogs and “trillion dollar questions.” Because if there was 0% regulation, none of this would have happened at all. Do you see? It’s so crystal clear.
gex
Wasn’t that pretty much SOP during the Bush Administration? They very specifically had other regulatory agencies (FDA, EPA, etc) just not enforce regulations. To be surprised that financial industry regulators didn’t put the brakes on risky financial behavior in that environment is like being surprised that the sun rose this morning.
terraformer
John, please do something about that Pam Anderson advertisement. You’ve mentioned trying to get rid of it before after complaints, but it’s getting difficult to view your site at work when she’s always at the top grabbing her boobs.
Fulcanelli
I don’t expect miracles given the tasks at hand and the short time he’s been in office, but Obama’s biggest enemy right now is time and the window of opportunity to put the hammer down that’s wide open right now, as cleek notes above.
He needs to take the fucking gloves off and burn them with Wall St. and the Too-Big-To-Fail Banks or they will continue to hold us hostage to their greed.
Maybe this is one time that the invisible hand will step in and work it’s supposed magic. If the big banks keep the screws tightened and don’t lend to small business, etc. even after we bailed them out because of so-called oppressive regulations, then there’s an opportunity to make a buck and grow that the smaller banks who operated within the rules can step in to capitalize on, no? Reward the ones that operated responsibly with the new business.
Yeah, I know, another pipe dream…
slippytoad
DemonDem: I think the “need” for playing patty-cake with financial institutions and investors is vastly overrated. Right now most of the nation’s wealth appears to be tied up in the coffers of the very wealthy and not ever going to get anywhere near the rest of us so I could give a shit about their candy-ass fears and concerns. Our financial system needs to be credible and stable and right now it is neither and I don’t trust anyone who works in that industry — it’s a moral fucking cesspool.
I’d like to see the hammer brought down hard on these people. No more fake fucking money. No more dodgy financial instruments. No more sacks of my cash handed to people who piss it away. Play by the rules or get sent to jail, period. These people shipwrecked the entire world’s economy. I don’t think they are the ones to trust to fix it and kowtowing to their insecurities is the last concern I have.
anonevent
In other words, “We don’t need more regulation, because it won’t help.” The new free market mantra: We’re going to screw up anyway, don’t bother regulating us.
geg6
I have lost what little faith I ever had that the economic team of Geithner and Summers would do anything to rein in their pals. I think that nothing will change, no one will ever be held to account, and they will go on raping the public for personal gain forever. Our corporate overlords will go on as they always have and the rest of us will continue to be fucked, as we always have. And so it goes.
Johnny Pez
@Barry Soetoro:
Hmm. Real troll or spoof troll?
JGabriel
USA Today, as quoted by John Cole @ Top:
Doesn’t this fall under the rubric of, “Republicans say government doesn’t work, then get themselves elected to prove it.” How many of the current bank inspectors and regulators were hired or appointed by the Bush administration, while using partisan criteria?
It looks as if this may be just another example of the politicization of the bureaucracy, much like Bush/Rove/Cheney’s politicization of the DoJ.
.
JGabriel
DemonDem:
Isn’t the point of the Gordian Knot myth that it’s sometimes better to just slice right though it, boldly and quickly?
I’m saying your argument is wrong, just that the choice of metaphor undercuts it in a way that might be instructive.
.
cgp
I’m not sure where I read it, but I think the main healthy criticism of the Obama plan was that it was essentially taking the job of regulating certain securities and giving it to the Fed, who, as any nutjob can tell you, is elected by bankers. The potentially substantial reason to object to this is that it’s asking the bankers to regulate themselves.
Roger Moore
@Charity:
If the regulators aren’t going to do their job, we might as well get rid of them entirely. Sham regulators are the worst of both worlds. They provide no protection from fraud, but they do cost money and might fool investors into making bad investments in the mistaken belief that the regulators are looking out for them.
JGabriel
That, of course, should be:
Sigh.
.
Rosali
This American Life had a very good episode about this on 6/5:
DemonDem
Slipptytoad – I understand how you feel – and agree that the dodgy instruments and morally-corrupt shitballs need to go, but let’s clarify our terms here:
No institution should get your money (or mine) – the issues of bailouts and regulation are separate but related – we need better regulation so that the questioin of bailouts is moot.
Second – I’m trying to separate the investors – which includes the whole range from the mega-wealthy to anyone like you and me with a 401k – from the “moral cesspool” that is the investment management culture. For the shitheads who brought this upon us (the investment managers) I say lock them up and throw aways the key. BUT, if in so doing, you upset the applecart and scare investors to get out and hide their money in mattresses – then we all get fucked.
The “hostage” metaphor higher on this thread is apt. Like any hostage situation – stay calm, don’t make sudden moves, get the bad guys to chill out a bit, and as soon as they lax their grip on the detonator – bring the house down on’em.
Pleade don’t think I’m advocating that people get away with what they’ve done, I’m just suggesting that slicing right through the gordian knot has consequences when we are collectively hanging off a cliff by the other end of that same rope. See:Iceland.
terry chay
thisamericanlife.org/Radio_Episode.aspx?sched=1301
About the OTS, the raters, etc.
DemonDem
The “This American Life” episodes on the economy – the one above as well as “Bad Bank” “Another Depressing Show About the Economy” and “The Giant Pool of Money” all do a terrific job of explaining how all of this happened and what our choices are moving forward. They are fairly thorough and they explain stuff in plain English – I recommend them to anyone who wants to undestand what is going on, but feels their eyes glaze over when people start to talk about this stuff.
jcricket
@slippytoad: What slippytoad said. Enforcement of existing regulation; new regulation that accurately models the risk of speculative investment vehicles; increased transparncy, reporting, disclosure and capital requirements – these will all decrease short-term profits (and increase expenses) for financial firms.
This is categorically a good thing. All those profits they’ve had the past 10 years? Totally fake! Who’s bailing them out? You and me! And so all the bonuses, giant salaries, stock grants? Totally not their money!
I’m 1000% less worried about “smothering” the banks than I am about allowing them to escape unscathed from this near global meltdown. This is not because I want punishment, but because I want to, as much as possible, prevent a repeat of the situation where institutions are left to grow and act unchecked.
No one “likes” regulation or increased reporting requirements. Not banks, not the military, not pharmaceutical companies, etc. But if there’s one thing we’ve learned, it’s that no one will regulate themselves, and the consequences of not paying attention are incredibly dire for society. So it’s the government’s job to step in, in spite of the gnashing, caterwauling, bitching and moaning of the “industry” in question.
jcricket
BTW – related to my last point. When Clinton raised taxes on upper earners in the early 90s the usual suspects moaned and wailed about how it would destroy the growth engine of the economy. Instead, no such thing happened, and the federal coffers were replenished.
Watch what’s happening now with healthcare reform, increased EPA regulation of auto emissions, etc. The people subject to “increased expenses” are telling us it’s the END OF THE WORLD! Industries will wither and die, and people will be left without the glorious innovations sure to be coming down the pike from Altria, Blue Cross and your auto industry.
Not. Gonna. Happen.
The biggest problem I have is that Democrats don’t make the people understand this. That industry lobbyists are doing what they do best, which is their right, but they are not unbiased observers of the situation, and should not be listened to as such.
jcricket
It’s more about who’s hiring the watchmen? And what’s their motivation in doing so? If it’s Republicans, it’s to hire people that don’t do a good job, or who mainly serve as a conduit to dismantle the agency they’re working for. This way you can continue to say “government doesn’t work, so we shouldn’t fund it”.
It’s a nice tautology Republicans have going for them.
Robertdsc-iphone
Given his spectacular failure at managing the banks, I have no confidence whatsoever in the regulatory scheme that the President and his people will offer tomorrow.
sheiler
@rosali: you beat me to it! But you others should definitely download this week’s free podcast of This American Life. They go more relevant places trying to find out who exactly is responsible for oversight than anything else I’ve read or heard ….
Peter Christopher
One things for sure, this shows that a lack of regulators wasn’t the problem. So (if there is a solution), more regulators isn’t it.