Coup of the Elites: A Free Pass for Financial Predators

[Octafish]

9. You know, William K. Black should be called in to police the place up...

Time to Take Off the Blinders About Obama Taking Off the Gloves

EXCERPT...

It’s been nearly two years since the passage of the Dodd-Frank Act.  A year ago, it was indeed “past time” for President Obama “to take off the gloves.”  Today, if anyone still believes that President Obama ever desired to “take off the gloves” it is past time to take off the blinders and see the reality of crony capitalism.  The international competition in laxity in financial regulation continues, but the domestic competition in regulatory laxity is between the Republicans and Democrats.  It was on display at the Senate hearing on JPMorgan’s losses which morphed into an assault on Dodd-Frank and regulation and represented such a nadir in congressional oversight that the American Banker – the trade press – slammed the Senators’ competition in sycophancy towards Jamie Dimon as “obsequious.”

SNIP...

The first action that the NYT was urging the administration to take was to criticize publicly the Republican’s blockage of the appointment of financial regulatory leaders.  (Republican readers: consider for a moment what the Republican Party would have done had a Democratic Senate minority used the filibuster to block the nomination by a Republican President of a Nobel prize winning economist to the Board of Governors of the Federal Reserve – on the purported grounds that he lacked economic competence.)  The editorial noted that President Obama had selected Martin J. Gruenberg to head the FDIC.  A year later, Gruenberg remains an “acting” head of the FDIC.  Gruenberg is a lawyer and long-time congressional aide to former Senator Sarbanes.  No one seriously thinks he will “take off the gloves” and lead the vital transformations of the banking industry.

The editorial also supported Thomas Curry, Obama’s choice as head of the Office of the Comptroller of the Currency (OCC) and the appointment of Elizabeth Warren to run the Consumer Financial Protection Bureau.  President Obama refused to appoint Warren because of industry opposition.  Curry is a lawyer and the rare professional regulator.  He has a long career as a senior state banking regulator for Massachusetts and has served as an FDIC Director since January 2004.  That means, however, that he was in a position of power during the developing crisis – and took no effective action to prevent or limit the crisis.  I know of no evidence that he protested the FDIC’s disastrous MERIT examination system, which crippled FDIC examination or fought publicly to prevent the evisceration of the agency by personnel cuts.  He was in a position of power when the FBI warned in September 2004 that there was an “epidemic” of mortgage fraud that would cause a financial “crisis” if it were not contained.  He was in a position of power when the mortgage industry’s own anti-fraud unit (MARI) warned that liar’s loans were “an open invitation to fraudsters” and had a fraud incidence of 90 percent.  I know of no evidence that he warned of the coming catastrophe and pushed to take emergency action against the raging epidemic of mortgage fraud.

The FDIC regulates smaller banks.  It had the strongest regulatory leader during the crisis (Sheila Bair).  Though she had far more power than Curry, she did not take off the gloves and protect the nation from the fraudulent lenders.  The FDIC has the strongest regulatory tradition.  The OCC, by contrast, regulates the largest (national) banks.  The OCC, the Federal Reserve, and the late Office of Thrift Supervision (OTS) all disgraced themselves during the crisis as virulent anti-regulators.  In particular, the OCC viewed financial derivatives with great favor and opposed adoption of the Volcker rule.  The OCC was the most aggressive opponent of state regulation and enforcement against predatory and fraudulent lenders through preemption.  Curry, therefore, faced an exceptionally difficult task if he intended to clean house at the OCC and turn the agency into a leading part of the solution instead of a major contributor to the problem.

CONTINUED...

http://neweconomicperspectives.org/2012/06/time-to-take-off-the-blinders-about-obama-taking-off-the-gloves.html