Regulating the Regulators
As more corrupt activities by financial institutions are uncovered every day it becomes evident that this conduct would not have been possible were it not for the failings of the regulators and the regulatory agencies charged with overseeing these institutions and their personnel. Cheating is rampant within financial institutions and if traders or other personnel can skirt the law to make an extra buck, most of them will do it. It is part of the culture of the investment banks and other financial establishments, where making money is the prime objective.
The LIBOR manipulation by Barclay’s and various other banks has recently come to light along with money laundering from HSBC and the fraud from Peregrine Financial. But going back a few years, there was also the sub-prime mortgage debacle and the bundling of troubled mortgages and other loans in collateralized debt obligations which were doomed from the start. And the lies from the financial giants like Lehmann, Bear Stearns, Merrill Lynch and Countrywide about their financial status, as well as all of the major banks that required bailouts from the federal government to survive.
We ‘ve spoken about the way these institutions have been fined at times by government agencies for their illegal activities and the way this is deemed a cost of doing business by these companies. We’ve mentioned as well the way the executives of these institutions responsible for the corruption have avoided any prison time for their conduct, occasionally having to pay some monetary penalties for their “mistakes.” This lack of criminal prosecution of these corrupt financial executives has been a blot on the record of the Justice Department, Treasury Department, and government regulatory agencies.
However, as disheartening as the corrupt behavior by the banks has been the lack of accountability by the regulators responsible for overseeing the financial institutions. They either turned a blind eye to the corrupt behavior, allowed it to go on because of some sort of pay back, or they were just not sophisticated enough to know what was going on. But what has happened to the government employees who were supposed to be watching the banks for us? Is their presence an exercise in futility? How many of these people subsequently wound up working for the institutions they were supposed to be regulating?
And it is not just government agencies that have been at fault in watching the financial institutions, but the independent rating agencies, like Standard and Poors, Fitch and Moody’s who were apparently in bed with the companies whose instruments they rated prior to the recession. These agencies labeled various CDOs, bonds, and so forth as sterling credit risks, when subsequently they were found to be highly risky and caused investors to take significant losses. There was a major conflict of interest here as they were being paid by the companies whose offerings they were rating.
And it is still going on. These “Independent” companies are still at work, rating corporations and the financial instruments for the investment community at large. And the inept government regulators are still at their posts.
Gertrude Morgonsen in the business section of the New York Times recently discussed the book “Bailout” by Neil Barofsky, who was in charge of overseeing the TARP program. (http://goo.gl/d4G9M) It describes the way government officials took the side of Wall Street over the public interest and it makes one wonder how the influence of Wall Street over the government can be reduced. Unfortunately, both political parties are on the take from the financiers and financial institutions, and true regulation of these institutions in the future seems like a pipe dream.
A VietNam vet and a Columbia history major who became a medical doctor, Bob Levine has watched the evolution of American politics over the past 40 years with increasing alarm. He knows he’s not alone. Partisan grid-lock, massive cash contributions and even more massive expenditures on lobbyists have undermined real democracy, and there is more than just a whiff of corruption emanating from Washington. If the nation is to overcome lockstep partisanship, restore growth to the economy and bring its debt under control, Levine argues that it will require a strong centrist third party to bring about the necessary reforms. Levine’s previous book, Shock Therapy For the American Health Care System took a realist approach to health care from a physician’s informed point of view; Resurrecting Democracy takes a similar pragmatic approach, putting aside ideology and taking a hard look at facts on the ground. In his latest book, Levine shines a light that cuts through the miasma of party propaganda and reactionary thinking, and reveals a new path for American politics. This post is cross posted from his blog.