you aren’t exactly the bearer of good tidings, masaccio

The Fed is the umbrella supervisor of AIG, above OTS, even. What did it do? Nothing.

Light-touch? More like no touch, no hear, no see and no speak.

It seems as if they put the hens in charge of the weasel house. Love is hate, war is peace, we’re all free.

One of the common threads that runs through a number of our laws is the prohibition against interlocking management: an officer or director of a regulated corporation cannot be the officer or director of another corporation. This is the principle in the Glass Steagall Act, the Federal Reserve Act, the Banking Act of 1933 and 1935, the Transportation Act of 1920, the Federal Power Act of 1935, the Clayton Antitrust Act and many others. The principle is based on another fundamental fiduciary doctrine: that no agent can serve two masters and remain loyal to both. It is my observation after 34 year of law practice that this fundamental doctrine has been observed over that time more in the breach, as a troubling technicality that needs to be circumvented or possibly disregarded. Your post here masaccio illustrates precisely the end result of this thinking: why wouldn’t officers, directors or other agents of one branch or department of AIG use the funds at their disposal as agents, directors or officers of another? For these individuals, it was all “their money” to leverage and play with as they wished. What they were doing was nothing more than “abtracting”, “hypothecating”, “leveraging” or really embezzling other people’s money to wager on price fluctuations.

No wonder people refer to this as “light-touch” regulation. It sure looks like part of the regulatory race to the bottom, sponsored by the financial elites and the Republican Party.

any reason the Democratic Party isn’t included in the list of sponsors?

Excuse the OT, but you guys should look over this 2009 Republican Party Survey.

It is a riot. I have never seen such a biased and nutty piece of work. I had fun with it!

And you are surprised by this why? Corruption has been the ruling force for years in almost all areas of the fedgov. Mostly due to party(rethug) hacks being placed in charge of agencies they knew nothing about. Example. Mr kate o’beirne was the one doing the hiring for the Iraq rebuilding effort. His main questions re qualifications? Did you vote for bush? Are you against abortion?
Same thing happened at DoJ. DoD. State, and all the way down the line to FEMA and its famous director-Your doin a heck of a job Brownie-whose last job had something to do with horse judging. The rethugs hate govt so they placed unqualified hacks in as many positions as possible-moles were placed in CS positions and are still in senior govt positions.
Elliot, the system did nothing because, in the end, the rethugs want little or no govt-exception about what is happening in your bedroom of course-so emplaced hacks to kill the system from within-or else they really were the total idiots that we thought they were, my bet is on the bush rethugs being just total idiot hacks who could not(and in fact most have not)get a job outside of govt. All I can say is that I am damn glad that I had to retire in 98, otherwise I would have had to stay until 2005 at least and there is no way that I could have controlled my mouth around idiots. Despite SC rules, I might have been fired(I almost was twice for telling off politicals)-I do not suffer in silence around political fools-during the 80s, thank god for unions, I not only kept my job, I got money from the hacks who attempted to fire me. My union rep kept telling me to stop pissing off the politicals but their stupidity about what kind of work we did was unrelenting. I could not be fired,(at least not for insubordination) not only because of Civil Service, but I was also a disabled vet. that and my union reps knowing the contract backwards and forewards while the political bosses barely knew how to tie their shoes. If you get the idea that I did not like most of the bosses who got their jobs from the apointee lists, you are correct.

Lord. I went to the survey and started it. I couldn’t get past the stupidity of the questions. I couldn’t even answer in a snarky way since they were so biased. They don’t want answers they want confirmation of what they did. Not learning their lesson is the primary goal of the Republicans.

[W]hy wouldn’t officers, directors or other agents of one branch or department of AIG use the funds at their disposal as agents, directors or officers of another? For these individuals, it was all “their money” to leverage and play with as they wished.

That’s right. AIG provides an excellent example in the securities lending program, which I discussed in another post. Polakoff describes it in his written testimony:

At its highest point, the portfolio’s $90b billion in assets comprised approximately nine percent of the group’s total assets….The securities lending program was designed to provide the opportunity to earn an incremental yield on the securities housed in the investment portfolios of AIG’s insurance entities. These entities loaned their securities to various third parties, in return for cash collateral, most of which AIG was obligated to repay or roll over every two weeks, on average. While a typical securities lending program reinvests its cash in short duration investments, such as treasuries and commercial paper, AIG’s insurance entities invested much of their cash collateral in AAA-rated residential mortgage-backed securities with longer durations.

That resulted in an enormous loss for these entities. Another branch of AIG managed the program, and presumably earned fees for that investment that flowed to the parent, rather than the subs.

AIG wound up putting billions back into the subs to keep them solvent, and taxpayers bailed this program out through Maiden Lane II.

“Non-regulation” would be more accurate.

Now that we’ve all been forcefully reminded of historian Lord Acton’s observation that power corrupts; absolute power corrupts absolutely, how can we force Obama to respond credibly to corruption’s destruction? His economic team’s reaction thus far is to hide the corruption in measures paid for by those harmed by it. Neat trick.

Thanks masaccio.

Digg is open

Corruption has been the ruling force for years in almost all areas of the fedgov. Mostly due to party(rethug) hacks being placed in charge of agencies they knew nothing about.a

and the democrats in the clinton administration who actually did know something about the agencies they were put in charge of – which they then proceeded to run for the benefit of the financial elites? like rubin who came from goldman sachs to run clinton’s treasury dept and within a few months had the administration pushing for repeal of glass-steagall? the same rubin who when he left the clinton administration went to work for citi (the biggest beneficiary of that repeal) where he was payed over $115 million dollars? or maybe you agree with clinton who a couple years later gave rubin the presidential citizen’s medal for his gov “service”?

how about summers? or maybe also gensler? these are the same hacks who, when in the clinton administration helped kill millions of people (not hyperbole in the case of summers at least) with their economic policies. millions of people in the streets protesting, governments overthrown, even a few protests here in the usa. it wasn’t a big secret and maybe it’s time we took a look at that history, because it sure looks like the same people are doing the same kinds of things all over again. only this time we’re on the receiving end too.

Selise, you’re starting to sound like the right wing Tea Baggers. Blame Clinton and the liberals for everything that has happened since the beginning of time. LOL

Rescinding Gramm Leach Bliley – or just talking about it here – would throw the entire apparatus and whole classes of toxic assets right down the drain where they belong causing a massive movement of assets back into equities that were manageable and exchange-traded. If the banks aren’t converting toxic assets into equities now, I don’t know what will get them to do it in the future.

As long as banks aren’t lending and companies are laying people off in droves, we may as well fix the problems that Gramm created and reestablish a regulatory framework. Otherwise, the problems we are facing now will continue to do damage as far as the eye can see. A one-and-a-half trillion dollar deficit will look like peanuts.

I hope we can discuss this topic without getting personal – thanks.

Blame Clinton and the liberals for everything that has happened since the beginning of time.

no. only for what they actually fucking did.

if i’m wrong on the facts, i hope and expect you to call me on it. but i really don’t expect to be put in the same category as “right wing tea baggers” – at least not by progressives who claim to be, you know, part of the reality based community. well, not unless i’m just making up shit or espousing right wing “values.”

edit to add: guess if i’m going to claim the facts are on my side, i have a responsibility to give some links (see here and here)

For these individuals, it was all “their money” to leverage and play with as they wished. What they were doing was nothing more than “abtracting”, “hypothecating”, “leveraging” or really embezzling other people’s money to wager on price fluctuations.

Thank you. Very helpful comment.

And from masaccio:

The Washington Post tells us that Scott Polakoff was placed on leave by the Office of Thrift Supervision (OTS), of which he is acting director. The apparent cause is an investigation into allegations that he was involved in an OTS scheme to allow IndyMac and other federal savings banks to falsify their financial statements. Maybe someone needs to look into the way OTS dealt with AIG.

When did ‘regulation lite’ translate to helping megacorporations who use offshore banks to avoid US taxes (while, no doubt, collecting fees from the ‘financial needs’ of assorted drug cartels and thugs) FALSIFY financial statements?

I’d write more, but it might take me awhile to collect my teeth; my jaw hit the ground a bit too hard when it dropped and a couple of them broke right out.

And per selise, I’m finally also coming around to wanting Summers and Rubin ‘blacklisted’, at the very least.

Yes, but I think that’s why jonerik’s point that these people were just using ‘leverage’ on nothing but air is so important.

As is timr’s point that these OTS employees didn’t have a fookin’ clue what they were doing; that if you gut the years of knowledge of a smart civil servant, that’s a loss that you really cannot afford.

As masaccio’s tale here illustrates…

If you ever need a good example of a push poll, this is it. Not to mention they insist on your full contact information to “verify” your survey, and suggest a donation before you leave.

Thanks, masaccio.

This syndrome shows how far the wheels have come off American representative governance without regard to party. Simply put, these elected and appointed officials owe their fiduciary duty to whom? In the Constitution, these duties redound to the People from whose consent all power and authority is derived. Or so the macro theory goes for a subjectively defined concept of the Public Good.

Today both parties are embedded in a profoundly dysfunctional system where rewards and sanctions are selectively distributed. On a micro level between fiduciaries and their principals, there are two distinct relationship and performance scenarios.

1) Agents have the best intentions to act in the interest of their principals, but they’re inexperienced and/or incompetent.

2) Agents are highly experienced and competent, but couldn’t care less for and dependably act against the best interest of their principals.

Neither is sufficient for protecting the principal’s interest, but clearly the second is much more devastating. On a macro level spectrum, democrats tend more toward the first, while republicans toward the second.

As I’ve noted before, there is a strange amalgam of financial predation and parasitism afoot in the world. And for the real economy, it will be a pyrrhic victory at best

masaccio wrote:

Regulation was to be done by function, so if a bank decided to get into selling securities, its securities business would be subject to regulation by SEC, while its banking business remained under its primary regulator.

Then, why weren’t they regulated by function? Why was there only one regulator (in the case of AIG it was a thrift supervisor ONLY)?

masaccio wrote:

No wonder people refer to this as “light-touch” regulation. It sure looks like part of the regulatory race to the bottom, sponsored by the financial elites and the Republican Party.

This isn’t light-touch, it’s no-touch. BTW, I think the term ‘light-touch regulation’ came from one of the British regulators during the Blair era — perhaps close to Brown as Brown was their treasury guy during Blair’s time.

The insurance companies are regulated at the state level, in the case of US insurance companies, and under the laws of foreign nations where each foreign company was incorporated. The OTS was the principal federal regulator only.

The outrage over AIG using less than 0.1% of the $173 billion stolen (so far) to pay employee “bonuses” [sic hush money] is silly. The Department of Justice (”DoJ”) should prosecute and send the guilty parties to jail. Here is a prescription for recovering the $173 billion that AIG has stolen from the federal government thus far.

(1) The DoJ should file suit in a U.S. District Court for civil conspiracy, fraud and breach of fiduciary duty against AIG and AIG’s directors. The DoJ can prosecute these defendants under the False Claims Act (31 U.S.C. § 3729–3733), the Racketeer Influenced and Corrupt Organizations Act (18 U.S.C. § 1961–1968), and the Foreign Corrupt Practices Act (15 U.S.C. §§ 78dd-1).

(2) The DoJ should add as co-defendants any counterparties to AIG’s fraudulent derivative contracts (credit default swaps, etc.) who were unjustly enriched by being paid-off using any portion of the $173 billion that AIG extorted and defraud from the federal government.

(3) DoJ should file a motion in the case seeking the imposition of a constructive trust, in equity, over the federal government’s money, and/or any assets into which the counterparties converted the federal government’s money.

(4) The DoJ should allow a jury of intellectually honest citizens determine if AIG and AIG’s directors are liable for claims against them; and if they are, the amount of money that each party unjustly enriched by AIG’s extortion and fraud scam should return to the federal government.

(5) The DoJ should take on all appeals through to the Supreme Court so that the consequences of violating the laws that AIG has violated will set precedent for prosecuting others who choose to follow AIG’s path.

See http://texasbarwatch.blogspot.com/ for information on how the U.S. Congress has facilitated AIG’s theft and failed to prosecute the company or its directors for these crimes. Also, http://TexasBarWatch.US/ and http://Iran-Conoco-Affair.US/.

See http://www.delawarelitigation……directors/ for information on how AIG shareholders (read: lawyers fronting for AIG shareholders) are attempting to unjustly enrich themselves on U.S. taxpayer money being used to defend AIG’s corrupt directors.

It’s rather farcical how AIG managed to upend the regulatory structure created in 1999 effectively putting itself under the supervision of Thrift regulator by artifice. It’s ridiculous, even.

The lights were on in Congress-critters, but nobody was home.

I’m with ProSe, prosecutions should begin ASAP — although I do wonder whether the folks at AIGFP left Easter eggs in the swaps which would declare any prosecutions to be defaults.

OTS’ decapitation certainly suggests another look at Elliot Spitzer’s op-ed in WaPO dd. 02/17/08, wherein he specifically says that as a tool of the White House, the Office of the Comptroller of Currency (OCC) was involved in preventing all 50 states’ attorneys general from investigating subprime mortgages. Was there any chance that OTS was similarly deployed?

Without a doubt the obstruction is long, wide and deep.