[FoRK] The Looter's War on Selfishness
Stephen D. Williams
sdw at lig.net
Thu Mar 26 07:24:39 PDT 2009
J. Andrew Rogers wrote:
> On Mar 25, 2009, at 11:39 PM, Stephen D. Williams wrote:
>> Really? "No one credible seems to be saying that..."?
> That is correct. Most of the quotes you pasted here are not material
> to my assertion, which makes the few that might be seem accidental. I
> think you missed most of what I was attempting to assert.
>> Normally, a regulator audits and monitors the entity that it is
>> charged with regulating to obtain proof that regulations are being
>> followed. Then they provide feedback for gaps and alarms to Congress
>> et al when problems are likely or even present. None of that
>> happened. "Specious ... dripping with non sequitur"? Yah. Sure.
> AIG's acquisition of a thrift did not magically cause regulator
> failure by the government. It does not make logical sense.
> Furthermore, the idea that a posse of regulators constantly hovering
> over your shoulder is the definition of "regulation" does not really
> make sense either, for the obvious reason that it would be extremely
> expensive for everyone with little return on that investment.
But it did, apparently. Did you read the article? Or do you have
evidence that they are completely wrong?
"In the biggest joke of all, Cassano's wheeling and dealing was
regulated by the Office of Thrift Supervision, an agency that would
prove to be defiantly uninterested in keeping watch over his operations.
How a behemoth like AIG came to be regulated by the little-known and
relatively small OTS is yet another triumph of the deregulatory
instinct. Under another law passed in 1999, certain kinds of holding
companies could choose the OTS as their regulator, provided they owned
one or more thrifts (better known as savings-and-loans). Because the OTS
was viewed as more compliant than the Fed or the Securities and Exchange
Commission, companies rushed to reclassify themselves as thrifts. In
1999, AIG purchased a thrift in Delaware and managed to get approval for
OTS regulation of its entire operation.
Making matters even more hilarious, AIGFP — a London-based subsidiary of
an American insurance company — ought to have been regulated by one of
Europe's more stringent regulators, like Britain's Financial Services
Authority. But the OTS managed to convince the Europeans that it had the
muscle to regulate these giant companies. By 2007, the EU had conferred
legitimacy to OTS supervision of three mammoth firms — GE, AIG and
That same year, as the subprime crisis was exploding, the Government
Accountability Office criticized the OTS, noting a "disparity between
the size of the agency and the diverse firms it oversees." Among other
things, the GAO report noted that the entire OTS had only one insurance
specialist on staff — and this despite the fact that it was the primary
regulator for the world's largest insurer!
"There's this notion that the regulators couldn't do anything to stop
AIG," says a government official who was present during the bailout.
"That's bullshit. What you have to understand is that these regulators
have ultimate power. They can send you a letter and say, 'You don't
exist anymore,' and that's basically that. They don't even really need
due process. The OTS could have said, 'We're going to pull your charter;
we're going to pull your license; we're going to sue you.' And getting
sued by your primary regulator is the kiss of death."
When AIG finally blew up, the OTS regulator ostensibly in charge of
overseeing the insurance giant — a guy named C.K. Lee — basically
admitted that he had blown it. His mistake, Lee said, was that he
believed all those credit swaps in Cassano's portfolio were "fairly
benign products." Why? Because the company told him so. "The judgment
the company was making was that there was no big credit risk," he
explained. (Lee now works as Midwest region director of the OTS; the
agency declined to make him available for an interview.)"
I'm temporarily working in the utility industry at the moment. Their
regulators apparently work through audits of every single utility,
eventually. They may choose order based on likely issues, however they
are expected to visit and review preparations according to regulations
for every utility, no matter how small or large. Some regulators in some
industries do regulate in something like an effective manner. It doesn't
have to be constant, huge overhead, or invasive to be effective if done
> In my own experience with regulators from a number of different active
> regulatory agencies, unless they have reason to believe you are
> violating the regulations, they rarely spend much time checking up on
> you. This is for the same reason we do not have the police follow you
> around all day to make sure you do not speed when driving.
>> It is part the job of regulators to signal when they are unable to
>> accomplish the goals of the regulations they do have.
> Few people would argue that there were not gross errors in the
> regulatory system at a minimum, and many would go much further, but
> instead of looking into this the people involved recently received
> promotions. I think that sends the right message.
>> Perhaps I'm not being clear enough in identifying the "sickness" vs.
>> "creative turnover". I don't think it is too hard to identify either
>> of them. Or perhaps you don't believe that monopoly, pyramid schemes,
>> or unrestricted land grabs are bad.
> All these things you mention are only arguably "bad" in certain
> specific contexts, not generally. In any specific case, whether or not
> the context is "bad" will be subject to interpretation. Sure, there
> are some obvious cases and those are handled in a satisfactory manner,
> but those cases are rare and most real cases are much fuzzier in the
> Maybe you do not have a hard time identifying "sickness" versus
> "creative turnover" -- I suppose you know it when you see it -- but
> codifying that into a consistent set of rules and regulations that do
> not have unintended consequences and which everyone else agrees to be
> accurate is another matter.
>> I don't care about markets being sensitive, as long as they are
>> sensitive in constructive ways.
> Sure, but the problem here is defining "constructive". Constructive is
> not always going to apparent to anyone, and you risk destroying whole
> classes of constructive action out of ignorance, apathy, or laziness.
> This is the way it normally works in fact.
>> The housing bubble was an obvious sickness.
> I would agree. It was largely the side effect of perverse incentives
> created by the Federal government through laws and regulations, so I
> am not sure how it could be prevented except by less stupid governance.
>> The gas bubble was another.
> I would disagree, market pricing transients are not "bubbles". The gas
> market has been hovering on the edge of a phase transition for a few
> years now, and I expect to see these kinds of price movements again.
>> It is likely that we can do better. It might not be likely that we
>> can figure out how.
> We could do better, but I do not expect that we will. Far too many
> people are enamored with micro-managing such things.
> J. Andrew Rogers
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