It was no accident.
The folks in power in Washington and on Wall Street want to pretend that the current global financial crisis -- you know, the one that reduced household net worth in the United States by $11.2 trillion in 2008, according to the Federal Reserve -- was an accident caused by some unfortunate confluence of greed and asleep-at-the-switch regulators.
What we're now living through, though, is the result of a conscious, planned looting of the world economy. Its roots stretch back decades. And it wouldn't have been possible without the contrivances of the bought-and-paid-for folks who sit in Congress.
Of course, just because the plan blew up on the looters, taking off a financial finger here and a portfolio hand there, you shouldn't have any illusion that they've retired. In fact, in the "solutions" now being proposed -- by Congress -- to fix the global and U.S. financial systems, you can see the looters at work as hard as ever.
Blaming the regulatorsThe smoke screen -- the official explanation of the global crash -- was on full display at a March 5 hearing led by Sens. Chris Dodd, D-Conn., and Richard Shelby, R-Ala., respectively the chairman and ranking minority member of the Senate Banking Committee, into the $170 billion morass that is . Served up on the grill were Eric Dinallo, the supervisor of insurance for New York state, and Scott Polakoff, the acting director of the federal Office of Thrift Supervision.
"Are you trying to evade your responsibility?" Shelby thundered at Dinallo, who was responsible for regulating AIG's insurance business, headquartered in New York.
Neither Dinallo nor Polakoff had a convincing explanation for why their agencies hadn't done more to stop the meltdown at AIG, which has so far cost taxpayers $170 billion. At times, they certainly seemed like they were trying to weasel out of responsibility, exactly as Shelby suggested.
Dinallo, for example, pointed out his agency regulated only AIG's insurance business and not the London financial-products unit, which had written the derivative contracts that took down the company. Shelby countered by asking why Dinallo's office hadn't done more to stop the risky lending of securities by the company's regulated insurance units, which account for $35 billion of the $170 billion bailout.
Polakoff wound up eating crow and more crow. "AIG was successful in many regards for many years, but it had issues and challenges," he said in his prepared statement for the committee. After that exercise in the numbingly obvious, it was hard to muster up much sympathy for Polakoff when Sen. Jack Reed, D-R.I., got him to participate in his own evisceration. "The perception that this London operation was some rogue group that was unsupervised, that you had no access to it and that your regulator authority didn't reach there is not accurate," Reed said. "Correct," Polakoff answered. "That would be a false statement."
Riddle me thisBy trotting out these sacrificial victims in this show trial, our representatives in Washington hope you won't ask the hard questions, the questions that show that they bear far more responsibility for this crisis and for the destruction of trillions of dollars in global assets than any state insurance commissioner or Washington bureaucrat. What questions? How about these:
Question: How is it that the Office of Thrift Supervision, a unit of the Treasury Department that regulates the savings and loan industry, wound up as the primary federal regulator for insurance giant AIG?
Answer: The company was essentially able to shop for the regulator of its choice. AIG's acquisition of a small savings and loan in 1999 gave oversight responsibility to the Office of Thrift Supervision, a 1,000-employee agency with offices in Washington, Atlanta, Dallas, San Francisco and Jersey City, N.J.
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The agency hasn't exactly been a regulatory bulldog in recent years. The Treasury's inspector general blasted the agency for its role in propping up IndyMac Bank in the days before the savings and loan collapsed last July. The agency's auditors allowed the company to backdate cash infusions to make it seem like IndyMac had enough capital. The S&L's eventual collapse cost the Federal Deposit Insurance Corp. $9 billion.
For the past four years, the agency had staff regularly on site at the AIG financial-products branch office in Connecticut, The New York Times' Gretchen Morgenson reported in September. Either these examiners, used to the world of savings and loans, didn't understand the complex derivatives transactions they were seeing, or, as in the IndyMac case, they decided to go along. In either case, the agency didn't step in to halt the practice.