Join Early Retirement Today
Reply
 
Thread Tools Display Modes
American Life: Secret tape of a regulator.
Old 10-01-2014, 05:04 PM   #1
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,733
American Life: Secret tape of a regulator.

Last weeks This American Life had very interesting segment on the experience of a Fed regulator who was part of the team in charge of overseeing Goldman Sachs in the Spring of 2009.

Her side of the story was that her fellow regulators were very reluctant to question GS or otherwise make waves. When she started to do so (in her words do her job) she was told to back off, and which point she started recording the meetings.

She eventually got fired and is suing the Fed, so there is obviously an axe to grind her. Still I found her description of the regulator process very plausible and more than a little depressing.

I know we've folks involved in both side of financial regulations, so I'd be interested in their perspective.

P.S the show transcripts are much faster to read, but you miss the cool music and Ira's great radio voice.
clifp is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 10-01-2014, 05:17 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Mar 2003
Posts: 18,085
Hahahahahahaha!

I should pop some popcorn.

The Fed is kissing cousin to a feddle gubmint bureaucracy. That sort of organization is top-down, STFU if you are not a 25+ year veteran and an officer, etc. And I can tell you with certainty that the Fed treats financial institutions differently depending on whether a particular Sneetch has a star on thar belly or not.
__________________
"All animals are equal, but some animals are more equal than others."

- George Orwell

Ezekiel 23:20
brewer12345 is offline   Reply With Quote
Old 10-01-2014, 05:33 PM   #3
Thinks s/he gets paid by the post
Htown Harry's Avatar
 
Join Date: May 2007
Posts: 1,525
Quote:
Originally Posted by clifp View Post
I found her description of the regulator process very plausible and more than a little depressing.
Me, too.

This is a pretty good summary, with links to the Propublica report on which TAL's reporting is based.

Whistleblower’s tapes suggest the Fed was protecting Goldman Sachs from the inside - Vox

The Vox reporter's conclusion was similar to clip's. That's only one man's perspective, though. I'm also interested in reading comments from those with more direct knowledge.
Quote:
The scandal is less about Goldman's behavior and more about the Fed's inability or unwillingness to uphold the rule of law. Reasonable people can debate whether specific regulations are necessary, but even the best set of rules is totally insufficient if paired with an enforcement system that applies them inconsistently or not at all. Fair and consistent application of regulations is a prerequisite for having a regulatory regime of any kind. When regulators act the way the TAL/ProPublica report show New York Fed regulators acting, it suggests that we need to reform or revamp regulatory institutions before we can expect any new rules they're charged with enforcing to do much of anything.
__________________
No doubt a continuous prosperity, though spendthrift, is preferable to an economy thriftily moral, though lean. Nevertheless, that prosperity would seem more soundly shored if, by a saving grace, more of us had the grace to save.

Life Magazine editorial, 1956
Htown Harry is offline   Reply With Quote
Old 10-01-2014, 05:48 PM   #4
Thinks s/he gets paid by the post
mpeirce's Avatar
 
Join Date: Feb 2012
Location: Northern Ohio
Posts: 3,182
Regulatory capture - Wikipedia, the free encyclopedia

It's why people are so often disappointed with regulation as a solution to things.
mpeirce is offline   Reply With Quote
Old 10-01-2014, 06:42 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,733
Megan McArdle has interesting column about how regulatory capture is normal.

Still it bodes very badly for any type of future fix.
clifp is offline   Reply With Quote
Old 10-01-2014, 06:57 PM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
samclem's Avatar
 
Join Date: May 2004
Location: SW Ohio
Posts: 14,404
Quote:
Originally Posted by clifp View Post
. . . but you miss the cool music and Ira's great radio voice.
The nasal, whiny delivery he's got would seem to be just the opposite of a desirable radio voice, but like you I find him very easy to listen to.

More than that, I always wonder how TAL finds their consistently great material. It's all over the map, but I always enjoy the shows.


Regards regulators: The FED is totally dependent on information provided by the major banks on their own operations--the recordings make clear that one reason the FED went light on GS was because they needed to maintain goodwill and continued GS cooperation. What type of enforcement can work like that? And the revolving door to/from the Fed to these banks is not even in dispute. Unless a regulatory agency has the authority, expertise, and resources to do their own digging in the books of those they regulate, and unless their personnel are effectively barred from being rewarded by those they regulate, then there won't be effective enforcement of the regulations.
samclem is offline   Reply With Quote
Old 10-01-2014, 07:14 PM   #7
Thinks s/he gets paid by the post
Htown Harry's Avatar
 
Join Date: May 2007
Posts: 1,525
Quote:
Originally Posted by brewer12345 View Post
...the Fed treats financial institutions differently depending on whether a particular Sneetch has a star on thar belly or not.
I had to look that one up. I guess we were a Green Eggs and Ham family.

The Sneetches and Other Stories - Wikipedia, the free encyclopedia
__________________
No doubt a continuous prosperity, though spendthrift, is preferable to an economy thriftily moral, though lean. Nevertheless, that prosperity would seem more soundly shored if, by a saving grace, more of us had the grace to save.

Life Magazine editorial, 1956
Htown Harry is offline   Reply With Quote
Old 10-01-2014, 07:23 PM   #8
Thinks s/he gets paid by the post
Mr._Graybeard's Avatar
 
Join Date: Apr 2011
Posts: 2,962
I thought the "Giant Pool of Money" program from 2008 was also insightful. For those who didn't catch it, the episode blamed the economic collapse largely on a hunger for yield on capital that prompted investors to accept increasingly higher levels of risk. When those investors ran into institutions with an incentive for producing high-risk debt instruments, trouble was imminent.

Really, all their financial stuff has been pretty good IMO. They have a knack for bringing life to dry economic concepts that would make most people's eyes glaze over.
Mr._Graybeard is offline   Reply With Quote
Old 10-01-2014, 07:46 PM   #9
Full time employment: Posting here.
CCdaCE's Avatar
 
Join Date: Apr 2006
Posts: 897
Quote:
Originally Posted by Mr._Graybeard View Post
I thought the "Giant Pool of Money" program from 2008 was also insightful. For those who didn't catch it, the episode blamed the economic collapse largely on a hunger for yield on capital that prompted investors to accept increasingly higher levels of risk. When those investors ran into institutions with an incentive for producing high-risk debt instruments, trouble was imminent.

Really, all their financial stuff has been pretty good IMO. They have a knack for bringing life to dry economic concepts that would make most people's eyes glaze over.

One could speculate that there's another train coming into the station? Maybe not specifically high yield, but, correlations aligning, lack of lower risk alternatives, etc.

Soon?

Makes for good entertainment if nothing else (until the asteroid).

-CC
__________________
"There's those thinkin' more or less, less is more, but if less is more, how you keepin' score?
It means for every point you make, your level drops. Kinda like you're startin' from the top..." "Society" - Eddie Vedder
CCdaCE is offline   Reply With Quote
Old 10-01-2014, 07:48 PM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Mar 2003
Posts: 18,085
Quote:
Originally Posted by samclem View Post
Regards regulators: The FED is totally dependent on information provided by the major banks on their own operations--the recordings make clear that one reason the FED went light on GS was because they needed to maintain goodwill and continued GS cooperation. What type of enforcement can work like that? And the revolving door to/from the Fed to these banks is not even in dispute. Unless a regulatory agency has the authority, expertise, and resources to do their own digging in the books of those they regulate, and unless their personnel are effectively barred from being rewarded by those they regulate, then there won't be effective enforcement of the regulations.
You have presented several unsolvable problems. If the regulators (and this is the situation for ALL bank regulatory agencies) don't get information from the banks, where are they supposed to get it? If you tell employees they can never work for the highest bidding employers after they leave, what kind of dolts do you think you will end up hiring? I don't even know what to say about the whole issue of institutional cultures and structures that leave a lot of examiners effectively shackled.

Some problems don't have a solution.
__________________
"All animals are equal, but some animals are more equal than others."

- George Orwell

Ezekiel 23:20
brewer12345 is offline   Reply With Quote
Old 10-01-2014, 08:44 PM   #11
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
samclem's Avatar
 
Join Date: May 2004
Location: SW Ohio
Posts: 14,404
Quote:
Originally Posted by brewer12345 View Post
You have presented several unsolvable problems. If the regulators (and this is the situation for ALL bank regulatory agencies) don't get information from the banks, where are they supposed to get it? If you tell employees they can never work for the highest bidding employers after they leave, what kind of dolts do you think you will end up hiring? I don't even know what to say about the whole issue of institutional cultures and structures that leave a lot of examiners effectively shackled.

Some problems don't have a solution.
Oh, it would cost a lot to do it right. You'd have to pay the regulatory personnel a LOT (which the GS/SES pay scale is not set up to do), you'd have to select for the right people (again, the government personnel system isn't set up for this), and access to bank data would have to be by very intrusive means, not on a "pretty please" basis.
Sure--hard and expensive.
But what have these breaches of regulatory discipline cost US taxpayers over the last few fiascos (S&L, Sub-Prime crisis, etc)? An effective regulatory mechanism, even the most expensive we can imagine, would cost less than what has already proven to be the alternative.

And now Dodd-Frank has brought even more rules we aren't capable of enforcing.

Rules without effective enforcement are worse than no rules at all, because that structure rewards those who cheat and punishes those (few) who abide by the law for its own sake.
samclem is offline   Reply With Quote
Old 10-01-2014, 09:27 PM   #12
Thinks s/he gets paid by the post
Mr._Graybeard's Avatar
 
Join Date: Apr 2011
Posts: 2,962
Quote:
Originally Posted by CCdaCE View Post
One could speculate that there's another train coming into the station? Maybe not specifically high yield, but, correlations aligning, lack of lower risk alternatives, etc.


-CC
Not sure what you're trying to say here. Certainly the world economy is complex, so many trains are coming and going. IIRC, the big train the "Pool of Money" program pointed to was the vast dollar holdings in China, enriched from years of trade imbalances. Chinese investors raised the demand for long-term bonds, driving down interest rates. Again, IIRC the premise of the program -- I haven't gone back to check

About the same time, the Fed was bumping up the federal funds rate over inflation fears. The inverted yield curve that followed (in what, 2007?) chased me out of my equity mutual fund holdings.

Other factors were certainly in play, such as the rise in consumer debt from 2000 to 2005. Some people began tapping home equity and credit cards (short-term debt instruments, largely) to stay afloat. And US businesses began scaling back on long-term debt around the middle of the decade because their outlook for growth was pessimistic.

A big part of the problem was that the US consumer was simply tapped out -- a problem that has persisted as the economy struggles to recover.
Mr._Graybeard is offline   Reply With Quote
Old 10-01-2014, 10:32 PM   #13
Thinks s/he gets paid by the post
Mr._Graybeard's Avatar
 
Join Date: Apr 2011
Posts: 2,962
Quote:
Originally Posted by samclem View Post
Rules without effective enforcement are worse than no rules at all, because that structure rewards those who cheat and punishes those (few) who abide by the law for its own sake.
Yes.
Mr._Graybeard is offline   Reply With Quote
Old 10-02-2014, 07:50 AM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Mar 2003
Posts: 18,085
Quote:
Originally Posted by samclem View Post
Oh, it would cost a lot to do it right. You'd have to pay the regulatory personnel a LOT (which the GS/SES pay scale is not set up to do), you'd have to select for the right people (again, the government personnel system isn't set up for this), and access to bank data would have to be by very intrusive means, not on a "pretty please" basis.
Sure--hard and expensive.
But what have these breaches of regulatory discipline cost US taxpayers over the last few fiascos (S&L, Sub-Prime crisis, etc)? An effective regulatory mechanism, even the most expensive we can imagine, would cost less than what has already proven to be the alternative.

And now Dodd-Frank has brought even more rules we aren't capable of enforcing.

Rules without effective enforcement are worse than no rules at all, because that structure rewards those who cheat and punishes those (few) who abide by the law for its own sake.
You are talking like a practical person. In the world of DC that is not how it works. There is significant downward pressure on gubmint worker salaries and numbers. It is easy, politically profitable and apparently fun to beat up regulators. And the pendulum is swinging away from more rules and effective regulation, not toward it. Sad, but that is the way the world works.
__________________
"All animals are equal, but some animals are more equal than others."

- George Orwell

Ezekiel 23:20
brewer12345 is offline   Reply With Quote
Old 10-02-2014, 07:57 AM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Chuckanut's Avatar
 
Join Date: Aug 2011
Location: West of the Mississippi
Posts: 17,173
Quote:
Originally Posted by brewer12345 View Post

Some problems don't have a solution.
I would disagree somewhat by saying some problems don't have a perfect solution.

But, like my old grandpappy used to say "Never let the perfect become the enemy of the good."
__________________
Comparison is the thief of joy

The worst decisions are usually made in times of anger and impatience.
Chuckanut is offline   Reply With Quote
Old 10-02-2014, 11:56 AM   #16
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Mar 2003
Posts: 18,085
Quote:
Originally Posted by Chuckanut View Post
I would disagree somewhat by saying some problems don't have a perfect solution.

But, like my old grandpappy used to say "Never let the perfect become the enemy of the good."
Agreed. So we have the system that we have. This necessitates crude (but hard to fake/scam) regulations like the Collins amendment stuff that forces a hard leverage ratio limit regardless of whether it makes sense in some circumstances.
__________________
"All animals are equal, but some animals are more equal than others."

- George Orwell

Ezekiel 23:20
brewer12345 is offline   Reply With Quote
Old 10-02-2014, 12:37 PM   #17
Full time employment: Posting here.
CCdaCE's Avatar
 
Join Date: Apr 2006
Posts: 897
Quote:
Originally Posted by Mr._Graybeard View Post
Not sure what you're trying to say here. Certainly the world economy is complex, so many trains are coming and going. IIRC, the big train the "Pool of Money" program pointed to was the vast dollar holdings in China, enriched from years of trade imbalances. Chinese investors raised the demand for long-term bonds, driving down interest rates. Again, IIRC the premise of the program -- I haven't gone back to check

About the same time, the Fed was bumping up the federal funds rate over inflation fears. The inverted yield curve that followed (in what, 2007?) chased me out of my equity mutual fund holdings.

Other factors were certainly in play, such as the rise in consumer debt from 2000 to 2005. Some people began tapping home equity and credit cards (short-term debt instruments, largely) to stay afloat. And US businesses began scaling back on long-term debt around the middle of the decade because their outlook for growth was pessimistic.

A big part of the problem was that the US consumer was simply tapped out -- a problem that has persisted as the economy struggles to recover.
I'm saying, "What has changed?".

Investors are still chasing yield, and correlations of previously uncorrelated markets are aligning since there appears to be abundant overvaluation of many things. The Fed is even more leveraged, I think, instead of the banks. Gov't appears to me, to be looking in the rear view mirror for a solution, etc. etc.

Is it going to take a decade or whatever to deleverage or could things go to hell in a handbasket with a big enough trigger? Just my observations and depressing musings. Maybe we're both saying similar things, just that the path was slightly different this time vs. last time.

-CC
__________________
"There's those thinkin' more or less, less is more, but if less is more, how you keepin' score?
It means for every point you make, your level drops. Kinda like you're startin' from the top..." "Society" - Eddie Vedder
CCdaCE is offline   Reply With Quote
Old 10-02-2014, 12:53 PM   #18
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Mar 2003
Posts: 18,085
Quote:
Originally Posted by CCdaCE View Post
I'm saying, "What has changed?".

Investors are still chasing yield, and correlations of previously uncorrelated markets are aligning since there appears to be abundant overvaluation of many things. The Fed is even more leveraged, I think, instead of the banks. Gov't appears to me, to be looking in the rear view mirror for a solution, etc. etc.

Is it going to take a decade or whatever to deleverage or could things go to hell in a handbasket with a big enough trigger? Just my observations and depressing musings. Maybe we're both saying similar things, just that the path was slightly different this time vs. last time.

-CC
I tend to think of the Fed "leverage" as a bit of smoke and mirrors. Taking money out of your left pocket an putting it in your right pocket and claiming you have leveraged yourself is silly.

As for the rest, yes, yield chasing is going on. But it is important to pay attention to the degree this stuff is going on. High yield spreads have a 4-handle, not a 2-handle. There aren't synthetic CDOs being spawned anew every week, nor are there CDO squareds, SIVs, etc. There aren't multiple large investment houses at 30+ to 1 leverage. And so forth. Are there plenty of examples of foolish yield chasing today? Yep (see the prevalence of "covenant lite" loans in the leveraged loan market). But the degree to which this stuff is going on appears to be way less than the conditions that lead to the crash.
__________________
"All animals are equal, but some animals are more equal than others."

- George Orwell

Ezekiel 23:20
brewer12345 is offline   Reply With Quote
Old 10-02-2014, 01:58 PM   #19
Thinks s/he gets paid by the post
mpeirce's Avatar
 
Join Date: Feb 2012
Location: Northern Ohio
Posts: 3,182
Quote:
Originally Posted by brewer12345 View Post
I tend to think of the Fed "leverage" as a bit of smoke and mirrors. Taking money out of your left pocket an putting it in your right pocket and claiming you have leveraged yourself is silly.
I was thinking the very same thing. The FED is fundamentally different than any other institution, especially a profit making one like a bank or brokerage.

The federal reserve's fundamental purpose is managing the money supply. It literally does create and destroy money. You have to keep than in mind.
mpeirce is offline   Reply With Quote
Old 10-02-2014, 04:11 PM   #20
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,266
I had a large insurer client who got caught up in Fed regulation because they owned a bank. Even though the bank was much less than 1% of their total assets and was essentially inconsequential they nonetheless were forced to provide data on stress tests for the whole company (worldwide) which was expensive, time consuming and difficult. To add insult to injury, the Fed people had no understanding of the insurance business so the client had to endure a lot of stupid questions. While I have no idea as to their competence to regulate banking, they were totally out of their element dealing with a large, complex, international insurer.

When I first heard about the need for the stress tests and the effort it was going to involve given how inconsequential the banking operations were I advised them that it would be easier to just sell the #$%^& bank than do the stress tests. After a year of frustration (and probably millions of $ of futile efforts), they threw up their hands and did just that.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Former Regulator: Clear Fraud in Financial Crisis -- Why Isn't Anyone in Jail? chinaco FIRE and Money 13 11-27-2008 06:09 AM
Get out your tape measures... Rich_by_the_Bay Health and Early Retirement 7 11-29-2007 06:28 PM
Duct tape Moemg Other topics 10 08-10-2007 12:51 AM

» Quick Links

 
All times are GMT -6. The time now is 08:19 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2024, vBulletin Solutions, Inc.