A new bit of chicanery illustrates why it’s a lousy idea for the government to allow wards of the state like the GSEs and AIG to operate like kinda-sort private enterprises. When banks were nationalized in Sweden and Norway, the top brass and the boards were fired, and they were given strict goals and operating targets, required to report frequently, but not micro managed.
Instead, we have these government charges playing all sorts of games to slip the leash. One reader commented yesterday that AIG has three PR firms in its employ. And how much of their effort is going to discredit Feinberg and government oversight? I would bet a non-trivial amount.
Similarly, we have Freddie and Fannie, which are nationalized in an economic sense, but with no independent audit from its overseer, FHFA. But the bizarre bit here is that the regulator FHFA is undermining its own oversight authority. Huh?
It appears that at least one, maybe two factors are at work. First is that the now neutered inspector general Ed Kelley was working with SIGTARP. The Administration has taken a decidedly hostile stance towards the agency. Second is that Kelley was looking into fraud relating to some of the foreclosure reduction programs. Hhhm. Maybe Kelley was getting too close to something really embarrassing? As Huffington Post reports:
There is no independent auditor overseeing the federal agency responsible for some $6 trillion in home mortgages, because the Department of Justice’s Office of Legal Counsel ruled that the agency’s inspector general didn’t have authority to operate, according to internal memos obtained by the Huffington Post.
The ruling came in response to a request from the Federal Housing Finance Agency itself — which means that a federal agency essentially succeeded in getting rid of its own inspector general…
In September, the Department of Justice ruled that FHFA Inspector General Ed Kelley did not have authority to investigate wrongdoing or other abuses related to the agency, according to an internal DOJ Office of Legal Counsel memo signed by Deputy Assistant Attorney General Daniel Koffsky….
Kelley now heads the Office of Internal Audit and he said he has two employees: an office administrator and a person who oversees the contractors who review financial records. He estimated his budget for contractors was between $100,000 and $150,000.
As IG, he ran into trouble the way most independent investigators do — by investigating things people didn’t want investigated.
Kelley’s office had been working with SIGTARP Neil Barofsky, the Special Inspector General overseeing the bank bailout — the Temporary Asset Relief Program — when the agency head challenged his authority to operate and asked the FHFA General Counsel’s office to look into it.
“I hate to use the word challenge, because the question they raised was whether the statute was clearly established at the Office of the Inspector General,” said Kelley.
He declined to get into the specifics of investigations that were cut short. “I don’t really want to get into some of these, but obviously there are some programs out here. There’s the TARP IGs that are heavily involved in looking at criminal activity surrounding the Make Home Affordable program and different other aspects in the programs they’ve rolled out [to address] foreclosures and so forth,” said Kelley.
“Many of those are projects that would be worth jointly investigating between the TARP office and the IG’s office here at FHFA.” Kelley’s office was starting to do just that when “the question of whether or not we were legally the IG’s office came up, and we had to withdraw,” he said.
Notice the complete lack of any investigation into fraud in the financial crisis? And notice the flurry of activity to bust insider traders? Yes, insider trading is a serious abuse and should be prosecuted, but that is mere side show compared to the abuses in the credit markets. No one wants to let anyone look under that hood.
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Square this info if though canst with the ‘stress tests’ conducted of those banks which maybe-couldbe in need of TARP tarping. I know that different groups are involved in the two exercises, but there’s a common goal: give private capital extraordinary access to free public capital while restraining _ANY_ possible oversight of the process. Call it a license to steal; I know the recipients of said largesse must see it that way. And the sheriff’s in court explaining why he has the legal authority to investigate and whether he was properly hired for his position. This is what government in the US has become, the largest exercise in crony capitalism in the nation’s history.
Freddie and Fannie, which are nationalized in an economic sense
I must disagree with you. Freddie and Fannie have not been nationalized… they have been the opposite of nationalized. If they were nationalized, their assets would be seized by the government. But in fact, it’s the opposite… the taxpayer’s assets are being seized by Fannie and Freddie.
Fannie and Freddie are still stockholder-owned corporations. Their debt is not guaranteed by the Federal government through any law. The prospectuses of their mortgage backed securities being issued currently clearly state on the cover that their debt is not backed by the US government. Their 10-Q states the same.
Fannie and Freddie exist in a state of limbo… sucking the lifeblood from the US taxpayer.
2 years into the crisis and exactly nothing has been solved! Timothy Geithner and Hank Paulson belong in jail.
We should take this as more proof that regulation of rackets cannot work; you can only destroy the rackets.
The TARP overseers were never intended to actually oversee anything. That’s why no such oversight was dreamt of in the original 3-page coup attempt.
SIGTARP was only formally established as a sop to waverers in Congress. Since then, from the POV of the establishment, Barofsky has been acting as a rogue.
Luckily FHFA is on the case! They can at least use technicalities to wall out SIGTARP, and keep it from “corrupting” their own people like Kelley.
Yves: “No one wants to let anyone look under that hood.”
The reason is that the past fraud and the present fraud most likely touches high government officials and bankers. The first thing I noticed was how little it was done to investigate fraud. Compare this with the S&L and notice the difference. This administration (and the previous one) have come to realize that the best way to protect themselves and their crony friends is by not even investigating for wrong doing. I also noticed that this administration was as bad or worst after Obama took office and his first words were: “lets not act in anger” when referring to the bankers. We the people are pretty much screwed…
This gets right to the issue. When the hell are there going to be some prosecutions?
We used to have these discussions during the Bush years: Was it incompetence or criminality? After a while it became a distinction without a difference. It is all about looting and cronyism. Administrations would rather shoot the messenger and accept the abuses than lose the good PR.
It just goes to how corrupt the system is.
OOh Elisabeth where are youuu?
Skippy…bloody hell out shopping with the girls again, oh well, someone has to prop up the retail sector right?