[Pen-l] AIG: The Disaster of Regulator Shopping

[michael perelman <michael@xxxxxxxxxxxxxxxxx>]

The New York Times published a fascinating piece about how AIG managed 
to get itself regulated as a Savings and Loan by the Office of Thrift 
Supervision. Guess why? Light as bank regulation is, S&L regulation is 
even more lenient. And it paid off in the end, no?

Cyran, Robert. 2009. "Downfall of a Regulator." New York Times (9 
April): p. B 2.http://www.breakingviews.com/2009/04/08/OTS.aspx?sg=nytimes

"US financial regulators have spent the last several years in a race to 
impotence. The clear winner of this chase to the bottom is the Office of 
Thrift Supervision (OTS), the agency that served as chief financial 
regulator to a motley crew of credit crunch losers, including 
Countrywide, Washington Mutual, IndyMac and American International 
Group. Shuttering OTS would be a good first prize."

"Other regulators haven't exactly covered themselves with glory. In 
sheer numbers, more small state-chartered banks regulated by the Federal 
Deposit Insurance Corporation have failed. In size, only the 
government's determination that Citigroup was too big to fail and must 
be bailed out prevented the Comptroller of the Currency from winning the 
gold medal for incompetent regulation."

"But the OTS exhibited the worst symptoms of regulatory capture -- 
that's to say taking the side of the industry it regulates instead of 
the public. Some signs are trivial but telling. It called institutions 
under its oversight "customers". Others are extraordinary. It allowed 
multiple thrifts, among them failed IndyMac, to backdate capital 
infusions so that earlier quarterly financial statements looked 
healthier than they would have done."

More at

http://michaelperelman.wordpress.com/2009/05/21/aig-the-disaster-of-regulator-shopping/



--
Michael Perelman
Economics Department
California State University
Chico, CA
95929

530 898 5321
fax 530 898 5901
http://michaelperelman.wordpress.com

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