[lbo-talk] AIG: The Disaster of Regulator Shopping

michael perelman michael at ecst.csuchico.edu
Wed May 20 21:14:55 PDT 2009


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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