[OPE] AIG: The Disaster of Regulator Shopping

From: michael perelman <michael@ecst.csuchico.edu>
Date: Thu May 21 2009 - 00:15:08 EDT

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


Michael Perelman
Economics Department
California State University
Chico, CA
530 898 5321
fax 530 898 5901
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Received on Thu May 21 00:16:55 2009

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