The strange sacking of a top Treasury official
It’s not like Tim Geithner can afford to lose any of the few officials who are actually working at the Treasury Department with him, but last night, he put one on leave. Very curious — especially given the sacked employee’s recent increased visibility for his public statements about the government’s (mis)handling of AIG. The WSJ reports:
The acting director of the Office of Thrift Supervision has been put on leave pending a review of the agency’s role in the backdating of capital infusions by some banks, the agency said Thursday evening.
OTS said in a surprise statement that Scott Polakoff, who has been serving as acting director of the OTS, would be replaced by OTS Chief Counsel John Bowman during the review by the Treasury Department.
The OTS, a division of the Treasury Department, has come under fire after it was revealed last year that the agency had allowed IndyMac Bancorp Inc. (IDMCQ) to backdate a May 2008 $18 million capital infusion to the first quarter. IndyMac failed a few months later, a collapse that cost the Federal Deposit Insurance Corp. $10.7 billion, the costliest failure in U.S. history. A subsequent review of the issue by the OTS uncovered four other cases of backdating by banks, cases which the agency said in a January letter to U.S. lawmakers “were not acceptable to current OTS standards.” Allowing the banks to backdate capital infusions to earlier quarters could allow firms to avoid regulatory penalties for having too little capital.
The Treasury Department Inspector General is investigating the matter, and it is unclear what sparked Polakoff’s sudden departure…
Did Polakoff rubber stamp the backdating of those capital infusions or take a more active role in dishonestly and unethically engineering them? Like the WSJ says, it’s “unclear.” He was second-in-command during the period being investigated. Geithner has installed John E. Bowman, the agency’s deputy director and chief counsel, to take Polakoff’s place.
Meantime, go back and read this via CNN:
When Ben Bernanke told the Senate Budget Committee that American International Group (AIG) “exploited a huge gap in the regulatory system” and that “there was no oversight of the Financial Products division,” it seemed to make sense. The Federal Reserve Chairman went on to say, “This was a hedge fund basically that was attached to a large and stable insurance company.”
If nobody was keeping an eye on them, well no wonder it blew up.
But it turns out Mr. Bernanke was not quite accurate when he said “no oversight.” He made that statement on March 3rd.
Just two days later a man hardly anybody has ever heard of explained to yet another Senate committee that — hold the presses — there WAS a regulator for the Financial Products unit of AIG…
That man was Scott Polakoff and he’s the Acting Director of the Office of Thrift Supervision (we call that OTS). OTS is the regulator for thrifts and savings banks. Polakoff has told any committee that will listen that OTS had responsibility for AIG FP. Why was OTS involved? Because among the seventy odd companies and units that make up AIG, one of them happened to be a Savings & Loan Bank.
When you think of a Savings & Loan it’s hard not to picture Jimmy Stewart facing down the evil banker Mr. Potter, but at AIG, Potter was trading derivatives at the FP unit, and FP was attached to the S&L as far as the regulator was concerned.
“We were clearly responsible as a consolidated regulator for FP,” says Polakoff, and adds, “We, in 2004, should have taken an entirely different approach than what we wound up taking regarding the credit default swaps.” By now, the term credit default swap is practically a barbershop term, but basically it’s just a sort of insurance policy on another financial product like a mortgage-backed security (often stuffed with foreclosed mortgages, as we have all learned to our sorrow).
So when Mr. Polakoff says they should have taken a different approach, what he’s really saying is that the OTS regulators weren’t sophisticated enough to realize that FP was heading for BIG trouble. And why should they have been that prepared? OTS mostly regulates S&L’s which generally take deposits and then make loans for houses and other purposes. Would you expect these civil servants to really understand the risks attached to derivatives that are designed by Math PhD’s to play the odds on pieces of paper that “derive” their value from a mortgage backed security that can’t be valued itself (except maybe by another math nerd).
Curious.
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OTS will now be run by a lawyer? what could go wrong?
Oops, hit submit too soon…need more coffee.
But a tax cheat now heads Treasury, so I guess everything will be okay.
This would be main news today IF Bush admn. did this. Is there a media out there, really?
Follow the Money, oh wait… they’re incapable.
On the upside they don’t need a very big “sack” over there.
It is curious..Curious as in how Schuemer’s name doesn’t appear in the articles..Remember how he went discussing IndyMac and there was a run on the bank?
But of course we don’t need to look at congress who caused the whole mess in the first place.
Bank A is told they must loan to group B or they will lose their right to be a bank.
Bank A protests they will acquire bad debt.
The gov’t says “don’t worry – we’ll back you. We’ll even make money available so easily that Group B doesn’t have to invest any of their own”
So Bank A loans the money
Group B lives up(down) to the expectation…and defaults
The gov’t says “Oh no you can’t re-posses the asset. We’re backing you. Oh by the way Bank, you need to increase your capital requirements because you now have bad debt.”
Bank A folds or Bank A gets a “bailout”
Bank A is the bad guy.
What did I miss?
The worst case implication here is that Polakoff was following a trail that would expose corruption among the regulators that benefitted important persons tied to the Democratic party. Either that or he was himself the source of embarrassment who was trying to cover his record with a lot of hand waving about what happened last year. Someone is up to no good and it is par for course in the bureaucracy to destroy the messenger before he brings bad news.
The wheels on the bus go thump, thump, thump all through the town.
OK … first we had “New Math” … that was followed by “Fuzzy Math” … and now we have “Geithner Math” …
1+1=______ (Fill in the blank with the desired result) …
=____zero____.
And Bawney Fwankers bus goes, swish, swish, swish…. lol
think I fixed that for ya
On March 27th, 2009 at 7:20 am, conservativesRus said:
Well put! Nice job on making a complex scenario into simple words that even a liberal or friend of Obama could understand.
Wait…this just in. Our quick research team just applied this conservativesRus’ explanation to our group of 30 test liberals. Here are the results…
Sorry, no coffee yet…
Results…
10 are befuddled, wait 2 minutes, then break out into “We are the World”
8 are calling for firebombing the executives of Bank A.
5 are complaining about the loss of jobs overseas.
4 are staring longingly at a photograph of Bawney Fwank.
2 are dressing up in drag to mimic Nancy Pelosi
and the last one is demanding that John Murtha be given the Medal of Honor
This is the best explanation I have ever heard – very succinct and precise!
Of course, it doesn’t solve any problems, but at least there is some comfort in knowing what happened.
99 bodies of libs on the Mall,
99 bodies of libs,
Fire one down, hire a new clown,
98 bodies of libs on the Mall.
The OTS was implicated in a Rolling Stone article. Anyone else read the article? Is there any truth to it (other than truthers)??
http://www.rollingstone.com/politics/story/26793903/the_big_takeover
Anyone out have a list of all the people that have been thrown under the bus? I imagine the list is getting quite long.
If Geithner can become head of the treasury and owe all those back taxes and HE asked Scott Polakoff to leave then this Polakoff must be a real winner.
Stop the world. Investigate. Remember when Bush fired attorneys?
Let’s just say that the Rolling Stone article is plausible. But will there be a thorough investigation followed by legal reforms? I’m not holding my breath. The players contribute to political campaigns.
I just spit Pepsi all over my desk, dammit. LMAO
So the poor slob S&L clerk has to fall on his sword? Methinks something is rotten in Denmark. Curiouser and curiouser. (munching popcorn) “More cheese Gromit!”
link george soros
It was insane to think that the banks can buy insurance against investment losses. It’s one thing to guarantee against fires and floods, but market risk?
The geniuses who bought these things are as culpable as the firm that sold them.
Also, I am under the impression that AIG bought the S&L then lobbied to be supervised by the OTS. So somebody in the government approved that, too.
Yes, I read it. I think he’s probably dead on.
There is one thing we might want to keep in mind while these odd events keep occurring. We are all judging these events against various partisan narratives that may not be true. As we continue to link money to events to corruption (think Dodd/AIG/Countrywide/Fannie Mae and Hillary/Chine e.g.), how would it look if someone like Geithner was actually laying the groundwork for cleaning this up? Would anyone pick up that narrative? No one is asking the right questions.
Just sayin’.
Little Timmy needs a phone book. Hire the first twenty or so names in the book and tell them to have at it. It really doesn’t matter, does it?
As far as Scott Polakoff, what is the sense of having power if you can not abuse it?
credit default swaps–legal reforms? “Words, just words”- BHO.
What?
Being fired certainly sucks but it is better than going “Vince Foster”
Just my two cents.
Now if that happens … it would start to smell even worse.
I was just about to bring that up…
And like Degan McDowell said on Cavuto yesterday, ‘Where’s the conservative George Soros?’
Do you trust Soros?
‘I trust him to manage my money’
It will be very interesting to see who Mr. Polakoff’s political patron’s, the people who got him this job, turn out to be. Why do I expect he will turn out to be Sen. Dodd’s good friend?
Won’t be long ’til Tim Geithner won’t even have a janitor working there.
This is a good thing. If we keep refusing people for ethics violations, maybe we’ll get an ethical government.
Also, this guy is a Bush appointee. Voters threw all them under that big yellow bus in November.
BTW, just saw Ken Lewis breaking a very important taboo as he answered a reporter’s question upon arriving atthe White House for that “summit” meeting of top bankers. He revealed that he will be recommending breaking up the big banks to separate commercial banks from investment banks.
That is a very, very good sign. Still, I would have preferred that he actually said “I am going to recommend re-instating the Glass-Steagall Act”.
There are certain things you are not allowed to say these days, that is one of them along with “nationalization”, “war on terror”, “unlawful combatants”, “sovereignty” and a few others.
Another regulator who failed to do his job.
Disband the Fed and the SEC and let the Polakoffs of the world look for real jobs.
war tip, both vince foster and the black department head whose g4 fell out of the sky. i can’t remember his name, just bill walking out of his funeral and joking with some of his staff, and then spotting that he was on camera, and going from laughing to crying in 1 step.
Another observation. The financial media is now openly referring to the Glass Steagall Act which is a major step forward. If Geithner is now sacked to be replaced by JP Morgan CEO Jamie Dimon, that would signal that there is no interest in DC in solving the actual problem of housing conflicting interests under one roof.
Think of it like resolving a problem of constant explosions in the storage shed because you insist on storing explosives side-by-side with detonators and fire. Wouldn’t it be better to simply store them separately rather than hire thousands of people to monitor the inventory?
Let’s see how long this terminology lasts in the public discussion. I expect the globalists to intrude to end this line of reasoning.
I actually could not remember Vince Foster’s name and did a google search with a variety of terms that I thought were related. Some of those pages looked to be on the verge of paranoid but some of the results were pretty scary!
Ken Lewis succumbs to the globalists. He has now issued a statement “correcting” his earlier comments about reinstating the Glass-Steagall Act. He was speaking “rhetorically”. Was a weasel.
Face it folks. The globalists have a stranglehold on the entire system right down to controlling lexicon of terms by which the issue can be framed and discussed.
Disclosure is also a taboo subject. Jon one is to restore confidence to markets but disclosure plays no role. The mafia logic of liars, weasels and crooks.
Are you referring to that political hack, the late Ron Brown?
Apparently every banker attending that WH meeting agreed not to divulge any details of what was discussed but instead to ring out the message of “we’re all in this together (kumbaya)”. Whatever they agreed to, it’s none of our business.
Yep – ethical just like Geithner
Yeah, he was probably caught paying his taxes or hiring a legal immigrant. We don’t what that kind of behavior on Team Obama.
There is a good reason why they can’t find anyone to nominate for the treasury, and have had trouble with other nominations. There are two kinds of nominees…the honest, moral ones, and the corrupt, immoral ones. If you are honest and moral, why would you want to compromise yourself to work in this administraton? You would turn it down, or get out of it as soon as you found out what they are really doing. If you are corrupt and immoral, you can get the job IF no one finds out about your dishonesty or your immorality. That is why so many from the Clinton administration have been given positions in this one. Simple as that. I think we will eventually find out there is corruption in each and every member of this administration.
Must be the “it takes a thief to catch a thief” school of economics.
Hope and change is all we are going to have left after Obama’s economic Keystone Kops are done with our economy and country….
If that were the rationale behind this story, maybe Geithner should be running the Treasury all by himself.
This is why any new regulatory regime will not work. Apparently it is “too hard” to do it right.
Separating the inherently conflicting interests represented by commercial banks, investment banks and insurance companies is the only solution. We can’t do that? That is what the Glass-Steagall Act did. As difficult as it may be, we need to at least go back to what works.
These guys are categorically eliminating the obvious solution to the problem for reasons they refuse to specify. The alternative to efficient and effective regulation is oppressive bureaucracy. These guys want neither but will get the latter. So be it.
A generation that was educated in one-room school houses managed to put men on the moon. Why can’t today’s elite ivy leaguers do anything right? Have their lives gotten so intellectually bankrupt that they are metaphysically incapable of solving this problem?