Co-opted & Thus Corrupted

Dolors & Sense

by Sanford Rose

KISSIMMEE Florida—(Weekly Hubris)—5/9/11—I was corrupt. Maybe I still am, but I’m not now aware.

That’s the thing. Most corrupt people aren’t aware of their corruption, unless they rake in actual dollars, which I never did.

But I was crooked, in the sense that I was bent, or predisposed, toward the interest of banking and bankers.

I was a bank writer and banking editor of “Fortune Magazine.” Then I migrated to “American Banker,” the national newspaper for bankers.

For years, my professional life revolved around the industry—so much so that, for a brief period, I even went to work for a bank.

In all that time, I slowly imbibed the zeitgeist of the industry.

Though I wrote many articles critical, even harshly so, of banks, I was, even at my most scathing, “one of them.”

I understood the things they understood and grew to fear the things they feared.

My quarrels with bankers, such as they were, seem, in retrospect, interfamilial.

This information would not be terribly important, except that my narrative represents, in microcosm, what has been happening in our country for the past four years.

Let’s face it: regulation of industry by government has always operated in the interest of the regulated, not in the interest of the public.

The FDA is basically a tool of the drug industry; the FCC, a tool of the communications companies.

Everybody knew that the SEC, Federal Reserve, and OCC were tools of the securities and banking industries.

How could it be otherwise? These agencies were, and continue to be, staffed predominantly by people who worked for brokers and banks. What’s more, many hoped to return to those industries, at higher levels, when their stint as regulators ended.

Given their backgrounds, these people, like me, were and are “corrupt,” though many paradoxically can be described as exemplary public servants.

They are disposed to look at any problem and its solution through a bankerly prism, which is the framework they almost instinctively employ and cannot be induced to discard.

This wouldn’t be so bad if the country were in a business-as-usual mode.

But of course during the past four years, that has not been the operative mode.

Because of the recession, it mattered greatly to everyone who exactly was regulating bank and brokerages, and the agencies and programs formed ad hoc to clean up the messes the banks and brokerages had helped to create—e.g.,TARP and HAMP.

But the personnel in these agencies remain basically tried-and-true bankers.

Neil Barofsky, who just exited government as inspector general of TARP, is tireless in reviewing the results of this unhappy personnel continuity.

TARP worked more for Wall Street than Main Street.

And HAMP, the more important program that was supposed to alleviate housing woes, failed miserably.

Could anyone expect the TARP, a program designed and administered for the most part by people who worked for Goldman Sachs, to work for Main Street?

Could anyone expect a housing relief program that was administered by personnel from Bank of America, the company that practically single-handedly (through its acquiree, Countrywide) bequeathed us the housing mess, to work at all?

The way to avoid tainted, or at least tunnel-vision, regulation is to keep corrupted personnel out. One doesn’t need a banker or a servant of banks to regulate one? One can do it with intelligent, noninvolved personnel at the top or decision-making levels (supported by bankerly assistants at the lower technical levels).

That’s what we needed over the last four crucial years. That’s what we didn’t get.