Inquiring Minds also Blog

The two regulators who don’t appear captured by the regulated are both women.  FDIC’s Sheila Bair has been quietly closely down the bankrupt quite efficiently and ensuring every one knows that the FDIC will stand by its insurance commitments.  Elizabeth  Warren who is the head of the group watching the TARP funds  is calling this week for the ousting of derelict bank executives.  This includes Citibank and AIG.   Is this the beginning of High Noon on Wall Street?

Warren also believes there are “dangers inherent” in the approach taken by treasury secretary Tim Geithner, who she says has offered “open-ended subsidies” to some of the world’s biggest financial institutions without adequately weighing potential pitfalls. “We want to ensure that the treasury gives the public an alternative approach,” she said, adding that she was worried that banks would not recover while they were being fed subsidies. “When are they going to say, enough?” she said.

She said she did not want to be too hard on Geithner but that he must address the issues in the report. “The very notion that anyone would infuse money into a financially troubled entity without demanding changes in management is preposterous.”

Meanwhile, many finance and economics bloggers have looked into legal issues surrounding the Obama/Geithner bailout and believe laws are being broken.  Both Boston Boomer and Sam point to this at George Washington’s Blog.

Geithner’s statements that he didn’t have the power to close down the big banks is false. Moreover, Geithner and Paulson actually broke the law which requires the government to close down insolvent banks, no matter how big.

The Prompt Corrective Action Law (PCA) – 12 U.S.C. § 1831o – not only authorizes the government to seize insolvent banks, it mandates it.

An earlier post  here contains the interview with  William K. Black, a senior regulator during the S&L crisis and Associate Professor of Economics and Law at the University of Missouri and Bill Moyers.  Even more interesting news has appeared recently as it looks like regulators aren’t the only ones dropping the ball.  Is this a repeat of the Aurthur Anderson/Enron failure of Public Accounting?

New Century, one of the country’s top subprime lenders, went bankrupt shortly after disclosing that its financial statements were misstated. Its creditors are now suing KPMG, New Century’s auditor, for at least $1 billion in damages. In the years leading up to the financial crisis, some of the nation’s largest accounting firms failed to properly examine the reserves that banks and other lenders set aside to cover losses, records from a federal oversight board show.

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