Yves Smith — In Rebuke to Cronyistic New York Fed, TBTF Bank Supervision Shifted to Fed Board of Governors

This is pretty huge. Implicit Timmy smackdown.

But after Greenspan's example with regulation, is this really an improvement?

The Wall Street Journal has published an important account of a behind-the-scenes power struggle at the Federal Reserve over authority for regulation. The result that the New York Fed has had significant amounts of its authority shifted to the Board of Governors in Washington, DC. This is a major win for Fed governor Dan Tarullo, who has emerged as one of the toughest critics of big financial firms at the Fed in the wake of the crisis. It is also a loss for the banks, since the New York Fed is widely recognized as close to Wall Street. Moreover, the Board of Governors is more accountable to citizens (its governors are Federal employees, the Board of Governors is subject to FOIA, although confidential supervisory of all financial regulators is exempt), while the regional Feds can best be thought of as public/private partnerships with weak governance structures,* so this move in theory is also a gain in terms of accountability to the public. However, since Greenspan holdover, deregulation enthusiast and Dodd Frank opponent Scott Alvarez remains as the general counsel of the Board of Governors, it’s unlikely that any newfound serious intent by the Board of Governors will go all that far in practice, given the powerful role that Alvarez exerts over matters regulatory. 

Moreover, as proof of how secretive the Fed is and how voters are kept in the dark, this change was designed five years ago and has been in the process of implementation since then. The consequence is that, as the Journal points out, the Congressional committees responsible for bank regulator oversight have wound up directing questions to the New York Fed, and in particular its president Bill Dudley, that should more properly have been aimed at the Board of Governors.

Snake pit.

Naked Capitalism
In Rebuke to Cronyistic New York Fed, TBTF Bank Supervision Shifted to Fed Board of Governors
Yves Smith

Dan Froomkin — The Inverse of Oversight: CIA Spies On Congress

Like this is something new? If spies spy on foreign governments, you can bet they spy on their own government. It was at least suspected that J. Edgar Hoover's FBI did and even presidents feared him.

The Intercept
The Inverse of Oversight: CIA Spies On Congress
Dan Froomkin

Bill Black — How to Prosecute the Elite Bank CEO that Led the Frauds that Drove the Crisis

Step one: Understand the three “control fraud” epidemics that drove the crisis....

There is no fraud exorcist, so fraudulently originated loans stay fraudulent and can only be sold to the secondary market through fraud....

Step 2: Restore the destroyed criminal referral process, restore the partnership with the banking regulatory agencies, and end the partnership with the “perps”....

To produce over 1,000 felony convictions in cases the Department of Justice (DOJ) designated as “major” during the S&L debacle, the Office of Thrift Supervision (OTS) made over 30,000 criminal referrals. In this crisis, which is over 70 times larger than the debacle in terms of losses and fraud, OTS made zero criminal referrals, as did the Office of the Comptroller of the Currency and the Federal Reserve. (The FDIC is smart enough to refuse to answer how many referrals it made.)

New Economic Perspectives
How to Prosecute the Elite Bank CEO that Led the Frauds that Drove the Crisis
William K. Black | Associate Professor of Economics and Law at the University of Missouri-Kansas City in the Department of Economics and the School of Law

Like Sen. Durbin said, "The banks own the place."

Gary Rivlin — How Wall Street Defanged Dodd-Frank

The story of how Wall Street lobbyists worked the halls of Congress, blocking the appointment of Elizabeth Warren, Obama’s first choice to head the CFPB, or pushing bills aimed at defanging Dodd-Frank, is fairly well-known by now. But it was the stealthy work of battalions of regulatory lawyers, who descended on the private offices of regulators deep inside the bureaucracy, that has proven more crucial to the industry’s effort to pick off pieces of Dodd-Frank. There, a kind of ground war has been going on for almost three years, with the regulators waging hand-to-hand combat to defend every clause and comma in Dodd-Frank, and the lawyers fighting to insert any loophole they can to protect their clients’ extraordinary profits. This is how the miracle that was the making of Dodd-Frank—hailed as the most comprehensive financial reform since the 1930s—became a slow-moving horror movie called “The Unmaking of Dodd-Frank”: a perfect case study of the ways an industry with nearly unlimited resources can avoid a set of tough-minded reforms it doesn’t like.

The Nation
How Wall Street Defanged Dodd-Frank
Gary Rivlin

Washington's Blog — The Lie that Prosecuting Bank Fraud Will Destabilize the Economy Is What Is REALLY Destroying the Economy

Good summary linking to principal critics like Joe Stiglitz, Jamie Galbraith, George Akerlof, Robert Shiller, and Bill Black.

What is often not mentioned and passed over in silence is that a double standard of justice, one for the privileged and another for "the little people" lowers the moral tone of the society and results in increased disregard for law and authority as being illegitimate. This is destabilizing for society.

Washington's Blog
The Lie that Prosecuting Bank Fraud Will Destabilize the Economy Is What Is REALLY Destroying the Economy

Harry Bradford — Cheaters Get 'High' From Breaking The Rules: Study

Why law, regulation PLUS oversight and accountability are required to address the free rider problem.

The Huffington Post
Cheaters Get 'High' From Breaking The Rules: Study
Harry Bradford

Bill Black at Alternet — What If the “Broken Windows” Theory Were Applied to Wall Street?

James Q. Wilson's famous “broken windows” theory led to strict policing of working class behavior. What if his ideas were applied to Wall Street?

Read it at Alternet
What If the “Broken Windows” Theory Were Applied to Wall Street?
by William K. Black

This article first appeared at New Economic Perspectives and has been crossposted at AlterNet. More evidence that MMTers are getting out there.

UPDATE:

Bill Black interview (beginning 1h0m30s) for the entire hour. (h/t Clonal in the comments)

David Kotok on MF Global, Chutzpah & the New York Fed

...The MF Global affair is doubly muddied up by alleged fraud and misuse of client funds.  We cannot blame the NY Fed for an alleged fraud.  But we can ask if the sanction for a primary dealer that fails the “transparency” and the “accuracy” tests should be limited to getting kicked out of the club.  Maybe the $150 million minimum regulatory net capital requirement should be expanded, and maybe the shareholders and debt holders of a primary dealer should be told they are subordinated to claims that will include financial penalties for failure to comply with NY  Fed rules.  Maybe the NY Fed should take on an escrow safety-cushioning function in the same way a landlord holds a security deposit for a tenant.  Maybe this whole system of New York Fed actions and primary dealer status needs reexamination.  Maybe the system needs a chutzpah scan to remove the viruses. 

Was the MF Global risk taking apparent?  Many say no.  But there are some very smart and skilled folks who say otherwise.  One of them is Janet Tavakoli.  Janet nailed it.  For readers who are not familiar with Janet, see her website: www.tavakolistructuredfinance.com.

Here is an excerpt from a note that Janet wrote on November 3.  We are fortunate enough to see her superb and timely work.  We talked with Janet on Friday.  She walked us through the evidence that was missed by many.  Janet, you are awesome!

Janet wrote: “The fact that MF Global was exposed to default risk and liquidity risk because of these trades and that they were linked to European sovereign debt was disclosed in MF Global’s 10K for the year ending March 31, 2011, a required financial statement filed with the SEC.  The CFTC and other regulators had the information right under their noses, but it appears they didn’t understand that they were looking at a leveraged credit-derivative transaction that could lead to margin calls that MF Global would be unable to meet....”

 Read the whole post (long) at Zero Hedge, David Kotok on MF Global, Chutzpah & the New York Fed -- Parts 1 & 2, posted by Chris Whalen