The standard Democratic Party solution to any problem Barack Obama or Elizabeth Warren can identify is to hire the smart regulators and put them in charge of fixing it. And by the way, the smart ones will also be honest and incorruptible, immune to any temptations such as, hmm, caliming to be a minority.
One might wonder whether these paragons can reliably be hired en masse at government pay scales. Actually, one might not wonder - they can't be.
Two different stories illustrate the conundrum. First, the Times reports on the problems with overseeing JP Morgan Chase:
After the financial crisis, regulators vowed to overhaul supervision of the nation’s largest banks.
As part of that effort, the Federal Reserve Bank of New York in mid-2011 replaced virtually all of its roughly 40 examiners at JPMorgan Chase to bolster the team’s expertise and prevent regulators from forming cozy ties with executives, according to several current and former government officials who spoke on the condition of anonymity.
When a regulator can quadruple his compensation by switching sides and joining the regulatee, "cozy relationships" are an ongoing problem. And one might worry that the regulatory team that watched the big banks go over the cliff in 2008 (although less so with JPM) might not have possessed the sharpest knives in the drawer.
But those changes left the New York Fed’s front-line examiners without deep knowledge of JPMorgan’s operations for a brief yet critical time, said those people, who spoke on the condition of anonymity because there is a federal investigation of the bank.
Forced to play catch-up, the examiners struggled to understand the inner workings of a powerful investment unit, those officials said. At first, the examiners sought basic information about the group, including the name of the unit’s core trading portfolio.
By the time they got up to speed, it was too late. In May, JPMorgan disclosed a multibillion-dollar trading loss in the investment unit.
They “couldn’t ask tough questions,” said a former official who was based at JPMorgan.
Of course, the premise is that the smart, experienced traders and risk managers at JP Morgan Chase were too stupid to see that their slick "hedge"/trade was going to cost them $5 billion, but all could have been averted if some twenty-five year old who couldn't score a job at an investment bank out of school asked a few probing questions. Uh huh.
The Federal Reserve Bank of New York said Tuesday it had received word as early as 2007 from the British bank Barclays about problems with the benchmark interest rate that underpins much of global lending.
Barclays has admitted to rigging Libor, an interest rate that sets the standard for lending in a wide variety of markets — from corporate bonds to credit cards and some mortgages.
On Tuesday, the New York Fed said that it had received “occasional anecdotal reports from Barclays of problems with Libor” in late 2007, as the financial crisis was starting.
In testimony last week before the British Parliament, former Barclays chief executive Robert E. Diamond said the bank had repeatedly brought to the attention of U.S. regulators — as well as U.K. regulators — the problems that the bank was experiencing in the Libor market.
He said the bank’s warnings to regulators that Libor was artificially low did not lead to action.
Barclays’ regulator in the United States is the Federal Reserve Bank of New York, which was run at the time by current Treasury Secretary Timothy F. Geithner.
Diamond said that his bank had alerted the New York Fed to issues with Libor at least 12 times.
After receiving initial reports in 2007, the New York Fed said, it made additional inquiries of Barclays about its Libor operations, and subsequently made suggestions for changes to British authorities.
Geithner personally participated in several conversations with Barclays executives, according to his New York Fed calendar, later posted on the Web site of the New York Times. It wasn’t clear if these meetings focused on the Libor issues now coming to light.
Geithner has sailed on to Treasury Secretary, where he continues to oversee smart regulators asking the tough questions.
The surprise is that this sort of outcome is inevitable, yet it is a constant source of surprise to the statist Dems.
One last bit to conclude this tirade - in 1999 Team Clinton had Bob Rubin and Larry Summers who, along with Alan Greenspan were viewed as the greatest economic stewards in the history of economic stewardship. Surely these were the smart guys to whom we should defer, yes?
Uh, no, and stop calling me 'Shirley'. With a few short, ghastly years the mainstream progressive position (subject to pushback) was that Summers and Rubin had been wrong about Glass Steagall and very wrong about light regulation of derivatives.
Yet Summers and Rubin were the reigning geniuses, having been around for budget surpluses, rising incomes, miraculous employment, and heroic rescues of Mexico, Russia and LTCM (oops...).
I guess the real Dem strategy is to hire the next generation of geniuses. Good luck with that.