Bloodthirsty Liberal

Give that feline fatality a job!

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.

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.

Office of Thrift Supervision: do they count paper clips and stockpile scrap paper?

Not exactly:

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.

…

“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).

Who hasn’t backdated the odd multi-million dollar bank draft once or twice?

Or was he canned for speaking truth to power? It is certainly true that these derivatives are beyond the understanding of mere mortals. Why fire him for that? Why not just blame Bush, which is the default position of this administration for everything—and in this case might just be true?

You know who Lonesome Tim Geithner, holed up in the empty halls of Treasury, reminds me of? Remember the Once-ler from Dr. Seuss’s The Lorax?