Deregulation is not the cause of the crisis at AIG

Power Line looks at an interesting Q and A between Jed Hensarling and Scott Polakoff, Acting Director of the Office of Thrift Supervision.

...

HENSARLING: I believe I heard in an earlier answer to one of the questions, I believe I heard you say that OTS in 2004 should have stopped the book of business that I think you were alluding to to CDS and the AIG securities lending commitments. Did I understand you correctly?

POLAKOFF: Yes, sir.

HENSARLING: So if you said you should have stopped it in 2004, that implies you could have stopped it in 2004. Is that correct?

POLAKOFF: Yes, sir.

HENSARLING: So there were not limits on your power. Perhaps, there were limits on your knowledge or insight, but there was not limits on your power to stop what you cite, as I believe AIG's liquidity -- I'm reading from your testimony -- was the result of AIG's business lines. So you did have the power to stop those business lines. Is that correct?

POLAKOFF: Yes, sir. ***

HENSARLING: Again, it appears, if this is correct, it was not a lack of supervisory authority that caused you not to take action with respect to these two lines. Is that correct?

POLAKOFF: Yes, sir.

HENSARLING: And I think I also heard you say in your testimony that you did not have [in]sufficient manpower and expertise. Is that correct?

POLAKOFF: Yes, sir.

...


Polakoff admits it was their failure to recognize the problems in the mortgage investments that caused them not to take action. Once again it is clear that the Democrats big lie on deregulation had nothing to do with the problems we now face.

Comments

  1. Jay Alt2:08 AM

    Such insight. But why does Mr. Polakoff recommend to the committee that his office establish a new office? One that is designed to monitor the finances of large, interconnected companies like AIG. One that would probe their assets, balance sheets and holdings for risks built into the system.

    'First, OTC endorses the establishment of a systematic risk regulator with broad authority, including regular monitoring, of companies that if, due to their size or interconnected nature of their activities. . ."

    Polakoff also recommends fixing the failings of the credit default swap market. He says need for international standards, agreements, cooperation and enforcement.

    "There is a need to fill the regulatory gaps the CDS market has exposed by strengthening cooperation among regulatory authorities and through legislation . . . "

    In both cases director Scott Polakoff sees the regulation of uncontrolled, rogue markets as the best solution.

    ReplyDelete

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