Pauls' Revere
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https://en.m.wikipedia.org/wiki/Regulatory_capture
In politics, regulatory capture (also agency capture and client politics) is a form of corruption of authority that occurs when a political entity, policymaker, or regulator is co-opted to serve the commercial, ideological, or political interests of a minor constituency, such as a particular geographic area, industry, profession, or ideological group.[1][2]
When regulatory capture occurs, a special interest is prioritized over the general interests of the public, leading to a net loss for society. The theory of client politics is related to that of rent-seeking and political failure; client politics "occurs when most or all of the benefits of a program go to some single, reasonably small interest (e.g., industry, profession, or locality) but most or all of the costs will be borne by a large number of people (for example, all taxpayers)".[3]
Likelihood of regulatory capture is a risk to which an agency is exposed by its very nature.[8] This suggests that a regulator should be protected from outside influence as much as possible. Alternatively, it may be better to not create a given agency at all. A captured regulator is often worse than no regulation, because it wields the authority of government. However, increased transparency of the agency may mitigate the effects of capture. Recent evidence suggests that, even in mature democracies with high levels of transparency and media freedom, more extensive and complex regulatory environments are associated with higher levels of corruption (including regulatory capture).[9]
Federal Reserve Bank of New York
Edit
The Federal Reserve Bank of New York (New York Fed) is the most influential of the Federal Reserve Banking System. Part of the New York Fed's responsibilities is the regulation of Wall Street, but its president is selected by and reports to a board dominated by the chief executives of some of the banks it oversees.[48] While the New York Fed has always had a closer relationship with Wall Street, during the years that Timothy Geithner was president, he became unusually close with the scions of Wall Street banks,[48] a time when banks and hedge funds were pursuing investment strategies that caused the financial crisis of 2007–2008, which the Fed failed to stop.
During the crisis, several major banks that were on the verge of collapse were rescued via the Emergency Economic Stabilization Act of 2008.[48] Geithner engineered the New York Fed's purchase of $30 billion of credit default swaps from American International Group (AIG), which it had sold to Goldman Sachs, Merrill Lynch, Deutsche Bank and Société Générale. By purchasing these contracts, the banks received a "back-door bailout" of 100 cents on the dollar for the contracts.[49] Had the New York Fed allowed AIG to fail, the contracts would have been worth much less, resulting in much lower costs for any taxpayer-funded bailout.[49] Geithner defended his use[49] of unprecedented amounts of taxpayer funds to save the banks from their own mistakes,[48] saying the financial system would have been threatened. At the January 2010 congressional hearing into the AIG bailout, the New York Fed initially refused to identify the counterparties that benefited from AIG's bailout, claiming the information would harm AIG.[49] When it became apparent this information would become public, a legal staffer at the New York Fed e-mailed colleagues to warn them, lamenting the difficulty of continuing to keep Congress in the dark.[49] Jim Rickards calls the bailout a crime and says "the regulatory system has become captive to the banks and the non-banks".[50]
In politics, regulatory capture (also agency capture and client politics) is a form of corruption of authority that occurs when a political entity, policymaker, or regulator is co-opted to serve the commercial, ideological, or political interests of a minor constituency, such as a particular geographic area, industry, profession, or ideological group.[1][2]
When regulatory capture occurs, a special interest is prioritized over the general interests of the public, leading to a net loss for society. The theory of client politics is related to that of rent-seeking and political failure; client politics "occurs when most or all of the benefits of a program go to some single, reasonably small interest (e.g., industry, profession, or locality) but most or all of the costs will be borne by a large number of people (for example, all taxpayers)".[3]
Likelihood of regulatory capture is a risk to which an agency is exposed by its very nature.[8] This suggests that a regulator should be protected from outside influence as much as possible. Alternatively, it may be better to not create a given agency at all. A captured regulator is often worse than no regulation, because it wields the authority of government. However, increased transparency of the agency may mitigate the effects of capture. Recent evidence suggests that, even in mature democracies with high levels of transparency and media freedom, more extensive and complex regulatory environments are associated with higher levels of corruption (including regulatory capture).[9]
Federal Reserve Bank of New York
Edit
The Federal Reserve Bank of New York (New York Fed) is the most influential of the Federal Reserve Banking System. Part of the New York Fed's responsibilities is the regulation of Wall Street, but its president is selected by and reports to a board dominated by the chief executives of some of the banks it oversees.[48] While the New York Fed has always had a closer relationship with Wall Street, during the years that Timothy Geithner was president, he became unusually close with the scions of Wall Street banks,[48] a time when banks and hedge funds were pursuing investment strategies that caused the financial crisis of 2007–2008, which the Fed failed to stop.
During the crisis, several major banks that were on the verge of collapse were rescued via the Emergency Economic Stabilization Act of 2008.[48] Geithner engineered the New York Fed's purchase of $30 billion of credit default swaps from American International Group (AIG), which it had sold to Goldman Sachs, Merrill Lynch, Deutsche Bank and Société Générale. By purchasing these contracts, the banks received a "back-door bailout" of 100 cents on the dollar for the contracts.[49] Had the New York Fed allowed AIG to fail, the contracts would have been worth much less, resulting in much lower costs for any taxpayer-funded bailout.[49] Geithner defended his use[49] of unprecedented amounts of taxpayer funds to save the banks from their own mistakes,[48] saying the financial system would have been threatened. At the January 2010 congressional hearing into the AIG bailout, the New York Fed initially refused to identify the counterparties that benefited from AIG's bailout, claiming the information would harm AIG.[49] When it became apparent this information would become public, a legal staffer at the New York Fed e-mailed colleagues to warn them, lamenting the difficulty of continuing to keep Congress in the dark.[49] Jim Rickards calls the bailout a crime and says "the regulatory system has become captive to the banks and the non-banks".[50]
