The Journal, for instance, hinted that the OCC was a do-nothing agency in a good August 2005 story that introduced Dugan as the new comptroller, headlined “Bank Regulator Cleans House”

WASHINGTON — IN RECENT YEARS, the Office of the Comptroller of the Currency, the federal regulator of national banks, has developed a reputation as the watchdog that doesn’t bark — protecting the interests of banks over those of consumers. (4)

The story noted that the OCC had given the Riggs National Corp. favorable ratings for years;—until federal prosecutors in 2004 revealed the bank to be a money-laundering haven for corrupt foreign leaders. Riggs later pleaded guilty to a criminal count and was sold.

Good, post-crash explanatory reporting has finally confirmed that the OCC’s “reputation” was, in fact, well-earned. It was a do-nothing agency.

The best piece I’ve seen on regulators was by Greg Ip and Damian Paletta, of The Wall Street Journal, who back in March (5) made the smart and necessary point that half of subprime mortgages were issued by nonbanks, such as Countrywide Financial Corp. and Ameriquest Mortgage Co., whose perfidy was so vast it overwhelmed state regulators.

It goes on wisely:

Yet even where federal regulators have jurisdiction, they sometimes have been slow to grapple with the explosive growth in especially risky practices and quick to shield federally regulated banks from states and private litigants.

The story reveals the OCC’s fecklessness, illustrating it with the case of sixty-seven-year-old Dorothy Smith, of East St. Louis, Illinois, who lost her house after her crooked mortgage broker stated her income as $1,500 a month, three times her actual monthly government benefits, to support a $36,000 loan with a balloon payment of $30,000—when she was about to be eighty-three. The OCC wrote her: “We cannot intercede,” etc., etc.

One fault is that this and other post-crisis stories tend to pin blame on an easy target, the regulatory system itself (usually called a “hodgepodge,” or an “outdated” “patchwork,”) rather than on the errors and ommissions of individual officials, and, it must be said, on the policy choices of political parties and their intellectual supporters.

There is widespread agreement that the biggest shortcoming in the regulation of mortgages is the patchwork of state and federal oversight. Amid rapid evolution in industry practice…

USA Today offered the same formula:

To many critics, one big culprit is the loose patchwork of federal and state regulatory agencies that failed to do their jobs, abetted by a Congress that only now has called for reforms. (6)

But is the patchwork really the “biggest shortcoming” or even such a “big culprit”? Are federal regulators really so powerless? Hell, no.

Other good reporting over the summer revealed Fed regulators to be simply unwilling to use the powers they have. Craig Torres and others at Bloomberg did well writing about government reports and studies, including this dispatch from June:

The U.S. agencies that supervise more than 8,000 banks haven’t censured any them for violating fair-lending laws, three years after Federal Reserve researchers began assembling data showing blacks and Hispanics are more likely to be saddled with high-priced home loans

No violations. Zero.

In October, Bloomberg reported on Congressional testimony that the FDIC gave failing grades in only .3 percent of compliance reviews of bank lending in low-income neighborhoods. When banks don’t lend where they take deposits, as required by law, subprime outfits fill the vacuum.

The FDIC even gave passing grades to banks that the Justice Department later sued for redlining, Bloomberg reports.

Listen, it’s easy to be a critic and hard to make editorial and resource-allocation decisions in real time.

But I think rank-and-file business reporters and editors need to rethink certain assumptions that are, in fact, conservative biases in disguise.

Yes, business reporters harbor conservative economic biases.

This is not so surprising when you think about it, and it’s understandable. Most business reporters and editors now in senior jobs grew up in an era of conservative anti-government ascendance and liberal pro-government retreat, of Prop 13, Thatcher, Reagan, Nafta, Rubinomics, etc. For this generation (my generation), there really hasn’t been another way to run the economy: less government, more markets.

Hooked to an emotion-detector, it’s fair to say, most business journalists would respond positively to words like “markets,” “free trade,” and “deregulation,” and negatively to words like “government program,” “government agency,” and “regulation”

Hey, having a journalistic class aligned intellectually with its sources may be a good thing. The trouble is, commonly accepted assumptions have left reporters disarmed in the face of a story like subprime.

My point is simple: markets don’t always work. That’s why we have regulators. And since we have them, cover them.


1. Dow Jones News Service
23 May 2007

Dean Starkman Dean Starkman runs The Audit, CJR's business section, and is the author of The Watchdog That Didn't Bark: The Financial Crisis and the Disappearance of Investigative Journalism (Columbia University Press, January 2014). Follow Dean on Twitter: @deanstarkman.