The Project On Government Oversight (POGO) Blog

Watchdog: Interest Rate Manipulation Puts Taxpayers at Risk

By MICHAEL SMALLBERG

The manipulation of a global interest rate called LIBOR could be costing U.S. taxpayers money, according to a new federal watchdog report.

Taxpayers "continue to be at risk" from government bailout programs' reliance on the interest rate, the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) said in a report released today.

In June, U.S. and British authorities charged Barclays Bank with attempting to manipulate the London Interbank Offered Rate (LIBOR), a benchmark that affects the cost of borrowing money throughout the world. Even though Barclays agreed to take remedial action, government officials still have questions about the reliability and integrity of the interest rate, according to the SIGTARP.

"Aside from the Barclays situation, market data raises questions about the integrity of LIBOR today," a U.S. regulatory official testified last month.

Previous news reports have explored how alleged LIBOR manipulation could affect home, credit card, and car loans in the U.S. But LIBOR could also spell trouble for U.S. taxpayers who have an ongoing stake in the government's bailout programs, the SIGTARP said.

There are two bailout programs—one managed by the Treasury Department, the other managed by Treasury and the Federal Reserve—that continue to rely on the LIBOR benchmark. These agencies have the authority to use a different benchmark, but they refuse to make the change, according to the SIGTARP.

SEC Watchdog Finds Recordkeeping in Disarray

By MICHAEL SMALLBERG

The Securities and Exchange Commission (SEC)—a federal regulator that polices recordkeeping on Wall Street, among other things—has failed to properly handle its own records, according to a recent audit by the agency's inspector general.

The audit report, issued a year after the SEC came under fire for improperly purging investigative files, describes a records system in disarray.

Many SEC staffers are still unsure about when to preserve records and when to dispose of them, the inspector general found. As a result, some SEC offices may have improperly destroyed documents, while others are sitting on piles of records that could have been safely discarded.

In December 2011, President Obama issued a memo calling proper records management the "backbone of open Government." If agencies fail to update their records policies, "the surge in information could overwhelm agency systems," the memo states.

It appears the SEC does not always practice what the President preached.

Video: POGO's Michael Smallberg Dissects the Revolving Door

By ANDRE FRANCISCO

POGO Investigator Michael Smallberg was a guest on a HuffPost Live discussion about the rapid spinning of the revolving door between government and K Street lobbying firms.

Michael joined executive director of the Center for Responsive Politics Sheila Krumholz, The Nation reporter George Zornick, and LegiStorm founder Jock Friedly to talk about the full extent of the revolving door in Washington.

Watch the video above and go here to add your comments.

Andre Francisco is an online producer for the Project On Government Oversight.

Follow @andrefrancisco

Congress Questions Whether Futures Industry Can Reliably Regulate Itself after Latest Scandals

By MARY PENG and MICHAEL SMALLBERG

In the wake of two colossal market scandals, several members of Congress have raised doubts about the government’s reliance on the futures industry to regulate itself.

“I’m struggling to understand why we continue to support this [self-regulatory organization] model of regulation when we seem to have one large-scale process failure after another,” said Rep. David Scott (D-Ga) at a July 25 hearing.

At the same hearing, Rep. Tim Huelskamp (R-Kan.) complained to a federal regulator that “we’re relying on outside groups to determine the effectiveness of your regulatory system.”

There has been heightened scrutiny of the futures industry following the revelation that Peregrine Financial Group, a futures broker, had allegedly been defrauding clients for as long as two decades. Just eight months earlier, another futures broker, MF Global, filed for bankruptcy after more than $1 billion in client funds went missing.

Congress Should Reduce Reliance on Self-Regulatory Organizations for Financial Markets

By DANA LIEBELSON

The Project On Government Oversight is urging lawmakers to reduce the government's reliance on private self-regulatory organizations. These self-regulatory organizations, as POGO writes in a letter sent Monday to Congress, are a breeding ground for conflicts of interest and ultimately hurt the public interest.   

In particular, POGO cites the National Futures Association, a self-regulatory organization, which has a board filled with industry representatives and collects membership fees from those firms it is supposed to oversee. An organization like this could “have enhanced susceptibility to industry capture,” according to a recent report by the Securities and Exchange Commission.

As POGO points out in its letter:

POGO Investigator to CNN: Regulators Got too Close to Banking Officials

 

By JOE NEWMAN

Michael Smallberg, a Project On Government Oversight investigator, tells CNN that a recent Treasury inspector general report gives an example of how federal regulators can get too close to the people and institutions they're supposed to be watching:

When folks wonder why regulators didn't do a better job of stopping the financial crisis, or they're wondering why OCC didn't spot the huge trading loss at JP Morgan earlier this year, I think part of the issue is just that the examiners were just too close to the folks they were supposed to be examining.

Last week, Smallberg wrote about the inspector general, which found a bank examiner in Florida violated federal ethics rules by playing golf and dining with officials from one of the banks he oversaw.

Joe Newman is the director of communications for the Project On Government Oversight.

Follow @JFNewman

Fannie, Freddie, and Mortgage Regulator Balked at Oversight, Watchdog Says

 

Fannie Mae headquarters in Washington, D.C.

 

By MICHAEL SMALLBERG

When a federal inspector general set out to examine the work of Fannie Mae, Freddie Mac and their regulator two years after taxpayers were called upon to prop up the giant mortgage finance companies, the inspector general met resistance.

Fannie Mae and Freddie Mac questioned the inspector general’s authority to demand their records, according to government correspondence recently released under the Freedom of Information Act.

The regulator in charge of overseeing the two companies directed them not to turn over the records, according to the correspondence. The regulator asserted that the inspector general was exceeding his authority.

The document shows that, even as Fannie Mae and Freddie Mac were receiving billions of dollars from the government to continue playing a central role in the nation’s crippled housing market, the mortgage companies and their regulator, the Federal Housing Finance Agency, were balking at more oversight.

In a March 2011 letter, the inspector general, Steve A. Linick, suggested that there was something wrong with this picture.

Federal Bank Examiner Violated Ethics Rules by Playing Golf with Bank Employees, Probe Finds

By MICHAEL SMALLBERG

A federal bank examiner violated ethics rules by golfing with bank employees during work hours and letting them pick up expenses, according to a report by a government watchdog recently released under the Freedom of Information Act.

A series of banking scandals and crises has called into question whether bank regulators are independent enough from the banks they oversee. The report by the U.S. Treasury Department’s inspector general offers a glimpse of one such relationship.

The report accuses one national bank examiner of “playing golf during official duty hours,” “accepting gratuities” in the form of “golf fees and/or food,” and “recording his official time and attendance hours as working while playing golf” with employees of a bank whose name begins “First National Bank of.”

The rest of the bank’s name is blacked out, along with the names of the examiner and bank employees.

The inspector general released the July 2010 report last month to the web site governmentattic.org, which posts records obtained through the Freedom of Information Act.

The Project On Government Oversight found the report in a batch of documents on the site.

SEC Names Official to Oversee His Former Industry

By MICHAEL SMALLBERG

Updated 10:37 a.m. 7/6/2012

The Securities and Exchange Commission has named Norm Champ, a former board member of an investment industry lobbying group, to head a division charged with regulating investment management firms.

The SEC announced today that Champ will become director of the Division of Investment Management, which regulates America’s multi-trillion dollar investment management industry. The industry includes hedge funds, mutual funds, and private equity funds.

Before joining the SEC in 2010, Champ served as the general counsel of Chilton Investment Company, a New York-based hedge fund manager. As recently as 2009, he was listed as a board member of the Managed Funds Association, which represents hedge fund managers.

Champ’s appointment highlights a double-edged sword at the SEC. While the agency has sought to recruit more employees with specialized industry experience, critics have argued that a revolving door leads to cozy ties between the SEC and the firms it oversees.

Champ’s appointment comes at a time when the SEC is expanding its oversight of hedge funds and other firms supervised by the Division of Investment Management, as required by the Dodd-Frank law overhauling financial regulation. Last year, SEC Chairman Mary Schapiro announced that new agency regulations “will fill a key gap in the regulatory landscape,” giving the SEC and the public “insight into hedge fund and other private fund managers who previously conducted their work under the radar and outside the vision of regulators.”

The Division of Investment Management has also played a key role in the SEC’s efforts to tighten restrictions on money market mutual funds, a popular investment tool for businesses and individuals. Schapiro testified last month that money market funds “remain susceptible today to investor runs with potential systemic impacts . . . as occurred during the financial crisis just four years ago.” Industry groups have strongly opposed proposed restrictions, and Schapiro appears to be fighting an uphill battle within her own agency to get new rules passed.

Matt Taibbi and Yves Smith on JPMorgan and the Wall Street 'Mafia'

Matt Taibbi and Yves Smith from BillMoyers.com on Vimeo.

By ANDRE FRANCISCO

JPMorgan CEO Jamie Dimon has been spending a lot of time on Capitol Hill lately because of a recent trading loss by JPMorgan that could cost the company $9 billion.

Last week, Matt Taibbi wrote in Rolling Stone about how big banks on Wall Street, including JPMorgan, have been using mafia-style tactics to game the system in their favor. In this video, Taibbi and Yves Smith of Naked Capitalism sit down with Bill Moyers to discuss Dimon's testimony, the reception ceratin senators gave him and the problems with the finanical system that led to JPMorgan's loss.

Andre Francisco is POGO's online producer

POGO Applauds Bureau's New Credit Card Complaint Database-Boon for Consumers

By SUZANNE DERSHOWITZ

Last week, the Consumer Financial Protection Bureau (CFPB) launched a brand new credit card complaint database, providing the public with important, new information on which banks have generated criticism from consumers. Making these complaints available online will aid the American people in making responsible decisions about their finances and enhance the transparency of the credit card market. The database is a breakthrough for government openness and accountability, and POGO has been advocating for it since the early days of the CFPB, which was created by the Dodd-Frank financial reform of 2010.

Many of us won’t spend our hard-earned money at a restaurant before checking its reviews on Yelp or book a hotel before scouring TripAdvisor, so why would we choose a credit card before reading consumers’ reviews of the bank and the terms? Well, until now, that was not easy to do. In offering online access to credit card complaints it receives, the Bureau is empowering consumers to bank with those companies that act in the best interest of their customers. For the first time, it won’t just be the individual complainant, the bank, and the regulator who know which companies engage in fraudulent collection practices, leave consumers vulnerable to identity theft, or impose excessive late fees. Disclosing this data will help consumers draw their own conclusions about developing trends and avoid “bad actors.”

When meeting with Elizabeth Warren back in April, 2011 to share open government ideas for starting up the new agency, POGO Director of Public Policy Angela Canterbury brought up POGO’s interest in creating a transparent online complaint database. In our Suggestions for How to Make the CFPB a Prototype for a More Open, Effective, and Accountable Government, POGO suggested that the Bureau examine the Consumer Product Safety Commission’s (CPSC’s) complaint database as a starting place.

We applaud the Bureau for launching the database, even in the face of some opposition from industry. When the Bureau solicited public comments on the proposed policy statement, they received seventeen sets of comments in response. According to the final policy statement the CFPB released Tuesday, industry commenters generally opposed the database, saying that it would only confuse consumers and unfairly damage the reputation of credit card issuers. The Bureau decided not to bow down to industry, but to serve the public interest and go ahead with the database.

New Video: What is an SRO and Why is it Bad for Your Money?

By ANDRE FRANCISCO

The world of financial regulation has a lot of acronyms, but there are two important ones for you to understand if you are concerened about who exactly is watching Wall Street to make sure there isn't another financial collapse. If you are unsure what SEC or SRO means, let POGO's financial guru Michael Smallberg explain in this short video.

After you watch the video, or if you already know how bad of an idea an SRO is, take action and urge your representative to reject a bill that would let Wall Street police itself.

Andre Francisco is a POGO online producer

Follow @andrefrancisco