Look Over There

It seems like an odd story to pop up at a time like this.

But I specialize in the odd, and in searching out red herrings, and even red hair rings.

Front page of the Washington Post today and it doesn't bury the lede:

By Switching Their Charters, Banks Skirt Supervision

At least 30 banks since 2000 have escaped federal regulatory action by walking away from their federal regulators and moving under state supervision, taking advantage of a long-standing system that allows banks to choose between federal and state oversight, according to a Washington Post review of government records.

The moves, known as charter conversions, highlight the tremendous leverage that banks hold in their relationships with government supervisors.

The financial crisis has pushed regulatory reform high up the agenda of the Obama administration and congressional leaders. Timothy F. Geithner, the Treasury secretary nominee, sounded the theme at his confirmation hearing yesterday, calling for a "stronger, more resilient system."

Some regulatory experts say that eliminating the opportunity to switch regulators is critical to strengthening oversight. [my emphasis]

Well yeah!

But this has been going on pretty steadily for years now, so why does a rather minor part of the overall regulatory problem suddenly warrant such front page attention in times like these.

Reading the full story you'll learn that Commerce Bank/Harrisburg was ordered by the OCC to limit it's dealings with its officers and directors and so they switched to a state charter. Imagine that . . . officers and directors using their banks for personal profit!

Compared to say the complete lack of regulation of non-bank lenders, the hedge funds and the rating agencies, and the free-for-all of investment bank securitization of mortgage loans, charter shopping just has to be one of the most important causes of the financial system meltdown. You'll be especially convinced by the fact that 12 percent of all charter conversions were done to escape federal regulatory action. Twelve percent mind you, serious. . . . huge.

The tall money boys are facing an enormous public relations crisis. They screwed up and screwed up bad. They fought new regulation, they gutted Glass/Steagall and a pretty strong majority of the American public can draw the line pretty straight between bad regulation and the current financial crisis.

So this is how I would play it if I were them. First get your own set of "reformers" in the places that matter most (enter Geithner), then help reporters identify stories that will create a lot of noise, the stories should identify multiple causes for the crisis and should all be very serious because every one is really to blame. Then once the confusion has reached a peak, push through the new "reforms" that will sound reasonable in a sound bite sort of way, but will insure that the masters of the universe still have plenty of ways to make outrageous sums of money off of the earnings, savings and debts of working people.

That's how I'd do it, but that's just me.

Bankbane