Scott M. Polakoff, Senior Deputy Director and Chief Operating Officer, Office of Thrift Supervision testified before the U.S. Senate's Committee on Banking, Housing, and Urban Affairs on 5 March 2009. For whatever reason, his testimony didn't get much play in the so-called mainstream media. I prefer to think that because his easy-to-read and easy-to-follow testimony is so far from the "failure of government regulation" narrative, that the only alternative is to bury the story.
Congress is burying the story, also. The very committee before which Mr Polakoff testified flat-out dropped the ball, either from inattention, incompetence, or, most likely, by letting political and other concerns outweigh the public benefit.
"Consistent with changing business practices and how conglomerates then were managed, in late 2003 OTS embraced a more enterprise-wide approach to supervising conglomerates. This shift aligned well with core supervisory principles adopted by the Basel Committee and with requirements adopted by European Union (EU) regulators that took effect in 2005, which required supplementary regulatory supervision at the conglomerate level. OTS was recognized as an equivalent regulator for the purposes of AIG consolidated supervision within the EU, a process that was finalized with a determination of equivalence by the French regulator, Commission Bancaire."
So, how do individuals in the Congress (such as the grandstanding Sherrod Brown (D-OH), member of the very same U.S. Senate Banking, Housing and Urban Affairs committee) conclude that AIG was unregulated?
“At AIG, it was not enough to insure lives or property or health,” Brown said today at the hearing. “A largely unregulated corner of the company decided it would make enormous bets on exotic financial arrangements—providing insurance where there were no actuarial tables and almost no actual experience. You would think that such a colossal miscalculation would lead to contrition. In the world of Wall Street, you would be wrong.”
Senator Brown, AIGFP didn't, actually, live in "a largely unregulated corner of the company", according to the testimony of the U.S. agency charged with supervision and regulation. But you already knew that, based on Mr Polokoff's testimony 12 days earlier. Also, actuarial tables are appropriate for life insurance, not for other forms of insurance (such as credit default swaps).
Also, Senator Brown, I wouldn't "think that such a colossal miscalculation would lead to contrition", I would think that such a colossal miscalculation would lead to reorganization of the company under U.S. bankruptcy laws. Why didn't we take that step? It sure would have saved a lot of money. In the end, we're going to wind up reorganizing AIG anyway, it'll just be after a previously unbelievable amount of taxpayer wealth has been squandered by a profligate administration and congress.
