Holding Politicians Accountable

Carmen Segarra

Carmen Segarra’s tapes and her story show an ugly picture of regulatory capture. They make it obvious that the people who work in the supervisory branch of the Federal Reserve Board are acting in their own interest, and not the interest of good banking supervision. Dan Wright covered the story for FDL, and Peterr discussed the initial disclosure through the Segarra lawsuit last year. This American Life has posted a transcript of the Segarra episode, and it is shocking. We all owe a debt of gratitude to Segarra and to Jake Bernstein and others at ProPublica for this story.

There is a history of academic discussion of the problem of capture of the regulators of the financial sector. Here’s a 2005 paper by Daniel C. Hardy of the International Monetary Fund that discusses the literature and the nature of the problem. The purpose of the paper was to build up a mathematical model of regulatory capture and to use it to see what happens. We’ll just skip to his conclusions, since there is some reason to think that the model is just meant to formalize his intuitions about regulatory capture.

Regulatory capture in banking is not entirely bad. The regulations favored by banks and other financial institutions may promote financial stability and thus largely coincide with what would promote overall welfare and efficiency; this possibility is shown in the model. Once financial institutions are convinced that regulation is in their interest, it may be relatively easy to introduce worthwhile new measures. Thus, effective financial sector reform may require efforts to educate institutions about their “enlightened self interest.”

It’s a shame to spoil the flow of a good fairy tale model with its real-world outcomes, but it’s a fact that instead of sparkly unicorns, we got the Great Crash. The paper is an example of garbage economics justifying the erosion of government accountability. Neoliberal economists tell us that the financial sector is just responding to economic incentives when it tries and always succeeds at capturing its regulators, so we should get rid of regulators and let the market solve the problems.

Here’s the real moral of the tale. Politicians just can’t bear the thought of holding politicians, generals, rich cheats and frauds in the bloated financial sector, or any other authority figure accountable. President Obama is just the latest incarnation of this principle, that the rich and powerful are not to be punished. As a nation, we are so exceptional, and our leaders are so exceptional that to hold them accountable for the horrifying damage they do is simply unimaginable.

In the wake of the invasion of the Bay of Pigs in Cuba, the head of the CIA, Allen Dulles, and two top CIA officials were forced to resign. That may be the last example of political accountability. William Westmoreland killed off millions of people in Southeast Asia, including thousands of US troops, but he retired with his rank and honors. Richard Nixon, Henry Kissinger, and dozens of Reagan and Bush I appointees, all walked away with money and honors despite their crimes against humanity. One example will suffice: the Iran-Contra CIA careerists who allowed the streets of this country to be flooded with cheap cocaine and crack to aid the destruction of the government of Nicaragua, which has never recovered.

Bill Clinton had a chance to pursue accountability for these and other crimes of the Reagan-Bush era, but he didn’t. Barack Obama had a chance to do the same for the torture and murders committed under the Bush II administration, but he didn’t. They both told us that the nation needed to look forward, not backward. They told us that the problems were under control, and that they wouldn’t make the same mistakes. But the problems weren’t solved by their ascension to power. For that matter, the Bushes and Reagan didn’t hold anyone accountable for the failures of the preceding Democratic administrations.

In fact, the elites now know that they are in power, and that they will not be held accountable. The killer cop in Ferguson is free, and the remaining cops identify with him, attacking the people while wearing their “I am Darren Wilson” armbands and black tape over their nametags. The Carmen Segarra tapes, of events long after the Great Crash, show that Mike Silva Goldman Sachs to get away with coopting the Fed’s reputation in a transaction designed to hide the weakness of another bank. Silva is now an employee of GE Capital. Sucking up is a good career choice.

There’s a piece at Salon discussing polls showing that Barack Obama’s support among liberals has dropped. If you read through the comments, you’ll see that people realize the huge problems created for him by the Republicans and their huge noise machine, but there is a strong thread of recognition that his problems hang from a single failure: the inability to bring himself to hold the financial sector accountable for the misery it inflicted on all of us. I wrote about this in January 2011, when it became obvious that he and the captured Attorney General, Eric Holder, weren’t going to prosecute anyone on Wall Street; and the post holds up well with time. Now these criminals walk the streets with our money falling out of their pockets, free, and still in control of the pretend regulators at the Fed.

We have only one way to hold politicians accountable. If we vote for the lesser of two evils, we are not holding either accountable.

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