Market Overview

Timothy Curry: The Very Model of the Modern Failed Regulator


I explained in a 2012 column as soon as Thomas Curry was publicly identified as the likely new head of the Office of the Comptroller of the Currency (OCC) why he was such a poor choice to be a regulatory leader.  Curry is such a good example of Obama’s crew of failed agency heads because he is neither evil nor stupid.  As I explain below, he views morality as a misnomer in banking.  He is the rarity among Obama appointees, a true professional regulator.  He is well within the top 50% of Obama’s (dismal) appointees in finance and regulation.    

Curry is also an abject failure who should be cashiered immediately.  No one had to order him to fail or intimidate him into failure.  He represents anti-regulation as usual, which has been the pattern in finance since 1993.  One can read his speeches and see that he has learned none of the essential lessons from the crisis and lacks even a dying ember in his belly, much less the raging fire required for regulatory success.  We know from his record of failure as an FDIC director from January 2004 throughout the crisis that had he been the top federal regulator in the savings and loan debacle rather than Ed Gray cost of the debacle would have grown to trillions of dollars.  At that level it would have hyper-inflated real estate bubbles and likely caused a severe recession. 

Because he was not the FDIC’s chair, however, the public has no idea who Curry is or his culpability for not even proposing to take the decisive actions essential to stop the three most destructive epidemics of financial accounting control fraud.  Sheila Bair also gets an unduly good press for her time as an FDIC Chair because she was the only Bush financial regulatory appointee who was not a disgrace.  The fact that those appointees despised and undermined her wherever possible gives her a deservedly good press.  Nevertheless, Bair was no Gray.  She never emulated his total resistance to the elite banksters that stopped a raging fraud epidemic in its tracks and led to the imprisonment of most of the worst banksters.         

As with Clinton’s sorry appointees before him, Curry will likely have the great fortune to have the next crisis occur after he has left office as head of the OCC.  His failures will be ignored and he’ll tell stories about how the world’s most elite bankers and he shared a mutual respect because he always stressed the need to be “reasonable” as a regulator.

Curry: Elite Criminals aren’t Our Worry

In 2013, I wrote a column entitled “The OCC’s Tragic Response to the Frontline expose: The Untouchables.”  I quoted a Curry comment reported in an American Banker article.

“Curry said bank regulators were more focused on getting problems corrected rather than criminal penalties. ‘From our standpoint, as a bank regulatory agency, our job is to, one, identify the problems and then mandate that they get fixed,’ he said. ‘I don’t think it’s our role to avenge or to punish per se.'”

Our three most recent financial crises have been caused by epidemics of accounting control fraud, so any financial regulator “focused” on getting the most dangerous “problems corrected” would focus on two things – “removing and prohibiting” the senior officers of each of the roughly two dozen financial institutions on the OCC’s “worst of the worst” lists and the roughly 30 financial institutions (including the great bulk of the 20 largest banks) that agencies of the United States have found to be leading those frauds.  (See the complaints of the FHFA, NCUA, DOJ, and the FDIC.)  The U.S. has filed pleadings that make it clear what no senior administration official will make express – these banks are criminal enterprises.  No one serious with the least training in white-collar criminology thinks that this could have happened without (at minimum) the acquiescence of the banks’ controlling officers.

The Financial Crisis Inquiry Commission (FCIC) has most of the key data required to understand how pervasive and destructive the three epidemics of accounting control fraud that drove the financial crisis were.  I have written about this on scores of occasions so I will provide only the briefest summary here.

We know from the appraisers’ petition that the banks’ officers created the Gresham’s dynamic that caused the appraisal fraud epidemic and that no honest lender would ever inflate, or permit to be inflated, the appraisal.  The 2003 survey found that 55% of appraisers had been extorted to inflate appraisals.  The 2006 survey found that incidence had risen to 90 percent.

We know that lenders’ controlling officers generated the epidemic of fraudulent liar’s loans.  We know from the industry’s own anti-fraud experts that the incidence of fraud in such loans was 90 percent.  We know that liar’s loans grew massively from 2003-2006 (by over 500%) while conventional loans declined.  It was the epidemic of fraudulent liar’s loans that hyper-inflated the bubble.  By 2006, roughly 40% of the home loans were originated (including 50% of the loans called “subprime”) were liar’s loans.  That means that there were over two million fraudulent liar’s loans originated in 2006 alone.

We know that there is no fraud exorcist, so these fraudulently originated loans could only be sold to the secondary market through fraudulent “reps and warranties” – the third fraud epidemic.  We know that Clayton, with a 70% market share of the “due diligence” field for sales to the secondary market conducted pathetically weak “diligence” reviews – and still found that 46% of the reps and warranties they reviewed were false and that this percentage rose until by the end 54% of the reps and warranties were false.  We also know from Richard Bowen’s work at Citigroup what competent due diligence reviews found.  Bowen found in his team’s initial review that 40% of Citi’s reps and warranties were false.  Despite Bowen’s continuous warnings to Citi’s senior leadership this percentage rose over time to 80 percent.  Bowen also revealed that the Citi officers responsible for ensuring the safety and soundness of the loans they purchased (for the purpose of resale primarily to Fannie and Freddie) did the opposite.     

A real regulators’ second highest priority would be getting those senior officers prosecuted.  That is essential to “getting problems corrected.”  The fact that he thinks that such prosecutions are distracting acts of “vengeance” constitutes his admission that he is unfit to be a financial regulator.  There are many thousands of senior financial officers that should be prosecuted for leading these fraud epidemics who became wealthy from those frauds.  Curry knows that there are no prosecutions and virtually no civil cases against the senior officers that led the frauds.  With one possible exception, because of a case initially brought by a whistleblower, no senior officer has even had her fraud proceeds “clawed back.”  Senior bankers can grow wealthy through leading the most destructive financial fraud epidemics in history with complete impunity.

At best, Curry’s quoted view makes its closest (albeit tenuous) approach to rationality only if he believes that the DOJ’s failure to prosecute the frauds is a distraction because they were not led by senior officials.  That belief, however, would further demonstrate how divorced Curry is from reality.  A more recent admission by Curry demonstrates that he spreads the twin myths that fraud was rare and not led by even junior bankers.  It is, of course, impossible to know whether he believes these myths.

Curry: The Banks’s Senior Officers Don’t Lead Frauds

The context of Curry’s comments in 2014 is even more alarming.  First, we are discussing an articlerather than extemporaneous interview responses.  Second, his statements are in 2014, where no financial regulator could fail to know simply by reading U.S. governmental complaints that the position of the U.S. was that the world’s largest banks had engaged in the largest and most destructive financial frauds in history and that the resultant “toxic mortgages” were central contributors to the financial crisis that cost the U.S. over $21 trillion in lost GDP and over 10 million jobs.  One might think this would reflect badly on the leading banks’ leaders.  One might even think it would require action by the head of the OCC, who regulates most of these banks and bankers.  Even the head of the Federal Reserve Bank of New York (FRBNY) – Dudley-Do-Wrong – now refers to the unethical “culture” of Wall Street.  The FRBNY is largely run by Wall Street, so Dudley’s comment constitutes an extraordinary admission.

Curry, however, is made of far weaker stuff than the none-too-tough Dudley.  The words “corrupt” and “fraud” never appear in his article and the word “criminality” appears so that he can defend elite bankers.  I’ll discuss seven of the revealing positions that Curry took in his article that demonstrate why he is unfit for his office.

The Financial Industry is a (Net) Parasite

The pervasive fraud by the largest banks is only the most glaring manner in which it has become clear to non-sycophants that the finance industry is the problem rather than the solution.  Finance has become a (net) parasite that poses the gravest single threat and drain on the real economy.  There is a vital need to shrink dramatically the size of the financial industry in general and the systemically dangerous institutions (SDIs) in particular.  Curry, however, repeats all the bromides falsified by the last 30 years.

“Our nation’s largest banks, most of which operate with a federal charter, are global institutions, but they play a vital role in the communities they serve throughout the United States. In addition to supporting economic growth through the day-to-day business of lending to consumers and businesses, they fund projects aimed at community development in our nation’s poorest communities, and they funnel hundreds of millions of dollars to charitable organizations. These projects represent conscious corporate decisions by senior management, and they speak well of the men and women who lead our large banks.”

Later in the article, Curry spreads a far more pernicious myth about the SDIs.  He mendaciously seeks to curry favor with the worst of the bank frauds by claiming that the SDIs were an important reason why the bank crisis was contained in 2008.  He should be fired for this sentence alone.

“Catastrophe was averted in large part because the federal government acted decisively to prop up the system, but also because several large banks – banks with national charters – had the financial strength to absorb large institutions that posed great risk to the financial system.”

We need to be blunt here.  Curry is talking about three SDIs: JPMorgan (JPM), which acquired Bear Stearns and Washington Mutual (WaMu), and Bank of America (BoA), which acquired Countrywide and Merrill Lynch, and Wells Fargo, which acquired Wachovia.  None of those acquisitions should have been allowed because they greatly increased the size and terrible damage that the three SDI acquirers do to our markets, our democracy, and our system of justice (“too big to prosecute”) and magnify the systemic risk to the global financial system.  The SDIs are also woefully inefficient because they are vastly too large to manage. 

Each of the five institutions acquired was also an SDI, so their failure offered a golden opportunity to divide up their assets and shrink them to the point where they could be acquired by hundreds of smaller banks without recreating an SDI and improve economic efficiency. 

The three SDI acquirers that Curry lauds (albeit not by name) and each of the five failed SDIs that they are acquired were criminal enterprises (as was Lehman, which was not acquired).  That makes the Bush administration’s approval of those acquisitions an unforgivable travesty.  The lie that the three SDI acquirers, each a criminal enterprise, have been spreading is that is outrageous for the U.S. to sue them for the massive frauds of the five criminal enterprises they acquired.  It is symptomatic of the Obama that he and his appointees have come to praise even the worst acts of the Bush administration.  I have written a column refuting these claims.

Euphemisms R Us

Then come the euphemisms and more special pleading by Curry for the banksters.

“But for all of the good work these large banks do, there have been problems that can’t be ignored. Among them are improprieties in telemarketing arrangements and debt collection, lapses in Bank Secrecy Act controls, lax oversight over trading activities, and the whole range of mortgage foreclosure and servicing abuses that were summarized by the media under the heading of “robo-signing.”

These lapses and improprieties….”

“Problems,” “improprieties,” “lapses,” and “lax[ness],” and “abuses” – five euphemisms for fraud – and then he repeats two of the euphemisms to begin his next paragraph.  Here’s a hint to Curry about how to pretend that he is a regulator – the SDIs have the corporate world’s biggest and best paid propaganda staffs.  Their Thesauruses have been laying on their desks open to the page with synonyms for “fraud” for three decades.  You don’t need to shill openly for them.

The Bank CEOs are Our Friends: the Problem is the Most Junior Bank Employees

In the passage I quote below, obviously without ever reading any of the relevant literature on control fraud in either white-collar criminology or economics and without reference to any facts from (apparently non-existent) OCC examinations and enforcement investigations, Curry decides to invent his own fraud myth.  The myth that Curry spins is so vague that it literally provides zero factual explanation for why any massive bank frauds occurred.  Indeed, Curry’s myth is designed to prevent any inquiry into those facts.  Instead of facts and logic, Curry offers the bizarre myth that our largest banks spontaneously generate massive frauds because of “weaknesses” in the banks’ “risk culture.”

“The problems that have come to light in the years since the financial crisis may not have been the result of conscious decisions on the part of senior management. I doubt, for example, that any large bank chief executive officer called together his senior executives and said, ‘Foreclosure paperwork is too time-consuming. Let’s start robo-signing the documents.’ Yet it happened, and for reasons that in some ways are even more worrisome than if they were the deliberate decisions of senior management.

What troubles me is not that some individuals made bad decisions, but that the business practices that have caused problems were made possible by weaknesses in the organization’s risk management and risk culture. Senior management bears responsibility for the problems that occurred in the years leading up to and following the financial crisis, but the nature of that responsibility is not necessarily in specific business decisions that senior executives made. Rather, management’s responsibility lies in its failure to set an appropriate tone at the top and to build a strong organizational culture that promotes responsible business practices and guards against excessive or improper risk-taking.”

Curry plainly has no experience detecting, preventing, investigating, or sanctioning elite bank frauds and hasn’t bothered to read any of the relevant regulatory, legal, criminological, or economic literature on “control fraud” (or “looting” as George Akerlof and Paul Romer termed it in their 1993 article entitled “Looting: The Economic Underworld of Bankruptcy for Profit).

As I explain (and discuss) below, Curry goes in this passage to emphasize his bizarre claim that none of this has anything to do with ethics and that all that matters is the bank’s “risk-taking” “culture.”  I’ll present first, however, two other passages in which Curry displays his total lack of understanding of accounting control fraud.

“I’d like to close by citing our first Comptroller of the Currency one last time. In 1863, Comptroller McCulloch urged bankers to ‘pay your officers’ salaries as will enable them to live comfortably and respectably without stealing.’ I might have put it a little more delicately, but that still seems about right. In some respects, it foreshadowed the controversy over incentive compensation, which led lending officers and others not to steal, but to jeopardize the soundness of their bank in order to bolster their compensation.”

Ah, yes, as Curry sees it the problem is “lending officers” – those low level employees who typically aren’t actually officers of the bank who apparently are the secret powers running the banks in some alternate universe that Curry inhabits.  But why isn’t it “stealing” when the banks’ controlling officers structure a system that makes over a trillion dollars in bad loans that “jeopardize the soundness of their bank[s] in order to bolster their compensation”?  That is, after all, precisely what Akerlof and Romer describe as “looting” and what I term accounting control fraud.  Why isn’t “looting” “stealing?” 

Curry’s failure to understand banking is all the more unforgivable given his knowledge that his predecessor as OCC head – 150 years ago – so much more.  (It’s also appalling, given the fact that Curry now leads the S&L regulators, is that he is willing to read what regulators learned 150 years ago – but not 25 years ago during the S&L debacle.)  Here’s Curry takeaways from 1863.

“The principles I have in mind here aren’t new. In fact, they harken back to the earliest days of the National Banking Act. The laws creating the National Banking System and The Office of the Comptroller of the Currency that President Lincoln promoted and signed into law – the statutes under which we still operate –were very prescriptive. And the principles woven into the law, while not explicitly a part of the statute, are as important as the words of the Acts themselves.

Advice to Bankers of 1863

In December 1863, Hugh McCulloch, the first Comptroller of the Currency, addressed a letter to all national banks. Those institutions had only lately been organized, and McCulloch wanted to make certain that their executives fully understood the responsibilities and expectations that came with their national charters. Below are some of his words that remain true today.

‘Let no loans be made that are not secured beyond a reasonable contingency . . . Give facilities only to legitimate and prudent transactions.’


‘Pursue a straightforward, upright, legitimate banking business. Never be tempted by the prospect of large returns.’”

Let’s examine the three fraud epidemics in light of what the OCC knew over 150 years ago and S&L regulators knew over 25 years ago.  Both of McCulloch’s warnings that I quoted were violated by each of the three fraud epidemics.  Loans with inflated appraisals are inherently “not secured beyond a reasonable contingency,” and inherently not “legitimate banking business.” Liar’s loans have a 90% incidence of inflated income and therefore are overwhelmingly “not secured beyond a reasonable contingency,” and inherently not “legitimate and prudent.”  When banks sell vast amounts of loans with inflated appraisals and inflated income to the secondary market they can only do so through making false reps and warranties.  The sellers and purchasers of the loans were both financial institutions and the officers leading them were buying massive amounts of loans that were “not secured beyond a reasonable contingency” and were not “legitimate and prudent transactions.”  Selling toxic mortgages to other banks through tens of thousands of lies was not an “upright and prudent” practice. 

The bankers who control the National banks all understand accounting control fraud.  Jamie Dimon, JPMorgan’s CEO, almost stated the fraud recipe correctly in his March 30, 2012 letterto shareholders:  “Low-quality revenue is easy to produce, particularly in financial services.  Poorly underwritten loans represent income today and losses tomorrow.”  The accurate statement, of course, is that poorly underwritten loans represent fictional income today through accounting fraud and real losses tomorrow. 

If Curry were familiar with the literature on looting/accounting control fraud he would know that in order to run such a fraud the officers controlling the lender must make enormous numbers of bad loans by gutting their underwriting systems.  Honest bankers, of course, would never gut their underwriting systems because doing so ruins the key to bank profitability – the ability to measure, limit, and price risk.  To sum it up, Curry has assumed away the problem by assuming that bank CEOs want to implement effective “risk control” systems when they actually want to do the opposite in order to optimize their frauds.  Curry knows that the banks pervasively and systematically gutted their risk control systems.  He simply refuses to ask why they did so because the answer to that question inherently points to the CEOs – the only ones with the power to gut the systems and keep them gutted for years as the bank fraudulently originated and fraudulently sold tens of thousands of toxic mortgages.  

Curry is correct that the CEO does not invite in hundreds of bank officers and invite them to commit frauds.  The CEO does not have to do so.  The CEO simply has to use his power to shape the perverse incentives that cause endemic appraisal fraud and liar’s loan frauds – and they simultaneously gut the underwriting and internal control systems so that the bankers can get away with producing the endemic appraisal and liar’s loan fraud epidemics.

Consider Curry’s claim that “management’s responsibility lies in its failure to set an appropriate tone at the top.”  This is a particularly incoherent (and vague) claim given that Curry next argues that ethics isn’t the issue, yet “tone at the top” is a phrase used to describe the CEO setting a high ethical tone for the firm.  Curry claims that “management” (also hopelessly vague) did not fail because it made “bad decisions.”  The key was “tone.”  I’ll begin with the obvious points that Curry ignores.  Why would hundreds of mortgage lenders run by (under Curry’s fantasy) honest CEOs simultaneously refuse/fail to hum an ethical “tone” for their banks and continue to refuse/fail to hum that “tone” for years despite copious evidence that in the absence of that “tone” thousands of bakers were making and selling millions of fraudulent loans? 

Curry’s story makes no logical sense.  There’s no logical or factual basis for his implicit assumption that bank “management” is honest.  There is no logical or factual basis for his implicit claim that if “management” does not set an ethical “tone” bankers will make millions of fraudulent loans.  There is no logical or factual basis for his implicit assumption that “management” did not deliberately refuse to set an ethical tone.  There is no logical or factual basis for his implicit assumption that “management” did not deliberately set an unethical tone.  More fundamentally, Curry provides no logical or factual basis to support his claim that some mystical tone has anything to do with the three fraud epidemics. 

Curry never engages the actual facts and actual fraud epidemics that drove the crisis.  Banks do not make liar’s loans without the approval of the controlling officers.  Honest bankers would never continue to make liar’s loans after they receive data showing that they produce endemic fraud without the approval of the controlling officers.  Banks do not sell to the secondary market liar’s loans and loans with appraisal fraud through fraudulent reps and warranties without the approval of the bank’s controlling officers.  Honest bankers would never continue to sell tens of thousands of toxic mortgages to the secondary market after being informed by Clayton’s none-too-diligent “due diligence” that the reps and warranties they have made in connection with their toxic mortgages are false an average of 46% of the time because the appraised values and “stated incomes” are commonly and fraudulently inflated.  If bank “management” is willing to make fraudulent liar’s loans and continue to sell tens of thousands of toxic mortgages to the secondary market through false reps and warranties there is no logical basis for asserting that they were honest and have simply forgotten somehow that it might be useful to hum an honest “tone” for the troops.    


Note that Curry has no explanation for how the millions of fraudulent loans were made and sold by the banks.  Massive bank fraud is simply spontaneously generated in the absence of good “tone at the top.”  In Curry’s fantasies bank CEOs are inherently honest but bankers are always on the cusp of fraud absent some “tone” that like an ultrasound collar on a dog brings them to heel.     

Think hard about Curry’s myth that the banks’ “weak … risk culture” spontaneously generated endemic bank fraud through some unstated process unsupported by any facts or theory.  The obvious beginning question, is what the words are even supposed to mean.  Is Curry claiming that the banks’ controlling officers decided to adopt a “culture” in which the bank’s officers could growth wealthy through the accounting control fraud “recipe” that would also make the controlling officers far wealthier as long as they did not intervene to prevent the bank officers from defrauding the public and the shareholders?  Did the controlling officers view creating – and maintaining – the pervasively perverse compensation systems for officers, employees, and professionals that the controlling officers knew was producing endemic fraud as a “risk” that that could be ethically permissible?

Curry returns to openly shilling for the SDIs near the end of his article.  In the process he inadvertently reveals anew his ignorance about fraud and his eagerness to mislead in defense of the SDIs.

“Just as important, the large banks we supervise have taken steps on their own to address public concerns. For example, one of our large banks stopped writing interest-only HELOCs for most borrowers, sacrificing short-term profits and market share to protect its customers. Other large institutions have clawed back compensation in cases involving misconduct, sending a strong signal about organizational values. And several of our large banks announced recently that they would provide mortgages at discounted interest rates to help low-income borrowers. These are all steps that can help rebuild public confidence.”

It should set of warning bells inside Curry’s head that the tone of his propaganda is precisely the same as Bush’s “wrecking crew” of anti-regulators.  Given that Curry’s article purports that everything is getting vastly better because we learned our lesson and won’t repeat those mistakes the warning bells must have been so loud that they deafened Curry to his own hypocrisy.

Ethics take a (Permanent) Holiday in Curry’s View of Banking

When even Dudley realizes and states publicly that Wall Street’s “culture” is “unethical,” you have to wonder how long it took Obama to find an OCC nominee who thinks ethics doesn’t really matter, only “risk management.”

“Some industry critics, including many in the public policy arena, cast the debate in terms of moral and ethical conduct. In the aftermath of a financial crisis that cost many Americans their jobs, their homes, and the financial security they had spent a lifetime building, it’s not surprising that feelings are still running high and that banks have been accused of losing their moral compass and putting their interests ahead of the public good. In cases where criminal acts occurred or where regulatory standards were breached, individuals need to be held accountable for their misdeeds.

But what some think of as an ethical or moral compass, I think really boils down to the quality of a bank’s risk management and the health of its risk culture. Sound risk management, supported by a healthy organizational culture, aims at protecting the bank’s reputation and shelters it from credit losses, litigation risk, and the kind of breakdowns in operational risk that, as we have seen, can have very significant consequences.

Our new heightened standards guidance for large banks addresses this concern squarely.”

Well, no.  As soon as you assume away ethics and any problem with immoral and unethical conduct by the controlling officers and substitute the issue of “risk management” you have “solved” the problem by assuming it out of existence.

This another reason Curry is unfit to run anything.  Bank officers aren’t supposed to avoid committing crimes because they are supposed to display “moral and ethical conduct” according to Curry.  For him, ethics “boils down to the quality of a bank’s risk management.”  I had always thought that the “issue” of stopping fraudulent conduct by the CEO should not be phrased as a non-issue.  Fraud is wrong and will not be countenanced by anyone.  Now, “critic” that I am, I learn that I have been thinking about these issues completely wrong.  The issue is one of “risk management,” as in, how much risk are we the senior bank managers willing to take that our frauds will be detected and sanctioned sufficiently severely that looting the bank constitutes an imprudent risk?  Curry represents the level of integrity and moral reasoning that Obama chose to lead his banking “reforms” at the Nation’s largest banks.  Remember, this is a prepared article vetted by his senior staff through multiple drafts.  It will be one of the labors of Hercules to clean the stables of the OCC after this occupant fouls its every cubicle with his post-ethical “risk management” credo.

I can tell you how we ended up with the Nation’s two best financial supervisors during the S&L debacle.  Chairman Gray personally recruited them by asking who had the reputation as the best.  Gray made sure of the specifics of that reputation because he knew that they needed to take on the Nation’s most powerful politicians (including the President he loved, Ronald Reagan, who fiercely opposed our effort to reregulate and resupervise the industry).  Gray insisted on recruiting leaders who were smart, courageous, and vigorous and who understood that we were in an emergency in which it was essential that we halt a raging epidemic of elite frauds led by the CEOs. 

How does Obama recruit his top people?  Oh, and one of those people that Gray recruited, Michael Patriarca, is available and at the peak of his powers.  Clinton, Bush, and Obama have each failed to call on his talents.  We have seen what happens when the president does not care enough to send the very best.  But Curry isn’t even in the running and as I noted in my introduction, as unfit as he is, Curry is easily in the top half of Obama’s (dismal) financial team.

Curry’s defining of ethics out of relevance in banking is all the stranger given this passage from his same article about the lessons that the OCC had drawn 150 years ago at its inception.

“Lincoln and his collaborators understood that a bank charter conferred great power, but also great responsibility. The bank charter demanded that banks manage their risks in ways that did not compromise their solvency. It demanded that they operate in strict compliance with the law. It demanded that they serve their customers and communities in good faith. Perhaps most important of all, it held them to the highest standards of trustworthiness and integrity.”

Yes, “strict compliance with the law,” “good faith” towards customers, and holding bankers “to the highest standards of trustworthiness and integrity” were the “most important” lessons we have known for well over 150 years.  The crisis should have taught Bush, Obama, Eric Holder, and Curry what happens when we allow banks and bankers to violate these three “most important” lessons and the critical need to hold accountable those elite bankers.  If Obama had learned those lessons, however, he never would have appointed Curry, Timothy Geithner, Ben Bernanke, Larry Summers, and Eric Holder (and so many others).  None of these people even attempted to hold bankers to “strict compliance with the law,” “good faith” towards customers, and “the highest standards of trustworthiness and integrity.”  Each of them, except Holder, prated endlessly about bankers’ “risk appetites.”

     Curry Claims that the Problem is the Public’s Failure to “Trust” Fraudulent Bankers

Curry is distressed that the public might lose “trust” and “confidence” in the senior bankers who:

1.      Led the frauds that caused the financial crisis

2.      Were made wealthy by those frauds

3.      Have been allowed by Curry (and his predecessors and peers) to keep their jobs and the fraud proceeds that made them wealthy at the expense of the public

4.      Were bailed out by the public

5.      Who then led new frauds after the crisis that made them still wealthier and caused immense harm to the public

6.      And have never been prosecuted

I must be strange because as a regulator, criminologist, and member of the public I’d be appalled if the public had “trust” and “confidence” in those senior bankers and the banks they control.  Not so Curry. 

“More important than the financial penalties they drew, these practices have diminished the public trust and confidence that are vital to the proper functioning of the U.S. banking system. The banking system runs on confidence, but the trust an organization spends a generation building can evaporate almost overnight when it loses sight of the values on which its business was built. As a regulator, I worry as much about the loss of trust and confidence in the system as I do about liquidity, capital, and underwriting practices.”

Why is Curry Guessing about the Facts? Why Don’t the Examiners Document Them?

I explained above that Curry deliberately avoids facts, theory, and logic in presenting his non-explanation of the crisis.  Curry’s curious non-explanation is an unsavory stew of unclarified non-facts.  This passage – a full six years after the acute phase of the crisis began and 16 years after the appraisers began warning of the epidemic of appraisal fraud that was causing the crisis to develop rapidly – is revealing in that the OCC’s head plainly has no clue about the facts.  That means that he, like his predecessors, has refused to perform the most basic and critical of his job requisites – deploy the OCC examiners to find the facts.

“Clearly, banks have a strong incentive to keep their customers satisfied. You don’t build market share by engaging in abusive practices. So, it seems reasonable to ask why some large banks allowed themselves to stray from the principles of sound business practices that have differentiated successful banks from unsuccessful ones over many years. Was it the conscious decision of management to flout laws, regulations, and basic precepts of business ethics? Or was it something more subtle, less visibly apparent, and more difficult to measure, that caused them to lose their way?”

The second sentence is a flat out lie.  Throughout the developing fraud epidemics the banks “buil[t] market share by engaging in [fraudulent] practices.”  The FCIC Report is replete with such evidence as our over a dozen U.S. government complaints.  “Banks” do not have an “incentive” – bank officers have incentives.  The controlling bank officers shape those incentives and as even Curry the Shill implicitly admits, the incentives they created were pervasively perverse.  That means that bankers frequently had ad “strong incentive” to rip off the customers – and to cover up their depredations to make it difficult for the customers to discover that fact.

In any event, why does Curry invite us to guess in the last two sentences I quoted above?  That’s why real regulators, who actually understanding accounting control fraud mechanisms, conduct real investigations with real examiners and attorneys.  They then act on those facts by bringing the supervisory and enforcement actions and making the criminal referrals. 

What Does Curry Actually Propose to Fix the Endemic Bank Fraud?

Because Curry and his counterparts assumed away the accounting control fraud problem that actually besets the SDIs, his big shiny rule on SDIs is useless.  Curry ends up putting his faith in the CEOs who led history’s three most destructive financial fraud epidemics.  Indeed, given the complacency Curry displays about the rule and the criminal enterprises that he is so giddy to praise the rule is actually harmful because complacency in financial regulation leads to catastrophe.

“At the end of the day, however, regulations only go so far, and systems of internal control are no stronger than the culture that surrounds them. We can’t write rules to cover every conceivable situation that might come up, and risk officers are only as effective as the support they receive from top management, which is another way of saying that they can only be as effective as their bank’s culture will permit.”

I just wrote a columndetailing the facts about “risk officers” and how and why they failed so spectacularly at each of the largest financial institutions.  I have previously written extensively about internal controls and underwriting and why and how they failed so spectacularly.  So, what is Curry’s analysis as to why they failed endemically and how to fix such an endemic failure?  Well, you’ll be glad to know that fixing that problem is a “priority” for him and the OCC.  Yes, it is a full six years after the acute phase of the crisis began and 16 years after the appraisers began sounding the alarm about the rapidly growing crisis (appraisal fraud led by the elite bankers), but not to worry because they’re working on a priority fix.    

“As I write this article, we are continuing work on a regulation that will ensure that large organizations structure their incentive compensation programs so that they balance risk and financial rewards; are compatible with effective controls and risk management; and are supported by strong corporate governance. The rule would prohibit arrangements that either provide excessive compensation or that could expose an institution to inappropriate risks that could lead to material financial loss.

This rule, which is being developed on an interagency basis, is a priority for the OCC. Had it been in place a decade ago, it might have prevented some of the more ‘creative’ practices that ultimately brought us to the brink of financial disaster. It might, for example, have kept the ‘originate-to-distribute’ model, which started off as a means of managing risk, from becoming a means of ignoring risk.”

Well, actually, “no.”  Recall that Curry admitted above that his rules “are only as effective as the support they receive from top management.”  “Top management” is the problem at banks and other firms.  They lead the control frauds.  So, we have a rule “fix” that the proponent admits will fail utterly against the problem (“top management”) that drove our last three financial crises.   

I ask the reader to step back a moment and think hard about four basic questions that Curry ignores that I believe will help make this basic point clear. 

·         Why did the officers controlling the Nation’s largest banks – pervasively – structure incentives that we have known for over a Century would produce endemic fraud by bank officers, bank employees, the bank’s agents, “independent” professionals that were supposed to serve as internal and external controls, and bank customers? 

·         Why did the officers controlling the Nation’s largest banks then eviscerate underwriting and controls further knowing that this would further encourage each of these forms of fraud? 

·         Why did the officers controlling the Nation’s largest banks then maintain, and often exacerbate, these practices when they received numerous reports and warnings that the practices were leading to endemic fraud – and why did they retaliate against their best employees who tried to maintain their integrity and that of the bank? 

·         Why did the officers controlling the Nation’s largest banks, knowing about the resultant endemic fraud and the catastrophic losses it would produce as soon as the bubble ceased to hyper-inflate reduce the allowance for loan and lease losses (ALLL) to levels that were roughly one-twentieth what would be required to provide for those losses? 

Note, any bank that provided even one-fifth that size ALLL would have reported the truth – that the bank lost enormous amounts of money when it made liar’s loans and extorted appraisers to inflate appraisals.  The banks would have been forced to report massive losses, which would have largely eliminated the senior officers’ bonuses, caused their stock options and holdings to lose enormous value, and killed secondary market sales.  Oh, maybe that’s why they violated GAAP and provided preposterously inadequate ALLL provisions.  Sorry, I didn’t mean to have logic and facts intrude on Curry’s pickle.    


<i> <p> Bill Black is the author of <a href="">The Best Way to Rob a Bank is to Own One</a> and an associate professor of economics and law at the University of Missouri-Kansas City and the Distinguished Scholar in Residence for Financial Regulation at the University of Minnesota's School of Law. He spent years working on regulatory policy and fraud prevention as Executive Director of the Institute for Fraud Prevention, Litigation Director of the Federal Home Loan Bank Board and Deputy Director of the National Commission on Financial Institution Reform, Recovery and Enforcement, among other positions.</i> </p>


<p> <i> Bill writes a column for Benzinga every Monday. His other academic articles, congressional testimony, and musings about the financial crisis can be found at his <a href="">Social Science Research Network author page</a> and at the blog <a href="">New Economic Perspectives</a>.</i>


Follow him on Twitter:   @WilliamKBlack

The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.


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