Weekend Economists: What Goes Up....June 1-3, 2012

[Demeter]

79. Bill Black: Career Limiting Gestures (CLG): Trying to Speak Truth to Congress INSIDE HISTORY LESSON

http://www.nakedcapitalism.com/2012/05/bill-black-career-limiting-gestures-clg-trying-to-speak-truth-to-congress.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

At the large law firm where I began my professional career we were warned about making “career limiting gestures” (CLGs). I confess to being an expert in committing CLGs, such that I am unemployable in the federal government. I’m a serial whistle blower who blew the whistle too often and too effectively on too many prominent politicians and bosses running my agency. One of the proofs of what a great nation America is capable of being is that I survived and the prominent politicians and agency heads who tried so hard to destroy my career and reputation failed. Indeed, in the process they helped to make me an exemplar that public administration scholars use to illustrate how regulators should function. The latest act of Congress disinviting me from speaking truth to power has caused me to ruminate on CLGs. I have concluded that they are essential to effective regulation.

Regulatory CLGs during the S&L Debacle prevented a Catastrophe

(In my most recent column I described the first time that Congress disinvited me from speaking truth to power. This paragraph and the following paragraph recap that event and are mostly a pure “cut and paste” so if you read the prior article you can skip to paragraph four.) When I was the Deputy Director of FSLIC, House Banking Committee Chairman St Germain was helping Speaker Wright hold the FSLIC recapitalization bill hostage to extort favors for Texas control frauds, including Don Dixon’s Vernon Savings (which was providing prostitutes to the State of Texas’ top S&L regulator and was building towards having 96% of its ADC loans in default – which is why we referred to it as “Vermin”). The attack on our agency was that we were mad dogs biased against Texas S&Ls and causing the Texas crisis by closing too many insolvent but well-run Texas S&Ls. Our response had many elements, but one of our principal points was that the Texas S&Ls we were closing were typically control frauds. At this juncture, St Germain’s staffers made a mistake. They requested that we testify on a host of issues, but the invite letter had a zinger, premised on an article saying that the Feds were slow to prosecute frauds in the Southwest. The invite specifically called for us to respond and discuss the role of fraud in the Southwest. We used the opportunity to explain the extensive role of fraud in Texas S&L failures.

The day of the hearing, I walked toward the witness table, but was called over by St Germain’s chief of staff. He proceeded to disinvite us from testifying on the grounds that we had filed non-responsive testimony. (We had, of course, responded to every inquiry they made. They simply hated the response because we documented the enormous role that control fraud was playing in causing Texas S&Ls to fail.)

The head of our agency, Chairman Gray, made me Deputy Director of FSLIC in January 1987 because he wanted me to take the lead in seeking the recapitalization of the FSLIC fund. We had spent all but $500 million of our FSLIC fund to close as many of the worst frauds as possible. That $500 million was supposed to insure roughly $1 trillion in industry insured deposits – an industry that was insolvent by roughly $100 billion. Contrary to the Speaker’s faux facts, we had spent down the FSLIC fund from $6 billion to $500 million by closing far more California than Texas S&Ls because the Federal Home Loan Bank of San Francisco (FHLBSF) was less overwhelmed than the FHLB Dallas and sent in more receivership recommendations. FSLIC Recap was the agency’s top priority because we were running on fumes and woke up every day wondering what we would do if a national run began on S&Ls...

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