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Promontory Decides to Reinvest Part of its $1 Billion of Ill Gotten Gains from Botched Foreclosure Reviews By Buying Hiring Former SEC Chief Shapiro

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As regular readers may recall, Promontory Financial Group was one of the huge winners from the joke on the public otherwise known as the Independent Foreclosure Review. The only accurate word in that label, it turns out, was “foreclosure”.

As part of a series of consent orders issued to servicers in 2011, the OCC mandated that borrowers who had a foreclosure underway or completed in 2009 and 2010 could receive a review to determine if their foreclosure was handled improperly and caused financial harm. If so, they could receive as much as $125,000 in compensation.

Many observers, including yours truly, could see as soon as the reviews were announced that they were destined to be a sham, since the consultants hired to perform these assessments would be selected and pad by the banks, who would also be their immediate client. And after the reviews were hastily shut down, the revelations were even worse than even the cynics had predicted. Consultants like Promontory, who worked for three servicers, including Bank of America and Wells Fargo, ran up enormous tabs via being utterly incapable of organizing a process of this scale and complexity. Not that the bank cared, since they didn’t really want the work completed. Promontory racked up an estimated $1 billion in fees. Our whistleblowers say they completed only 4,800 borrower letters at Bank of America and may not have gotten through any at its smallest IFR client, PNC (in October of 2012, after over a year of work at PNC, Promontory said the work to dat needed to be scuttled since questions had been raised about the independence of the process. The reviews were shut down two months later).

So how is Promontory using all this lucre? Buying up even more former regulators to further its reputation as a connected insider. Mary Shapiro had barely left the SEC when she was nominated for a board seat at General Electric, which despite its image as a manufacturer, has for over two decades had nearly half its revenues coming from financial services. And now Shapiro has been signed by Promontory to help arm-twist regulators not to do their job.

The Wall Street Journal article on her new role is a confection of artful misrepresentation. Get a load of this:

“In my case, there’s no revolving door…I won’t ever be going back to government,” the 57-year-old Ms. Schapiro said in an interview. She decided that after spending “28 of the last 32 years as a regulator,” now was the “right time…to do something different.”

This is simply obtuse. Anyone with an operating brain cell knows “revolving door” in the US refers to individuals leaving government for big-ticket private sector jobs where their government contacts and process knowledge is highly prized. Pretending it has to be a round trip to count as “revolving door” is ludicrous.

And get this:

She said she won’t exploit her valuable Rolodex by lobbying on behalf of clients. SEC officials are usually restricted in their dealings with the agency for at least a year or two after leaving, with a permanent ban on trying to influence the SEC over certain issues they worked on while in government.

Ms. Schapiro said she would do more than abide by just the letter of the rules. She has agreed with Promontory to never appear before any federal agency on behalf of a client.

First, in DC, “lobbying” is often used in the narrow sense, meaning trying to influence Congressmen over pending legislation. Second, the “never appear” is physically meeting in a formal capacity. What do you think Promontory thinks it’s getting? Shapiro will certainly advise clients on regulatory strategies and can meet with people in government informally or on general issues (as in intelligence gathering rather than trying to influence outcomes).

Now the solution to this problem is one the US is certain not to embrace, which is pay top regulators more. Singapore, which considers clean government critical to the success of its economy, pays senior bureaucrats on the same level as private sector professionals (think law firm partners). Here, federal judges are not paid anywhere near as much as they would make in the private sector, but they have considerable stature, get great perks (high caliber clerks), and get generous pensions. But as they say in Maine, “You can’t get there from here.” We now seem to be on a downspiral of cultivated hatred of government leading to budget cuts which lead to deteriorating service, which justify dim views and produce more cuts and more service degradation. Of course, the flip side is many people also want their government, that is, whatever bennies they receive personally, and push for cuts elsewhere. Things will get worse before they get better, and the odds are high they will just get worse.

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20 comments

  1. Gerard Pierce

    Back in the old days of the Soviet Union, they defined a Hungarian as someone who enters a revolving door behind you and comes out ahead of you.

    These days, it is probably a good definition for a federal regulator.

    1. Up the Ante

      Ever so exactly, Gerard.

      To Ms. Schapiro, I say “Enter the Lackey”,

      “Mary Shapiro had barely left the SEC when she was nominated for a board seat at General Electric, which despite its image as a manufacturer, has for over two decades had nearly half its revenues coming from financial services. And now Shapiro has been signed by Promontory .. ”

      Her ‘new’ employers will doubtless compensate her + for her pay cut upon leaving FINRA.

  2. LucyLulu

    IIRC, at the FDIC, senior officers are banned from working at banks they regulated for two years after leaving the agency. Why isn’t there a similar policy at all regulating agencies? Perhaps the scope would have to be narrowed for the SEC, one couldn’t deny opportunities at all the broad range of companies they regulate, but certainly limiting access to companies in the financial regulation sphere like Promontory would be a reasonable policy. The private sector uses non-compete agreements all the time. In fact, a geography-based non-compete requiring they can’t work at any company with an office within 100 miles of DC would probably help quite a bit, too.

    1. Marilyn

      One word my business law professor used frequently….UNCONSCIONABLE! That word is perfect to describe Ms. Shapiro’s and others involved in this sad story,

  3. Bravo

    A firm like Promontory is the grease between the OCC and the banks. Since OCC staffers are underpaid and constantly susceptible to being shown the door with any aggressive regulatory stance, they use firms like Promontory to quietly identify bank misconduct and serve as their messenger in a polite request for the banks to clean up their act. Better for the lowly OCC staffer to look the other way in the face of outlandish fraud, and let Promontory quietly do the dirty work behind the scenes. And who better to protect “OCC client interests” than the SEC’s own Mary Shapiro? She has no shame.

    1. Susan the other

      It is possible that Promontory is hard-wired into the OCC. Else how did they get such a lucrative contract? So hence the lawsuit blurb yesterday about some disgruntled bidders to do the review who were not chosen and now they want to know what exactly the criteria were for choosing Promontory, etc – But this adds another dimension. The SEC. Also hard-wired into the OCC. They don’t even try to hide it. The SEC is such a pointless “regulator” it should be eviscerated, turned into a computer data base which is nothing more than a registry and all its “regulatory” functions turned over to the FBI. Ditto for the OCC.

  4. jake chase

    The whole charade is pathetic, inasmuch as regulators spend their government careers kissing up to potential employers in the ‘private sector’, which is the reason securities regulation always fails to rein in big time Wall Street predation, while simultaneously harassing small time business men to extinction, and landing with great fanfare an occasional con man peddling snake oil company shares out in the boondocks.

    And what would you expect these regulators to do in a society where nothing counts except money, where living decently requires exponentially more of it year by year, and where nobody cares about the source of anyone’s wealth, only about the amount?

    Regulation is the slow track to pecuniary aggrandizement. I wonder what was wrong with Shapiro that it took her 28 years to land a decent private gig? Most SEC functionaries manage that within a year or two.

  5. craazyman

    There’s a bright side. When they finally send a police squad out to arrest these people, they’ll all be in one place.

    I don’t know what they’ll charge them with though, maybe Oozing Sleaze, which may only be a misdemeanor, like urinating in public, which most folks get away with by being stealthy.

    So even if they don’t go to jail, the symbolism itself will help.

    I can see them now on Charlie Rose, trying to explain why they weren’t Oozing Sleaze and the police raid was a heavy handed mistake that never should have happened. Like pepper spraying somebody taking a piss against a tree in Central Park. There’s all sorts of reasons that could happen, some of them medical.But many of them relating to drinking lots of beer.

    If Mr. Rose is not on TV anymore, Bill Moyers can interview them and raise his eyebrows when they answer. haha Can’t yoiu just see that? Maybe they’d walk off the set in a huff. That would be quite a spectacle for the staid Mr. Moyers. I bet he’s say “F*ck it, let’s put it on the air and let viewers see it.”

  6. profoundlogic

    You’ve done a fabulous job Mary! Now here’s your reward for all that fine work.

    Perfectly befitting of the best Banana Republic money can buy.

  7. sd

    Companies are also known to hire former government workers to remove them from using their knowledge in benefit of the 99%.

  8. Martskers

    Mary Schapiro is, and has always been, a snake. I objected, loudly, when she was nominated for SEC chair because of her closer-than-close relationship with the folks she was supposedly reguating while she was at the NASD (now FINRA). Remember: she was a big pal of the Madoffs.

    Recall Harry Markopolous’ (the Madoff whistleblower) Congressional testimony during which, when asked why he hadn’t brought the Madoff matter to the NASD’s attention (since they had regulatory/oversight responsibilies for Madoff’s operation as well), he indicated he hadn’t bothered because while, in his opinion, the SEC was incompetent, the NASD was corrupt. No truer words were ever spoken, and yet the head of that corrupt operation is who was put in charge of the so-called “cop on the beat” over the securities industry.

    Is there any wonder why this snake presided over the SEC’s abject failure to vigorously enforce the securities laws, or why she’s going back to the trough where she once fed?

    1. Ms G

      Bill Clinton: “I did not have sex with that woman.”

      Mary Shapiro: “I did not revolve through that door.”

    2. Ms G

      Or maybe Sleazy-Mary Shapiro really believes what she says — i.e., the distinction between a regulatory institution and a regulatee institution is a mere formality because in her mind she’s been batting for the same side all along.

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