Is the OCC the Most Corrupt US Bank Regulator?

As much as I’m fond of the name “Naked Capitalism,” I am beginning to wonder whether a more accurate description of this blog’s beat might be “Naked Corruption.” Our continuing discussion of the Office of the Comptroller of the Currency’s foreclosure whitewash reviews serves as an object lesson.

The Fed and the Treasury are pilloried much more regularly than the OCC by virtue of the fact that they are more visible. But pound for pound, the OCC is arguably more pernicious. It was the OCC that decided to decamp from the then 50 state attorney general negotiations because, apparently, they might not produce a bank-friendly-enough outcome (remember, even though these negotiations keep being depicted in the press as “state attorney general” negotiations, a whole passel of regulators Federal agencies are involved, including the Fed, the DoJ, the FDIC, and HUD). But while the talks were underway, the OCC decamped and launched its own cease and desist order process, which was intended to reduce the impact of the settlement from the federal regulatory side. And if you think that the OCC was not trying to advance the banks’ agenda, the language the OCC used in the C&D orders was cribbed from the banks’ counterproposal to the attorneys general.

Similarly, although I can’t prove it, I strongly suspect the OCC played a major role in the nuking of Elizabeth Warren. I am told she is a skilled bureaucratic infighter and had to have been aware of Geithner’s antipathy for her and hence would have been watching his game closely. The development that hurt her the most was the leak of a 7 page analysis prepared by the CFPB for the state AGs to Shahien Nasiripour, then of the Huffington Post. He anticipated the firestorm that resulted:

But perhaps most important to some lawmakers in Washington, the mere existence of the report suggests a much deeper link between the Bureau of Consumer Financial Protection, led by Harvard professor Elizabeth Warren, and the 50 state attorneys general who are leading the nationwide probe into the five firms’ improper foreclosure practices, a development sure to anger Republicans in Congress and a banking industry intent on diminishing the fledgling CFPB’s legitimacy by questioning its authority to act before it’s officially launched in July.

And that article indicated that the OCC and the CFPB were at loggerheads over the level of fine the servicing industry should pay, with the OCC of the view that it should be less than $5 billion.

Adam Levitin was quick to call out how phony-baloney the OCC’s servicer cease and desist orders were as soon as a draft was published back in April (emphasis his):

By far the most interesting bit in the draft C&D order is the bit requiring the banks to engage independent foreclosure review consultants to review “certain” foreclosures that took place in 2009-2010. There is no specification as to which foreclosures are to be reviewed or precisely what the standards for review are. But that’s all kind of irrelevant. Who do you think the banks are going to engage to do these reviews? Someone like me? Not a chance. They’re going to find firms that signal loud and clear that if they get the job, they won’t find anything wrong. It’s just recreating the auditor selection problem, but without even the possibility of liability for a crony audit

So here’s what’s going down. The bank regulators are going to provide cover for the banks by pretending to discipline them very hard, but not really doing anything. The public will see a stern C&D order, but there won’t be any action beyond that. It’s as if the regulators are saying so all the neighbors can hear, “Banky, you’ve been a bad boy! Come inside the house right now because I’m going to give you a spanking!” And then once the door to the house closes, the instead of a spanking, there’s a snuggle. But the neighbors are none the wiser. The result will be to make it look like the real cops (the AGs and CFPB) are engaged in an overzealous vendetta if they pursue further action.

Levitin continues his scutiny with his latest post on the OCC’s coverup, which was sparked by the Gretchen Morgenson story last weekend. That story suggested the supposedly independent foreclosure reviewers were every bit as compromised as Levitin had predicted. Levitin, based on what he called “the briefest of perusals” of the several engagement letters, including the Allonhill engagement letter (flagged by Michael Olenick), found plenty not to like. The first problem was, as he had indicated earlier, was rampant conflicts of interest. The second is that the entire process is bogus.

This is a partial recap from his post, which I strongly suggest you read in full. On the conflicts:

1. The OCC does not do any independent verification of claims re lack of conflicts. As Olenick described, they are bloomin’ obvious as far as Allonhill is concerned, and the defense they offered in the Morgenson story is not convincing.

2. The reviewers hire subcontactors who are similarly deeply compromised. You have multiple law firms, all of whom are major “securitization” law firms, which means they up to their eyeballs in opinion liability. Think they are going to find anything wrong when they have been advising the servicing industry all these years? Consider what Levitin wrote about SNR Denton, a firm that has made an art from of writing coverups for bad servicing/foreclosure practice (see our shred from 2010). Levitin catalogues some of its other whoppers:

It has also made clear that it thinks there is “nothing to see here folks” on the chain of title issue, and that it thinks Ibanez was a radical and wrong outlier decision. SNR Denton has also represented the American Securitization Forum. Hardly neutral counsel.

To add to Levitin’s tally: SNR Denton also represents LPS, which is has been indicted by the Nevada attorney general for civil fraud in a wide ranging and well documented case. And in a newly-published paper on Ibanez, Professor Elizabeth Renuart looks at the applicability of that decision in four major non-judicial foreclosure states: Arizona, California, Georgia, and Nevada. Her conclusion, contra SNR Denton, is “Ibanez should be persuasive authority in the four nonjudicial foreclosure states highlighted herein.”

But even worse is the procedural sham. It’s a deliberate effort to validate bogus foreclosure practices. Key points from Levitin:

It’s clear that none of the reviews will look at PSAs and trust law. The OCC doesn’t want anyone looking at this issue. It’s OK if the reviews find some SCRA [Servicemembers Civil Relief Act] violations and the banks pay a few dollars here and there. But the chain of title issues are too sensitive and OCC has made them a no-go….

Check out the assumptions and exceptions on pp. 13-16 in the JPMorgan-Deloitte letter. Some are kind of heroic, like that there was proper service. I testified about a “sewer service” problem before the House and Senate in November 2011. It’s not a non-issue. Or how about that notarizations took place on the date claimed. We know that isn’t always the case–that’s what started the whole robosigning scandal.

Other assumptions are strange. The review will only consider 2 federal statutes and state statutes, not local mediation requirements, etc. Sure, it makes the reviews easier. But those requirements are the law too. You can’t pick and choose which parts of the law to comply with.

In other words, this process is every bit as bad as one would fear, and blindingly obviously, shamelessly bad.

But the reason that the OCC can do this sort of thing is that much of their help to banks isn’t as visible as, say, HAMP mods (which were intended to give the appearance of helping borrowers while doing nada to change the fundamentals of the system in place). And the parts that are, like the engagement letters, take some knowledge to see the deficiencies. Now a journalist can easily get to experts, but what the OCC does, like a lot of regulatory nitty gritty, is deemed to be too technical to interest most readers. This is yet another example of how complexity and opacity serve the financial services industry.

The OCC is actively intervening on the side of banks to cover up their systematic abuse of the rule of law, and to minimize the cost to them when it is impossible to deny their bad conduct. The more that the public recognizes that the OCC is a bank enabler in regulator’s clothing, the harder it will be for them to be effective in that role.

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  1. SteveA

    Here’s a quote from John Walsh, Obama’s Comptroller of the Currency, from a speech he gave this past summer in London:

    “I worry that the high capital requirements, liquidity requirements, and activity restrictions we are pursuing are attempting to banish all risk from the banking system. But the unique role that banks play in the economy requires them to take risk. As I have argued this evening, that role also justifies the maintenance of a public safety net, and because the safety net provides a public benefit, it is unlikely ever to be provided at zero public cost. Steps that we take to make the system safe must be weighed against the costs of reduced financial intermediation and potentially lower economic growth. Finding the right balance in that tradeoff involves as much judgment as precise measurement. And exercising sound judgment requires us to avoid being swept up in the short-term passions of the times.”

    In other words, Obama has appointed a bank regulator who does not believe in regulating banks and who thinks socializing losses incurred by greedy idiots is the smart thing to do. So this is the change we can believe in — a Reagan Republican president masquerading as a progressive Democrat.

    1. YankeeFrank

      Yep. I’m so ready to vote for Romney (well, not really… I don’t plan to vote at all) as I prefer my kleptocratic government to be an honest one ;).

      1. sgt_doom

        Right, the choice (????) will be between Romney of Wall Street or Obama of Wall Street — major decision time.

        But my major gripe here is: why ANY concern over CFPB, after all? They stuck it in the one outfit which has experienced NO oversight since it was created back in 1913, the Fed?

    2. F. Beard

      “But the unique role that banks play in the economy requires them to take risk.” John Wals

      Unique = privileged by government = fascism

      “As I have argued this evening, that role also justifies the maintenance of a public safety net,” John Walsh via SteveA

      Equals the banks hold the economy hostage. Why do we tolerate this?

      “and because the safety net provides a public benefit, it is unlikely ever to be provided at zero public cost.” John Walsh via SteveA

      What benefit? The banks cheat borrowers by driving them into non-servicable debt, cheat savers of positive real interest rates including zero and are the cause of the boom-bust cycle. They killed 50-86 million in WW II alone and are threatening world peace again.

      1. wunsacon

        >> They killed 50-86 million in WW II alone and are threatening world peace again.

        Beard, although I suspect I know the basis for that statement, would you please elaborate?

        1. F. Beard

          Two major causes of WWII were German grievances from WWI and the Great Depression. Without US involvement in WWI, which was financed by the Fed, it is likely that WWI would have ended in a stalemate and not a humiliating defeat for Germany. As for the Great Depression, Ben Bernanke himself admits the Fed is to blame.

          The main causes of World War II were nationalistic tensions, unresolved issues, and resentments resulting from the World War I and the interwar period in Europe, plus the effects of the Great Depression in the 1930s. from

          1. Alex R.

            It was not so much US participation in World War I as the terms forced on the Germans by the Treaty of Versailles. They cost the German economy a ton of money and it was the state of the German economy which allowed the rise of Hitler. Woodrow Wilson initially argued that the Treaty of Versailles should not be overly punitive, but eventually he got on board with the French and British, who wanted the Germans to pay a price which REALLY hurt. In some ways this was a terrible moral failing on Wilson’s part, but I’m not sure he had much choice short of starting the war up again.

            I suspect that without the Treaty of Versailles the German economy would have been in much better shape in October of 1929.

        1. F. Beard

          Really? Please elaborate?

          But hey, if abolishing the counterfeiting cartel and a universal bailout from all debt isn’t enough for my non-fascist credentials, then what is?

          1. JamesW

            One must apologize for anyone calling someone like F. Beard, so familiar with banking history and global financial history, such a thing!

            Somebody must surely be woefully ignorant as to the history behind the Harriman, Rockefeller, Morgan, Mellong, et al., fortunes, as well as the obvious precursors to WWI.

            B.G. Jayne must surely be turning in his grave…..

    3. factchecker

      Walsh isn’t “Obama’s Comptroller of the Currency.” Walsh is Acting Comptroller; he replaced John Dugan after the D-F Act was signed. Obama has nominated Thomas Curry from the FDIC Board to be Comptroller, but the Senate hasn’t confirmed him yet.

        1. JamesW

          ROFL — yup, everyone believes the 100% neoconservative administration of President Obama was forced upon him; certainly Geithner, Summers, Immelt, Gensler, Farrell, Fuhrman, Kolbe, Sperling, Wolin, etc., etc., etc.

        2. Up the Ante

          “Most said the move appeared to be retaliatory for Williams’ role in fighting to preserve national bank preemption, which the administration sought — and largely failed — to eliminate in the regulatory reform bill. ”

          “It was always going to be a stretch for this administration to give control of the agency to the individual credited with being the architect of preemption,” said Jaret Seiberg,
          It was also going to be a stretch to retain preemption in any form, and they did.

          “The administration originally proposed completely eliminating preemption for consumer protection rules. Instead the final law lets the OCC preempt consumer protection statutes on a case-by-case basis, but allows state attorneys general the power to enforce some federal standards against national banks. ”
          Allows them, does it? How about telling the banks what the rules are from the states’ side, and if they don’t like it GTFO.

          OCC is the most unchanged face of the conspiracy, other than the one mentioned here,

          Mitt Romney ??

          The ‘Tee-Hee Conspiracy from the Conservatives’, nakedized.

    4. Up the Ante

      You may as well title Walsh’s quote as ‘Why I Visit the Casino’.

      “The OCC is actively intervening on the side of banks to cover up their systematic abuse of the rule of law, ”
      That they are, the OCC is The Enemy is in Disarray Organisation, Get It While the Gettin’s Good.
      And the FBI? Won’t go anywhere near them. Ta da!!
      And Romney as a vehicle of hope?? For whom? Ta da!!

      “Anybody who has ever been in the Army realizes on the first or second day that the whole thing is bullshit levened with mendacity.” [the OCC’s other name]
      jake chase

  2. R Foreman

    We just need a few precedent-setting court cases. The regulators’ job becomes less relevant when you consider that it is preventative in nature. The court’s job is adjudicating, and hence is more the final word of a dispute.

    Foreclosure Occupiers Arrested After Being Given Key to Home

  3. psychohistorian

    Thanks for the report that will show up no where else and hey look over there at that new shiny war in Iran, crammed down your throat Real Soon Now.

    I hope those Occupy folks start ramping up media pushbacks as part of their ongoing efforts. The slick and overwhelming message from the top needs to be countered and light shown on the process of ongoing public manipulation through the existing media.

  4. jake chase

    Anybody who has ever been in the Army realizes on the first or second day that the whole thing is bullshit levened with mendacity. Bank regulation, securities regulation, antitrust is the same thing. The system grinds on, a few small fry get ground up, major players have a free hand and the propaganda machine operates 24-7. Sensible individuals realize that the more power concentrates the more difficult it is for people to manage individual lives. Despite this overwhelming reality, so called intelligent people, including an overwhelming majority responding to this blog, keep insisting that the Government e

  5. jake chase

    Anybody who has ever been in the Army realizes on the first or second day that the whole thing is bullshit levened with mendacity. Bank regulation, securities regulation, antitrust is the same thing. The system grinds on, a few small fry get ground up, major players have a free hand and the propaganda machine operates 24-7. Sensible individuals realize that the more power concentrates the more difficult it is for people to manage individual lives. Despite this overwhelming reality, so called intelligent people, including an overwhelming majority responding to this blog, keep insisting that the Government DO SOMETHING to fix the system. Windbag politicians are ever obliging. Their rhetoric is beautifully tailored to the people’s demands, but the result, invariably, is more concentration of wealth and power and less wiggle room for people. Go figure!

    1. skippy

      Jake your PO’ed, I am, many others too. Yet the solution is in the individual, the individual that is informed, the reason many come here, to challenge everything.

      Skippy…. 10 years from now and a dent is made would be fantastic! This ship (humanity) is not just an economy of size but, a thousands of years old belief system[s (foundation myths) acid test. Whom are we? Debtors, capitalists, socialists, isms – ologys, all with out sufficient data to win for any side. Hard yaka methinks, leaning into the winds of the past. Maybe will get there or not, but, never stop leaning.

  6. Sleeper

    Of course no one is asking but isn’t it time for Bloomberg or Propublica to file an FOIA ? The MSM seems to be giving the less than 50 state solution a free pass. We’ll hear about it later via expose’ or some gushy puff piece.

    The facts are clear from Bloomberg’s FOIA and subsequent analysis that the FED was (and is) deep in crony capitalism.

    We can expect the same from OCC.

  7. lambert strether

    And Warren’s solution to banksterism is…. Human-readable contracts. Alrighty, then.

    In reality, we don’t need protection from banksters as consumers so much as we need protection as citizens, if that quaint concept has any meaning any more.

    1. skippy

      “as citizens” – lambert. There is a spirit level for that distinction, it gets higher all the time but, ownership of slaves is still a key metric.

  8. EricJ

    No comment on the title of the blog.

    I wonder how much is hand-over-fist, money-grubbing corruption, and how much is keeping the game going at all costs? The latter is worse, because technically it’s legal.

    Sometimes I think the definition of politician is a person who at least pretends to turn to jelly when a financier bluffs. Apologies to the exceptions.

  9. charles sereno

    This quote about unmasking bureaucracy from David Graeber’s Malinowski Lecture (2006) applies to the OCC —
    “This essay is not, however, primarily about bureaucracy—or even about the reasons for its neglect in anthropology and related disciplines. It is really about violence. What I would like to argue is that situations created by violence—particularly structural violence, by which I mean forms of pervasive social inequality that are ultimately backed up by the threat of physical harm—invariably tend to create the kinds of willful blindness we normally associate with bureaucratic procedures. To put it crudely: it is not so much that bureaucratic procedures are inherently stupid, or even that they tend to produce behavior that they themselves define as stupid, but rather, that are invariably ways of managing social situations that are already stupid because they are founded on structural violence. I think this approach allows potential insights into matters that are, in fact, both interesting and important: for instance, the actual relationship between those forms of simplification typical of social theory, and those typical of administrative procedures.”

  10. Paul Tioxon


    I will always remember an old labor guy who used to haunt the food coop I worked at in the’70s. Herb Lewin used to say to me all the time, “The average American is above average”. Herb was retired back then, he had a number of claims to fame, one being the GE strike in SouthWest Philly right after WWII. The cops showed up on horse back and foot and beat those guys senseless. There was a front page picture of group of union guys at the front entrance to the building just being ground up by nightsticks and black jacks. Yea, the Philly cops carried lead weight leather covered truncheons until relatively recently. Trust me, you want pepper spray rather than that.
    The police riot was so brutal, that women in the rowhomes across the street opened their doors to allow men and women fleeing for life and limb sanctuary. These things are not swallowed and not forgotten. It seems that what is about to explode in this country will exceed labor violence and Weather Underground/Black Panther violence. This is so, because it will happen on multiple levels, on the streets, in the courts, at the ballot box, and most severely, on the internet.,4665097&hl=en

    1. Frank Speaking

      they also wore gloves that had very fine lead powder sewn into the first three fingers facing out on the part of the finger from second joint to the knuckle…leather covered brass knuckles…and they were not adverse to using their side arms and shotguns.

  11. Tom Crowl

    I’ve received notice that I’m to be getting one of these OCC reviews!

    I get to be part of this theatrical performance and welcome the opportunity.

    I have few illusions about the process or the existing cast… (it’s important to remember that this is a political exercise upon which they will attempt to hang various legalistic rationalizations).

    But this is a movie without a completed script… though I’m sure the ‘producers’ have an outline in mind.

    However I suspect that at least a few of us actors drafted for performance may have different plotlines in mind.

    Stay tuned… it could be a bumpy ride.

  12. Susan the other

    Title issues are being piously ignored by the OCC. BUT that is the crux of the entire issue! Millions of clouded titles are the PROOF, staring the OCC in the face. Instead, the banks get to hire the very securitization firms they used in the first place. The same crowd that praised the use of MERS even without any new state or federal code to legitimize it as a title registry – those same “securitization firms” who were opining on how well it worked. Nevermind it was totally outside the law. And additionally, the whole process of securitization was bogus because most of the notes never made it into the trusts. They are definitely not gonna mention that little snafu. Nobody can take a look at illegal foreclosures without a review of both MERS and the PSAs. It would be/is meaningless. How can the OCC be so unaccountable?

  13. johnyboy

    I disagree, Everyone likes to be a victim. The banksters families and corporate elites work on naked corruption. Its just so big.

    The thing they hate the most is breaking up the banks. We need banks that depend on making loans and not speculation as there main money spinner tricking clients.

    If the banks were real banks, the problem is solved. There is your problem.

    If you want the economy to start creating jobs. We need banks making loans to credit worthy individuals. It wont happen if the banks dont give a rat’s ass above making loans.

    We sure have alot of cronyism and conspiracy to obstruct justice and obstruction of justice. Thats the big hole that is unresolved.

    My personal believe is Obama impeachs the congress. Takes all the republicans out and hangs them. The blue dog democrats get burned on the stake.

    Remmeber the famous quote, ” Religion stops the poor from murdering the rich”

    1. JamesW

      ” Everyone likes to be a victim.”

      Reminds me of a passage from the “autobiography” of Peter G. Peterson, where he whines that those nasty Liberty Lobby clowns were picking on him for being a “Rockefeller republican” — pretty strange as Peterson’s Peterson Institute (a k a Int’l Institute for Economics) was closely aligned with the John Birchers in wanting to abolish Social Security and Medicare, and so on….

  14. indio007

    The cease and desist order that the OCC gave to MERS is more proof positive that they are only interested in keeping the music playing.

    The most pernicious item is the agreement to keep all the players (banks,servicers,regulators) in the loop regarding MERS legal problems related to foreclosure.

    MERS neither admitted nor denied the following OCC finding.

    “MERS and MERSCORP engaged in unsafe or unsound practices that expose them and Examined Members to unacceptable operational, compliance, legal, and reputational risks.”

  15. Michael Olenick

    Great piece.

    Answering the question, is the OCC the most corrupt regulator, succinctly? Yes.

    Allonhill’s response to the NYT, that Murrayhill and Allonhill — founded and run by the same person — compete in different markets, is nonsensical. Of course they compete in different markets: one creates and monitors the foreclosure processes and the other is now auditing the activities of the first.

    Murrayhill (since acquired by Clayton) and Allonhill don’t compete; they compliment one another .. and that’s exactly the problem.

  16. ellen carey

    Elliot Spitzer, quoted in an article by the WP, sometime in 2007-8, stated it was the OCC that sued the States to prevent the AG’s from pusuing the banks on mortgage fraud and other related charges. They, the OCC, basically atopped the AG’s from doing their job in enforcing existing state law.

    The OCC plays of very big role in preventing any correction to the status quo banking business model of profit by fraud.

    1. JamesW

      Great point — it was the OCC invoking a recondite clause from the National Bank Act of 1863, giving them precedence over the states, along with Standard & Poor’s colluding with them and the Bush Administration, threatening to lower the bond ratings of those state and localities which pressed on against the banksters’ predatory lending practises.

      For a tremendous read on early raing agencies, read the original John Moody’s The Truth About Trusts (probably in the research section of major city libraries as it was published circa 1900); just ignore that “truth” part in the title.

    2. spooz

      So here is an example of how Ron Paul’s push for states rights would have served the greater good. I have no problem with having to cross state lines to get an abortion should I need it, if in exchange I get a more sound regulatory system, less dependent on federal funding and oversight. Pretty simplistic, but I just don’t see any point in pinning any hope on the two party system.

  17. robert

    I just looked up OCC – it is part of Tim Geithners Treasury – the same geithner that was head of the Fed NY while Bear and Lehman underwrote bad paper. This guy IS VERRRRRRY BAD NEWS and should be shot for treason. As an asid,e I bought a house in 2007 under the STRICT premise that the OCC was a key regulatory body (Fed as well) overseeing the “safety and soundness” of banking. That is what we were taught by all accredited institutions (CFA, grad school, etc). That is the main reason justifying my purchase. Now I am told they dont oversee anything and that my kids wont go to college because I owe Wells Fargo more than my house is worth. Are you kidding?

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