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.