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Schapiro's Promontory Move Latest Sign of Too Much Coziness

"There's no revolving door … I won't ever be going back to government."

Those were the words former Securities and Exchange Commission chairman Mary Schapiro used in an interview with the Wall Street Journal to explain her move to Promontory Financial Group, formally announced on Tuesday.

The notion that Schapiro would not be traveling through a revolving door between the private and public sectors might strike some observers as a bit of a stretch. Prior to joining the SEC, Schapiro worked at the Financial Industry Regulatory Authority—a privately owned self-regulatory organization from which she departed worth several million dollars.

Now, after a high-profile stint in the public sector, Schapiro is expected to return to the private side of the fence. Or perhaps it would be more apt to say she'll be straddling the fence at Promontory, which American Banker described in a long profile last month as a "shadow regulator” and "bank doctor” packed with former public servants. As that piece put it:

"With close to 400 employees and some 1,400 consulting engagements under its belt, Promontory Financial Group has built a shadow network between banks and regulators. The firm is a sort of ex-regulator omnibus, capable of forecasting, mimicking and occasionally even substituting for the financial industry's supervisors.”

There's no question that a former official like Schapiro brings a world of practical experience—and connections—to an operation like Promontory's. But her move is also likely to add to public cynicism over the fact that so many high-profile people flit between the public sector, where they burnish their resumes, and the private sector, where they amass wealth the average American can only dream about. Freshly minted Treasury Secretary Jack Lew is but one recent example. The SEC has long been a great way station for such activities.

What could be wrong with such behavior? Beyond the cynicism it creates is the risk that regulators and the regulated get way too cozy. Former Federal Deposit Insurance Corp. chairwoman Sheila Bair said this about the influence large banks have over lawmakers:

"The capture, a lot of people say, is bipartisan. And when I say capture, I'm talking about cognitive capture. It's not so much about corruption. It's just listening too much to large financial institutions and the people who represent them and not enough to the people out on Main Street who want this fixed."

When it comes to listening to financial institutions, Mary Schapiro clearly has a world of experience.

Neil Weinberg is the editor in chief of American Banker. The views expressed are his own.



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Comments (1)
This type of cronyism between regulators, former regulators, top consultants, and government watchdogs is what led to Enron, BCCI, and LTCM for those who remember. When you get regulators and those to be regulated so cozy together (i.e. sleeping in the same bed), you get a dysfunctional, unfair, and corrupt capital system. Is this really the change President Obama was talking about when he first ran for the presidency?

If journalists really desired to pull back the curtains, they would reveal corruption at the highest levels of government, consultancies, and banking industry not seen since the SEC and FDIC were first created. We have a new type of robber-barrons, too tightly connected with regulators to enable any effective policing or regulatory oversight to produce badly needed reforms.

The public and main street will continue to be fleeced and subject to inequities until the damage to society is so destructive, that it gives birth to a powerful full-fledged populist movement to reform Wall Street and Washington. The problem is that combined forces by bank lobbyists, law firms, bank consultants, legislators, and government regulators is preventing any independent close look by the media to expose this corruption. There has been no national media spotlight placed on this attack on "freedom of the press" other than the recent article by AB on Promontory and its close ties to regulators.

The US regulatory system is something more likely to be seen in Russia than in a fully functioning democracy. When will it ever stop? Today's WSJ shows former SEC chief Mary Schapiro joins Promontory Financial Group, which has built a reputation as a shadow regulator by hiring scores of former government officials. Promontory already has former SEC chairman Arthur Leavitt on its advisory board. It also has dozens of former senior and top officials from the Fed, OCC, SEC, Treasury and FDIC. It reportedly pays these folks upwards of $1.0 million in salaries compared to their previous government salaries that topped out at $175,000.

How Promontory can get a "contract" by the government whereby it reaped more than a billion dollars for its ill-managed mortgage review efforts at three banks is unimaginable. The OCC had to put a stop to the reviews after it realized that the mortgage reviews were a catastrophe in the making, reportedly given that each loan reviewed by Promontory was costing $10,000 a piece. Heck, the professional independent mortgage review teams charge only $450 per loan that is reviewed and graded to determine if it should be securitized by Wall Street.

What government regulatory agency does not have a hand in helping Promontory and team to win and prosper? Are there any top-flight regulators who are still left to protect the public? Even FDIC Chairman Marty Gruenberg's son is a manager at Promontory, responsible for heading up ill-fated mortgage review teams composed of some 250 employees. He had no relevant experience to supervise such mortgage reviewers but this did not stop Promontory. Could this be due to political connections are more important than knowledge and practical experience? Certainly appears so. It will be telling if there is enough uproar to cause Congress to hold hearings as to how Promontory was allowed to rip-off the three banks (and indirectly, harmed homeowners) to the tune of a billion or more.

Where are the investigative stories by the Washington Post and New York Times? Could the lack of stories be indicative of a "Woodward-gate" at play whereby Promontory can unduly influence the press, with some assistance from politicos? Looks to be the case, does it not? Otherwise, WaPo and the NYT would be all over this.
Posted by Dwihas3 | Wednesday, April 03 2013 at 3:30PM ET
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