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This is the Definition of “Regulatory Capture”

42 | By Shah Gilani

I’ll make this short.

It’s game over.

The match that ended on Thursday wasn’t the final match in the series being played here on U.S. fields.

But it might as well have been.

The score was so lopsided, it reminded me of those long ago and far away matches where everybody cheered the action, not the players, because the deck was always heavily stacked and the outcomes almost always a foregone conclusion.

Those days, long ago, such lopsided matches were all the rage in Rome. And typically, when scores were posted, it would be something like Christians nothing, Lions twenty.

On Thursday, though the score didn’t reflect the intensity of the match, the outcome was just as lopsided.

It ended up Justice nothing, Goldman Sachs won (I mean one).

You see, there is no fire raging. It’s all just smoke on the water. That’s because the regulators – and oh yeah, that includes the Justice Department – have been thoroughly captured by the real lions of Wall Street. (Now, there’s an idea for a reality T.V. show.)

In case you were too busy watching those other matches over in London, here’s what just happened.

On Thursday, the Justice Department ended its fraud probe of Goldman Sachs.

It turns out that, after looking up Goldman’s skirt, they found that all that screwing going on up there was just part of the orgy that most Americans were reveling in. In other words, that whole mortgage screw-all, it was all between consenting adults.

But no one wants to admit that absolute power corrupts absolutely, or that there’s any such thing as “regulatory capture.” If you don’t know that term, it’s what we call it when a regulatory body, charged with acting in the public interest, is instead swept away and dominated by the interests of the sector it’s supposed to be regulating.

Because of that, and because the poor banks have been screwed enough for just doing their jobs lending us all money so cheaply, the Justice Department proved once and for all what hacks they are, with their statement on ending their probe.

They said, Sure, our job is prosecuting financial fraud, but “protecting the integrity of our banking system” is and will continue to be the department’s “top priority.”

The criminal investigation was led by the New York field office of the Federal Bureau of Investigation and included the U.S. Attorney’s Office for the Southern District of New York and the Special Inspector General for the Troubled Asset Relief Program.

They’re all captured.

It’s game over. They’ve won.

What am I going to write about now?

42 Responses to This is the Definition of “Regulatory Capture”

  1. Jay Curtis, author of THE CODE says:

    You asked “What to write about now?” Keep writing about the capture. Provide concrete and specific evidence of fraud, etc., ignored by Justice to refuse to prosecute. Keep putting the evidence in front of the world and ask why it doesn’t constitute criminal conduct under federal law. Don’t give up. Remember the results of the Dreyfus affair in France. “J’accuse” brought down the corrupt government officials. See if you can become another Émile Zola. We need more Zola’s with the courage to produce concrete evidence of the revolving door collusion between Wall Street and its regulators.

  2. Kevin Beck says:

    “…[p[rotecting the integrity of our banking system.”

    What an oxymoron! Our so-called banking system has zero integrity, as long as it’s linked to the government and a fiat currency.

    This has been one of my favorite posts, because it tells more in three minutes than Benny Bernanke can tell us in an afternoon.

    And it tells the truth more than the hack Bernanke.

  3. Veronica says:

    when I heard this yesterday my reaction was – ok so we know why – there is an election shortly and neither side wants to be the enemy of big money – they want the status-quo to return and all-is-fine-and-dandy with the world – let’s all pretend nothing happened and hope the little guy doesn’t notice that NOONE was punished for the disgusting crime of big banks over the past couple of years. After all this is an excellent time to announce this – everyone is watching the Olympic finals ! (I am watching every move however and I do NOT trust them at all !) – just get ready for phase 2 because – this will all happen again !

  4. Phil Steinschneider says:

    Amen, Mr. Gilani. Amen!

    Bring on the next inevitable crisis, since the black swan is now just around the corner finishing untangling himself from all that newly-printed paper.

    So don’t worry. You’ll have plenty more about which to write for years to come.

  5. Benton H Marder says:

    What did anyone expect? There’s a revolving door between Wall Street and Washington. Goldman Sachs is pretty much the sole custodian of the key to that revolving door. Until the country goes totally bust and massive regime change ensues, this is the way we live now, world without end. Amen. Smart people won’t try to play this game any more than a human being can out-trade the High-Frequency computer trading on the market. Smart people buy precious metals and take possession. They know that the system is going to crash and burn.

  6. Wikiderm says:

    How about mainstreaming Ted Butler’s decades-old story of the failure to limit naked short selling of silver contracts and the eventual capture of the regulators of the silver futures market?

  7. Joseph p bell says:

    The same with all other Constitutional laws . The Government is in DECLINE AND FALL OF THE AMERICAN EMPIRE .

  8. John says:

    Well just goes to show that US citizens got the government they voted for and if they want honest incumbents, they need to make the changes at the ballot box. Not only that but it’s time for changes in the appointment of representatives, which truly enables the electorate to hold them liable for their actions and makes it possible for them to be fired as soon as they transgress that trust. Dismissal should be without golden handshakes or any benefits and ban them from holding any further public office again.

  9. Philip Evan Hope says:

    If the government were to do anything about the bad guys now it would be like pulling a card from a house of cards…the whole structure (i.e. the entire US banking/financial system) would immediately and totally lose its structural integrity and collapse (like a house of cards). The ‘System”had already lost the other kind of integrity a long time ago..I postulate…which is why it is now on the verge of real collapse every day. These unfortunate government guys know it, and though it is really now down to aiding and abetting a terminal case to keep it gasping, there is no alternative. There was a point a long time ago when regulation was either mutated or perverted to the point where there was, and is, no going back..no operation of any sort that won’t, firstly and finally,kill the patient . Rome succumbed to the same dis-ease….greed, stupidity, and self-serving interests gradually destroying any logical regulation and common sense..this is almost a carbon copy.

  10. Anony Mole says:

    You could write about the fractured markets and how the SEC has allowed dozens and dozens of trading venues to blossom into existence yet every one is designed to court HFT.

    What about the NYSE’s Retail Liquidity Program and what it’s really designed to do and who will really take advantage of it.

    Or that we need a replacement Congress this 2012 so that they can shake the rotten apple SEC and CFTC trees. This so that regulation can be enacted that benefit investors above traders.

  11. Observer says:

    Goldman Sachs is the new face of the Bilderberger group, the financial mafia that rules the world. Called the “Vampire Squid” it now has its people in key places in Europe. Monti of Italy, Issing in the German Bundesbank, Southerland as PM of Ireland, Draghi of Preaident of the ECB and Chirstodoulou of Greece are all GS men.

  12. G Bailey says:

    Shah: Write about the Fed Gov’t going back to 1978-79 and 1990’s when Community act was born making institutions Make Loans to people not Qualified to pay loan back. Write about Bush ask for a little more regs and Barney Frank said “did not need any more”. He3ll, write about the Bloomberg report by Richard Teitelbaum Nov 29, 2011 how Sec Paulson Testified in approx June 2008 to Congress that all was good with Fannie and Freddie. Then he goes and meets with hedgfewfund managers (approx) 20 or so and tells them how bad it it with Fan & Fred. Then he goes back to congress and tells them how bad it really is. One would think with that inside info the Fund Mgr’s and congressman KNEW TO SELL and SHORT the Market in July 2008. The Public did not know the melt down was that drastic. I would have known to sell and short. Now obama admin is wanting to re-start giving out loans to people who can not pay back. The USA is fiscally and morally bankrupt and Greece like rioting is coming here SOON.

    • c brooks says:

      G Bailey: has it all wrong. There is no act by the federal government that forced banks to give bad loans… that is false. The Community Reinvestment Act was to stop redlining neighborhoods.
      JP Morgan came up with Credit Default Swaps to support Exxon Valdez disaster, and learned to use CDS for other major companies, when they ran out of Investment banking loans, they got Glass-Steagall repealed, which opened up commercial banking to Investment banks, credit cards, Mortgages, auto loans. With an unregulated insurance policy the CDS, and no money to back the policy Investment banks bought and resold loans, the higher the loan interest the better, the subprime market was born. Without the default swap there would not have been a subprime market. It had nothing to do with the Community Reinvestment Act, except that republican’s are trying to pass the buck, for the deregulation that caused the problem.

  13. spreadoption says:

    Game over is right. But is this just part of a deeper fundamental crisis in America that’s being covered up? And it’s being covered up because the truth is almost unimaginable.

    The truth is that not only are the Big Banks insolvent but the United States of America is insolvent. Meaning, there’s no way possible for them or us to pay off our debt, now or ever … if that truth were ever exposed. So, like the Europeans, we must keep kicking the can down the road because the truth is, there is no good solution to the problem.

    If that truth ever comes out, it’s China 1 USA 0.

    Austerity, as practiced by the Europeans and as recommended by both our political parties, will only make things worse. If 70% of the US economy depends on us spending to buy stuff, how does it help us recover if our government says, It’s every man for himself now? For 30 years our economic policy has been tilting to benefit the powerful moneyed few, at the expense of the rest of us. The richest get richer and the rest of us are abandoned to stumble along as best we can. How does that sustain an economy like ours in the long run? It can’t. When our education and healthcare systems are broken and in decline, how do we remain competitive in the long run and even in the near future.

    Comments like this always generate a lot of flack. And that’s part of our crisis, too. The powerful wealthy few have divided us against each other, as if we’re in an ideological verbal civil war. Hey, we’re all in the same boat here! Let’s knock off the fighting and let’s begin to figure out how to restore America’s greatness. And the first thing we need to understand is that self-imposed austerity is economic suicide. Our politicians, of both parties (!) are taking us the wrong way because, as Shah points out today, their first priority is to protect the banks and the richest few. But that’s no way to rebuild an economy!

    It’s fundamentally wrong-headed to shrink our government to the size of an insurance company with a military. But neither is it right to expand our government stupidly. What we need is a government that is right-sized for our common needs. Private capital will never have the incentive to take on projects that don’t return immediate profit. There are some things that only a government can take on. A military is one, but if we are to have a sustainable, competitive economy, so are things like infrastructure, education, healthcare for all of us, and basic research in medicine, science, and engineering. And justice.

    For 30 years we’ve focused on cutting taxes for major corporations and the wealthiest individuals, and cutting regulations that protect us, the people. Has it worked? Obviously not. Will it work in the future if we keep trying it? How? Tell us.

    We need to stop squabbling with each other; it’s often vicious and it’s stupid. We need to stop depending on our financial industry and our military to keep us competitive in the world. They can’t; we’re witnessing that. We need to recognize that our current crop of politicians has no clue; they’re just out for themselves. That means it’s up to us to come together, to stop fighting amongst ourselves, and to start getting smart about how to rebuild our nation. It’s now or never.

    • theRedXpress says:

      spreadoption,

      Are you working for wall street or the gov?

      I don;t want to pick much of your nice essay about “feel good” society with smart “adequate” government to guide……
      Just a couple of questions:
      – Will drinking more liquor help you with alcoholism or liver damage? It will definitely make you feel “good” for extra time.
      – If your home has been robbed, will you install extra security measures (may include self-defense weapons) or you will simply put a schedule on the door of when there is no one inside, so “unintended consequences” can be avoided?
      – why someone who puts extra efforts to learn, work, improve should “share” his/her earnings with someone who finds it attractive to live a life of a “discriminated” (by whatever means)?
      – do you seriously believe that someone who cannot create anything either via smarts or hard work and dedication has a better idea of what a community needs?

      Please, let’s have those simple cold-breakers answered.

      As far as the “verdict”, or the entire “justice” system…. Nothing to be surprised at. Double-standards as usual.

  14. H. Craig Bradley says:

    WAVING THE WHITE FLAG

    You might try writing about something positive now and then for a change. You can not stop the embedded trends when most voters and Americans stopped caring what is going on a long time ago. Truth is, many voters (45%) don’t vote and most taxpayers don’t care about “politics” (or anything they can not readily understand and relate to).

    Believe me, most suburban households are too “busy” to participate or inform themselves anyway. They don’t really want to bother. Its not a priority. So, who “captured” who? America wasn’t “captured”, it surrendered.

  15. ASHLEY GOODMAN says:

    Did you expect anything different in an election year with the Prez talking about taxing the rich for the benefit of the poor and being accused to being anti capitalist and foementing class warfare. The Prez needs Wall Street funding if he wants to re elected as well as big business contributing to his efforts. I figue that after QE 1 and 2 that Treasury deflated my dollars by 2/3rds. So who in the middle class is rich? Nobody, so $250,000.00 is now worth in purchasing power one third of what it was worth before 2008. I rreally hate the politicians and the bureaucrats who run this show..
    I will not participate in this charade.
    The Cynic

  16. ruperto nambio says:

    If the game is over, do you think no screwing had had happened with the investigations? Nothing for you to write about them, you said, but wait—one cannot cover the smoke forever and there the game is not over.

  17. Michael says:

    But, but, your Honor’s (Snort cough!) We’ve acted in the best interest of your market’s, we felt, as our Patriotic duties to save the dollar from the Communist (Terrorist) threat’s around us everywhere!!!! It’s us or the Yuan!! In dog we trust, all others pay cash!! Here here! Would you rather see the cash flow to your accounts STOP????

  18. Frank B. says:

    I did catch the news and have kept my eyes open for your response to it!

    UNBELIEVABLE!!!

    I guess now you will have to throw your efforts towards helping elect Ron Paul and abolish the fed and get us back on the GOLD standard!!

    I’m allowed to dream, I guess! Just tired of the nightmare our country is turning into!!

    Thanks Shah!

  19. douglas says:

    Hey Shah,

    It really sounds like the wild wild west, except the banks are the gunslingers that the sheriffs (justice dept.) are afraid of. So much for the 99 percent who control nothing, not even their government. And to think, they call this democracy. Adious America!

  20. Ed the Grocer says:

    First, it means that the banks are still needed for some reason. It means that the people near the top still think that they are part of a wealth plan. Or, the people at the very top are not ready to get rid of us or the timing is not ready yet.
    The New York / London group must be slightly confused. Russia will survive. Who knew that adding wide open greed to China would create a sort of functioning Asia. Even the Great Indian sub continent keeps staggering along! It leaves Africa and those darn Chinese keep popping up there. It just isn’t going all that well. As the sun slowly rises after another daring bank heist, opps! Financial recovery., the wonderful 1% will see that their paper is just like any other paper. It is only as good as the people behind it and the other five billion don’t really need the US dollar any more.

  21. Ross Sterritt says:

    Just like the Roman Empire, the Great America will continue to
    decline because of imoral government. Where are the States
    Attornies Generals pressing charges? Where are the people that
    commited fraud should they not be in jail? And how about those
    outrages deficits every tax year?
    Good bye America.

  22. David Aven says:

    Shah

    Please spare me the read. We all know why the Goldman Sacks organized crime family got off and it doesn’t take an insdier or anyone that has an IQ over 89 to figure out. The reason is that they are working for the organized crime family in Washington who is getting a cut from the Goldman Sacks crime family in New York. It’s that simple and that’s all you needed to say and you could have saved your readers a lot of time.

    The truth you do need to share with your readers is that anyone that is investing in this rigg market it totally nuts. The empire is falling, Rome is buring and there is no way to stop it no matter who gets elected. Capitalism as we have known it is dead and will die harder when the trillions of dollars of debt is liquidated in the near future. So why don’t you just stick with telling your readers the truth so they can at least try to protect themselves from the financial holocuast that is around the corner.

    David

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