Who do the ‘regulators’ work for?


by David Malone

The nuclear and the financial industries are both supposed to be carefully regulated.  Their potential for causing systemic and widespread harm was supposed to be reflected in the fact that they both have not only ‘powerful’ national regulators but also international ones as well.  The shoe industry doesn’t have its own regulator with its own building.  Neither does the hat industry or pipe industry.

The nuclear and the financial industries have a veritable acronym soup of regulators and watchdogs, the FDIC, SEC, FED, BoE, ECB, Eurostat, FSA, IMF, World Bank, BIS, to name but a few.  The nuclear industry has the IAEA and the WHO at the international level plus in the US the NRC, in the UK the NRPB plus an equivalent in every nation that has nuclear power.  Every nation which has nuclear power has its own regulator and attendant experts.  And they are not small organizations without some serious power and access to publicity.  For example the IAEA’s budget for 2010 is €315 million.  While the budget of the SEC (Securities and Exchange Commission), America’s main financial watchdog, is $1 billion this year.  And what do we get for this serious support?

For our money, and by ‘our’ I mean, us assorted tax payers in our various countries, we got financial watchdogs and regulators who did nothing to halt the insanely unstable, supersize-me leveraging of financial firms in the build up to the financial crisis.  We got regulators who did nothing to regulate or even agitate for regulation of naked shorting  or Over the Counter Derivatives.  Who did not follow up on serious concerns about the state of the securities and derivatives markets from 2007 onwards even though very serious concerns and warnings were voiced by market insiders such as Janet Tavakoli of Structured Finance.  And who have done almost nothing so far to bring anybody to court for their role in the securitization and foreclosures fraud which has been rampant in America.

Remember AIG the US insurer that has required $185 billion in bail outs?  In 2009 the SEC ‘investigated AIG and, “investigators found that the company had flouted accounting rules by misusing reinsurance contracts to hid insurance losses, inflating its investment income and incorrectly using profits to boost the company’s value.”

Specifically they decided to get tough on Mr Greenberg who ran AIG for 37 years until the moment it blew up.  The SEC was clear that he was the controlling person and had been fully aware of the illegal transactions and accounting frauds.  In the end the SEC sold us out almost completely, “Mr Greenberg agreed to pay $15 million and Mr Smith $1.5 million to settle the accusations without admitting or denying wrongdoing.”

IN 2001 Forbes magazine put Mr Greenberg’s personal fortune at $3.9 billion.  What it was by 2009 only God and his accountants would really know.  He claimed to have lost $2 billion as a result of AIG’s collapse.  Even if I believed that, the fine would be chump change in comparison with the profits he personally made from the actions he undertook and oversaw.

The financial regulators in Iceland, the UK, Ireland, the US and everywhere else, were all asleep at the wheel having been wined and dined into stupefaction and offered jobs by those they were supposed to be regulating.

So what did those regulators do for us?  Remind me.

The nuclear industry’s regulators are no better.  The Japanese reactors that recently caught fire and suffered explosions and then vented radioactive gases and liquids into the surrounding countryside, were designed by US corporate giant GE back in the 1970s.  Operated in many countries, including the US for 30 years, you might hope they would be safe and sound.  However, some of GE’s own engineers resigned very publicly over grave concerns they had about the design and its safety.

Back in the 1970s a GE inspector called Mr Sugaoka was one of the GE inspectors for the Fukushima reactors.  He would climb inside them to inspect their integrity and safety when they were off-line.  Over the years he found and reported a number of serious safety problems.  He reported them to GE and so far as he could see nothing was done by either GE or TEPCO, the owner of the plant.  After he was laid off by GE and lost a suit for discrimination, in 2000 Mr Sugaoka sent his findings direct to the Japanese regulators, who then took action and a few people lost their jobs.  But since then TEPCO has had a litany of other leaks, safety breaches and rebukes none of which have ever resulted in any serious set backs for TEPCO, which have led to claims it has a  cosy relationship with the regulator and the political elite.  (A good summary of TEPCO, its reactors and events so far is here.  Please note, none of these are industry or ‘regulator’ sources.)

Two industries, both with clearly recognized power to cause devastation and suffering.  Both with huge amounts of money at their disposal and equally huge influence at the highest levels of government.  When we look at their actions, are we justified in asking who the regulators really work for?  Is it us, the people who pay them, or the industries who pay off our politicians?  What kind of regulation can we expect when, particularly among the financial regulators, most of the regulators are people who have been seconded from industry and who return to it?  Is this recruiting the best qualified and drawing on the expertise of indutry, or is it industry making sure it has its own people where they can make sure that nothing is done that they don’t approve of?  What does the evidence suggest?

What do the regulators actually do?  How do they see their job?  Is it to hold their industry to account for wrong doing?  Or is it to regulate what the public is told, what spin is put on events, and to help decide what is withheld as ‘confidential’?

I suggest regulators have been largely there to ‘regulate’ public opinion not corporate malfeasance.  I think, all too often, particularly at the top of the organization, where the move to lucrative jobs in industry is that much closer, ‘regulators’ see their job as helping to keep the industry and its relationship with the public running smoothly.  They are there to regulate what we are told, what we think, to re-assure us in times when the industry feels itself under attack and be the lubricant that keeps the wheels of the industry well greased.

What have the regulators done for us.  I think the evidence is clear – they have screwed us for a fee.


David Malone is the author of the book Debt Generation. You can read and listen to excerpts from his book here: http://www.debtgeneration.org/index.php