Government Incompetence Scandal of the Day: OTS’ Darrel Dochow

I’m sure readers of econ blogs or papers will have heard the news by now of Office of Thrift Supervision official Darrel Dochow’s choice to allow IndyMac Bancorp to backdate a capital infusion a few months before it’s collapse that allowed IndyMac to maintain it’s “well capitalized” rating as opposed to “adequately capitalized”.

There have been a number of responses to the news on my favorite blogs.  Esteemed Fusion IQ CEO, Barry Ritholtz, voiced his anger and disgu(see the post title) at The Big Picture:

“How this idiot ever ended up in a position of responsibility in any regulatory agency again is beyond my comprehension. There are some who would point to all government regulation as the root cause, but crony capitalism and the disbelief in and and all regulations is what leads to putting someone so unsuitable in this position of authority.

Second, you have to wonder about just how frickin’ dumb the idiots who run the office of Thrift Supervision have been the past 8 years. These were the clowns that blamed Schumer for the collapse of Indy Mac, after backdating their capital levels.  As you will see below, if the OTS weren’t incompetant boobs, Indy Mac should have been shut down months before their run!”

You will find no disagreement from me on any of the points he makes in that caption.  But his rage seems a bit too focused upon Darrel Dochow’s spectacular malfeasance for my liking.  I am inclined to believe that anyone who possesses such sycophancy to the industry he is purportedly regulating must be showing a desired trait to survive and ascend the ranks at the OTS.

One of my favorite not-really-finance-blogger-but-sometimes, Bob Morris, at Polizeros had this to say:

“Darrel Dochow, Western regional director of the Office of Thrift Supervision allowed Indymac Bank to backdate $50 million transaction so as to falsify its health. It failed two months later. He’s been relieved of duties pending an investigation. The cover story, the pretend explanation, here is that he did this because he din’t want to lose control of the bank to the FDIC. But given Madoff, now this, the corruption in DC among federal financial regulators now seems pervasive.”

Mr. Morris’ suspicion of corrption within the OTS (or the financial regulation system in general) is certainly valid.  I am not sure if he means corruption in the traditional sense of greased palms and kickbacks, but I can certainly agree with the lesser claim that the regulators have allowed those they are to regulate and the interests of those to-be-regulated to dominate their own thinking (if they were not disposed towards that thinking from the start).

But Calculated Risk expands on the most interesting aspect of Bob Morris’ post and, I believe, brings the most important (and, seemingly, pervasive) aspect of the financial system’s failings to the fore:

“This was the culture at the OTS – anything to help the “customers”. The OTS competed with other regulators for “customers” (aka banks), and the OTS offered more “flexible” supervision – perhaps even backdating capital infusions!”

The picture CR chooses to end the post with says it all really.  Considering the role that ratings agencies have played in our recently blown bubble, and the similar forces at play that replaced sound analysis with aggressive ‘market expansion’, I shudder to think of the coming revelations of other major sectors in our financial (any non-financial) regulation system, made necessary but largely existing without scrutiny, that have traded their responsibilities for the public good for the goals of expansion and obsequious service to the institutions they were meant to criticize and monitor.

… and the cow goes moo