Re-visiting the conditions of 2008

Slashdot.org posted this item (below) the other day.

The Secret Goldman Sachs Tapes 172                        

Posted by Soulskillon Friday September 26, 2014 @03:19PM from the everything-you-suspected dept.

An anonymous reader writes: The radio program "This American Life" has published an extraordinary investigative report on how the U.S. government regulators in charge of keeping an eye on the banks actually interact with powerful financial institutions (podcast here). Financial journalist Michael Lewis describes the report thus: "The Fed failed to regulate the banks because it did not encourage its employees to ask questions, to speak their minds or to point out problems. Just the opposite: The Fed encourages its employees to keep their heads down, to obey their managers and to appease the banks. That is, bank regulators failed to do their jobs properly not because they lacked the tools but because they were discouraged from using them. The report quotes Fed employees saying things like, 'until I know what my boss thinks I don't want to tell you,' and 'no one feels individually accountable for financial crisis mistakes because management is through consensus.'"

Speaking for myself, I think it is absolutely right to expect Federal Regulators to do their job by using the tools available to them. However, I think it absolutely wrong to blame the Feds for the wrong-doing, itself, rather than the investment industry scalliwags.

I don't know that the setup in the banking business is similar to the setup in the aerospace business; but, in the aerospace business, there are certain company employees who have appointment from the Federal Aviation Administration (FAA) to keep an eye on things - to assure that things in their purview are done correctly (per Federal Aviation Regulations) and, more importantly, in a manner to assure the safety of the people flying their company's products.

For instance, as a Designated Engineering Representative - Structural for the FAA while employed by the Little Airplane Company, it was my responsibility to assure the structural integrity of the design of certain aircraft, the design of installations in those aircraft, and the design of any modifications and/or repairs made to those aircraft by the Little Airplane Company. Note that I did not assure that the airplane, installation, or modification/repair conformed to design - that fell to Quality Assurance (QA or Inspection).

It was QA's responsibility to inform the FAA if it was determined that aircraft, installation, or modification/repair did not conform to design - and what specific units were suspected to have been non-conforming. It was up to me to, working with company employees, determine what should be done about the non-conformance. I coordinated these findings with my FAA counterpart. It was up to the FAA to assure that "what we were going to do about the non-conformance" would protect the safety of the public. In other words, the FAA acted as a back-up system.

If the other company employees and I did our jobs correctly and well, the FAA could have been completely "asleep at the switch" (which, by the way, I never found them to be!) and the safety of the public would have been taken care of as long as aircraft owner/operators complied with Airworthiness Directives* (Service Letters, issued for less critical issues, I won't address). The most help that FAA could be to the Little Airplane Company and me was to, by force of law, require aircraft owners and operators to comply with Airworthiness Directives that they received requiring corrective action on their aircraft, installations, and modifications/repairs. Neither the Little Airplane Company nor I wielded that big stick!

If the people in the financial institutions had done their jobs correctly and well, the security of the investors should have been assured.

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* Airworthiness Directives include a time or service span within which compliance must be made - sometimes immediately grounding an aircraft, sometimes specifying the number of hours OR the number of ground-air-ground operation cycles by which compliance must be made.

Comments

[Cop Car]

"...Airworthiness Directives that they received requiring corrective action...."

Some would be surprised at how hard it is to get compliance with Airworthiness Directives by owners. The "fix" was at the expense of the Little Airplane Company (on some critical "fixes", special teams of mechanics were sent on-the-road to effect them at Little Airplane Company Service Centers around the world); but, of course, taking an aircraft out of service for "fixing" is not trivial. For those aircraft owned/operated outside of the US and its territories, we worked with foreign aviation certification agencies which was sometimes not as effective as working with the FAA in getting compliance with Airworthiness Directives.

[Hattie]

The technicalities of this are beyond me, but I do know that if aviation were regulated the way banks are, planes would be falling out of the sky every day.

[Cop Car]

Another way of thinking about it is: If banks were as trust-worthy as airplane manufacturers (at least in my day), we would be much better off financially! Of course, if we killed off our customers, it would have been bad for business!