Janine Wedel - Unaccountable - How Elite Power Brokers Corrupt Our Finances, Freedom, and Security

Perhaps an even bigger failure of public accountability can be seen in the now-defunct Independent Foreclosure Review. After investigating more than a dozen mortgage servicers, including Bank of America, the government created the Independent Foreclosure Review, a vehicle through which offenders would review their files and offer some relief to homeowners drowning in mortgage debt. The banks were told to bring on government-approved “independent consultants”—Promontory and others—to help determine how much homeowners should be offered in relief. The Huffington Post described this as “one of the most ambitious and costly auditing projects in U.S. history.” 89

After a year, the banks had handed over $1.5 billion, by some estimates, but not to the homeowners . That money went to Promontory and the other firms, with Promontory alone earning nearly a billion. Promontory, in other words, reaped the lion’s share of the reward. Aside from the exorbitant amount spent on consultants and not on the homeowners they had been ordered to help, questions quickly arose: Were the consultants truly independent from the banks that were paying them?

ProPublica, the nonprofit investigative news service, found that the Independent Foreclosure Review might not be independent enough and that Promontory may have simply been rubber-stamping what the banks wanted it to rubber-stamp. A small army of contractors hired by Bank of America apparently had even taken the lead in the supposed review, not Promontory: 90ProPublica, which obtained some internal documents and e-mails from Bank of America, concluded: “As for Promontory’s role in making the final determination, a Bank of America employee said the widespread understanding among bank staff working on the review was that ‘it’s only a matter of double-checking.’” 91

Promontory, of course, strongly denied that it was a pawn of the bank; but months later, the Huffington Post also investigated and found that at least some contractors hired by Bank of America were doing the “substantive, evaluative review work,” with Promontory taking charge more fully only after its role had been criticized.

And those Bank of America contractors reportedly knew they were supposed to look the other way when they saw things in the documents that might offer homeowners justification for greater relief. As one employee remarked, “We knew what we were looking at. . . . But we were told under threat of losing our jobs to not report what we saw.” 92

In January 2013, the government pulled the plug on the program and substituted a $9.3 billion payout to be split among the more than four million homeowners eligible for relief under the program. 93

At a congressional hearing following the debacle, called “Outsourcing Accountability? Examining the Role of Independent Consultants,” Senator Sherrod Brown said this: 94

At the [Office of the Comptroller of the Currency] alone, nearly one-third of their legal actions since 2008 have required banks to hire an outside consultant to review their actions and to propose solutions. Because most consulting firms are private companies, there’s little transparency about their business model to either the public or to Congress, leaving us to wonder about financial incentives, leaving us to wonder about business relationships. Recently we’ve heard about consultants hired at regulators’ request to find and to fix illegal activity. In these few high-profile cases, they either missed serious problems or gave the banks a free pass.

When pressed by Brown, the head of the OCC said quite plainly: “[I]ndependent consultants have subject matter expertise that the bank does not.” 95Or the regulator itself, clearly.

The OCC is reportedly exploring ways to strengthen its standards when it comes to hiring private consultants like Promontory, to ensure that the firms chosen are both independent enough and up to the task. But a more fundamental problem is at work. As the Washington Post observes: 96

Accounting firms, like PricewaterhouseCoopers and Ernst & Young, with consulting practices adhere to professional standards set by the American Institute of Certified Public Accountants. Pure consulting shops, however, operate with no formal regulatory oversight.

Clearly, ambiguity of identity lends Promontory cover and aids escape from monitoring.

Meanwhile, affected homeowners began receiving $300 or $500 checks in the spring of 2013, some of which bounced. 97There’s even a Facebook page “liked” by more than a thousand people called Independent Foreclosure Review Victims. In June 2013, that page decided that the homeowners should all go in on Powerball (lottery) tickets, believing that they might have better luck winning the lottery than in winning timely relief from banks deemed by the government as bad actors.

Where is the sense of responsibility toward us, the public? At least one regulatory expert thinks the public was never part of the equation. Sheila Bair, former chair of the FDIC, made this withering assessment: “It [the Independent Foreclosure Review and the use of consulting firms] was designed to generate fees for consultants, not to help homeowners.” 98

The problems highlighted by Promontory are fundamental and familiar: it is neither fish nor fowl. It isn’t a registered lobbyist or an accounting firm or a government regulator. With no fixed identity, it can flex to suit the occasion. Ambiguity, blurred boundaries, and the enigma that is Promontory serve it and its clients’ purposes splendidly.

The public, not so much.

MIXED MANDATES

Contracting out, to varying degrees, has created a shadow government populated by ex-officials, richly compensated by taxpayer-supported contractors, and operating with far less oversight and far more conflicts. In short, built-in unaccountability is the essence of today’s company-state.

Still another path to the company-state doesn’t involve contracting out. It arises instead from the mixed mandate of the agency doing the regulating: part of a stated mission might be to regulate a certain industry, and yet another part might involve promoting the business of that very industry. With cross-purposes built into its mission and operations, ambiguity and deniability are the order of the day.

The U.S. Department of Agriculture and its promotion of the cheese industry, made all the more incongruous by First Lady Michelle Obama’s war on childhood obesity, star in one example. According to the New York Times , the Agriculture Department instituted Dairy Management Inc. in 1995 as a nonprofit “marketing creation” to promote the consumption of dairy products.

A few years later, Dairy Management Inc. strategized with the Domino’s Pizza chain to make a pizza line with forty percent more cheese; commissioned a study on consumers it dubbed “cheese snacking fanatics”; and heralded 2002 as the “Summer of Cheese,” resulting in the use of more than a hundred million pounds of extra cheese. 99

While Dairy Management looks and acts like an industry trade group, the fact that it is a project of the Agriculture Department means, as the Times reports, that Dairy Management’s 100

. . . annual budget . . . is largely financed by a government-mandated fee on the dairy industry. [T]he Agriculture Department . . . approves its marketing campaigns and major contracts and periodically reports to Congress on its work.

The Times adds that “Although by law the Secretary of Agriculture approves Dairy Management’s contracts and advertising campaigns, the organization . . . has become a full-blown company. . . .” 101Its longtime chief executive earns three times what the Agriculture Secretary earns. Not bad for a supposed nonprofit.

How does the ambiguity serve Dairy Management? In this case, the fact that the government supports the dairy industry (among other agricultural industries) helps insulate leadership from the charge that government obstructs private business. But when asked about Dairy Management’s role, the Agriculture Department was able to emphasize to the Times the looseness of its connection: 102