Big corporations still get away with it. A stunning new analysis by the Transactional Records Access Clearinghouse (TRAC) at Syracuse University shows how the IRS targets smaller corporations, while larger corporations that would yield more unpaid tax dollars go unaudited.

It’s worth reading the whole thing, but I share some highlights:

1. Among corporations with assets over $250 million, the IRS reduced the number of audits by 22 percent and the number of hours spent auditing by 33 percent between 2005 and 2009. In an era of high deficits and higher concern over corporate malfeasance, there are no excuses. Congress increased the number of full time auditors available for such work by 6 percent.

2. While the time spent auditing large corporations dropped a third, time spent auditing small and midsized corporations increased. Hours went up 30 percent for small and 14 percent for midsized tax audits.

Changes in IRS revenue agent
hours between FY 2005 and FY 2009

3. Unsurprisingly, audits of smaller corporations reveal less unpaid revenue for the work. Misreported tax dollars among the giants came to $9,354 per auditor hour, eight times higher than uncovered for the small and mid-size firms.

Like so many other things, the trend might be reversed by the Obama administration. But time is running out. Tax day presents yet another chance for the Obama team to show which side it’s on. This isn’t even about closing loopholes, just enforcing existing law. What are they waiting for?

I’ve blogged about my novel, 2044, here and here. 2044 is a future tale that starts where George Orwell’s 1984 left off. The problem in 2044 isn’t Big Brother and the leviathan government. The problem is Big Brother, Inc., and the all-powerful marketplace.

This post broadens the horizons. FireDogLake will feature 2044 on its book salon on Sunday.

If you weren’t familiar already, FireDogLake’s book salon is a terrific forum where authors discuss their work. It’s an on-line conversation and a chance for direct Q&A on important subjects. This Sunday’s forum will put me in the company of James Galbraith (about the economy), Tom Ricks (about Iraq) and Eric Boehlert (about blogging on the bus), who have all been on Firedog’s book salon. Of course, I’ll be talking about 2044, my new novel where the government doesn’t take over. It gets taken over.

The salon takes place every Sunday evening.
I’ll be on this Sunday, July 6 from 5:00 to 7:00 p.m. EDT. Right after we celebrate our independence.

Please join us. And ask me a question. A hard one.
It’s not necessary but of course it’s more than okay if you buy a book.

    PS: Chapter one is available on my web page.

Remember a while ago I wrote about my new novel, 2044? 2044 starts where George Orwell’s 1984 left off. The problem isn’t Big Brother and the leviathan government. The problem is Big Brother Inc., and the all-powerful marketplace.

The 2044 story is about water. Giant businesses control the water supply. An entrepreneur who figures out how to take salt out of seawater gets hammered.

Of course, I want you to read my novelized version of corporate domination. But reality is even scarier.

As Arianna Huffington puts it, the lobbyists are “on a roll.” What’s getting rolled? The change we need.

The first roll is over health care reform. The American people want health care reform, and more than three-quarters of them (76 percent) want a public plan option. But the insurance lobby doesn’t, and their lobbyists outnumber elected officials on Capitol Hill by more than three to one. The health care industry spent $267 million on lobbying and campaign contributions last year alone, and they aren’t spending money for nothing.

But oil and gas companies are racing to catch up. They increased spending on lobbying faster than any other industry, according to the Associated Press with data from the Center on Responsive Politics. It’s better for the old fuel industries to keep us hooked on dirty and finite fossil fuels than to explore new sources. And they’re paying to advance their interests. The industry spent $44.5 million lobbying Congress and federal agencies in the first three months of this year, on pace to shatter last year’s record, which itself was up 73 percent from the year before that.

And the bailout on Wall Street continues to consume billions, with virtually no accountability. We give the mega-banks money to make loans, and the banks use our money to buy other banks, reconstructing the house of cards that got us into this mess. The banks are “still the most powerful lobby on Capitol Hill,” lamented Senator Dick Durbin (D-Ill.).” And they frankly own the place.”

Goldman Sachs is set to make record bonus payouts this year. According to the London Guardian, “Staff at Goldman Sachs staff can look forward to the biggest bonus payouts in the firm’s 140-year history after a spectacular first half of the year, sparking concern that the big investment banks which survived the credit crunch will derail financial regulation reforms.”

Record bonus payouts! That’s the reward for (not quite) wrecking the global economy. Or in the words of the stranger watching TV in 2044, “They couldn’t say it if it wasn’t true.”

2044 is a warning. One of many. There’s a lot of work to do.

With workers all over the globe trudging through a catastrophic recession, it’s almost a given that governments will be battling the economic slide for a long time. Part of the effort to rebuild must involve new rules and regulations, but meaningful systems for economic accountability will be just as essential. If we do not hold the reckless executives who caused this crisis accountable for their actions, we risk regressing into similar turmoil in the near future.

We all know that times are tough, and almost all of us agree on the cause: A massive Wall Street risk-binge combined with an almost total failure of regulatory oversight. It’s surprising that few meaningful criminal charges have been filed amid what may very well be the worst financial crisis in history. Bernie Madoff will likely spend the rest of his life behind bars, but the subprime mortgage brokers who specialized in predatory loans–and the Wall Street banks that bought them–have yet to face consequences in court.

In The American Prospect, Tim Fernholz details the efforts of some state-level officials to investigate and punish white-collar crime at the nation’s largest financial firms. Much of the problem, Fernholz explains, results from an insane legal landscape at the federal level. Active deregulation of the financial sector, which began in the 1980s, is shielding the irresponsible risk-taking that caused the current crisis from legal penalties.

Despite these obstacles, Massachusetts Attorney General Martha Coakley and other key officials are going after some of the worst offenders, and have successfully taken action against some of the predatory profiteers, including subprime mortgage lender Fremont Investment & Loan and Wall Street icon Goldman Sachs. Coakley secured an injunction against Fremont to prevent the company from foreclosing on its borrowers, and Goldman agreed to modify $50 million in predatory mortgages.

But while Coakley’s investigations may bring some much-needed relief to troubled homeowners, they’re only part of the solution. If executives that approved their companies’ subprime policies go through this crisis unscathed, it will be difficult to deter similar behavior in the future.

Fremont had to be sold off last year at fire-sale prices to avoid bankruptcy, but Goldman has weathered the economic downturn better than many of its Wall Street brethren. Much of the company’s resiliency, however, stems from its ability to secure billions upon billions of dollars of bailout financing from the U.S. government. Over at AlterNet, Jim Hightower blasts Goldman for its multiple avenues of taxpayer support and emphasizes that only the notorious Troubled Asset Relief Program (TARP) comes with any strings attached whatsoever. While Congress attached some very modest restrictions on executive compensation to the TARP bailout, the FDIC and the Federal Reserve have provided big banks with trillions in loans and guarantees completely free of restrictions on how these perks are deployed.

Goldman received $10 billion under TARP, which the company hopes to repay soon to shrug off those CEO pay limits. When the government bailed out AIG, $12 billion of the funds were directed Goldman’s way. But perhaps the greatest and lowest-profile outrage comes in the form of the FDIC’s Temporary Liquidity Guarantee Program. Hightower notes that the FDIC has guaranteed $28 billion of Goldman’s recently issued corporate debt without imposing any restrictions on the Wall Street giant. In short, if Goldman were to default, the government would pay off its investors. This taxpayer guarantee has allowed Goldman and many of its banking peers to secure capital at exceptionally low rates, helping the firms survive during a time when any financing is hard to come by.

Even if Goldman is able to repay its TARP money, the company remains thoroughly dependent on taxpayer assistance. Once the TARP funds are paid off, Goldman will be free to pay its executives whatever it wants—even when that salary is subsidized by American tax dollars. That’s a pretty perverse definition of accountability.

Of course, botched bailouts are not unique to the financial sector. As John Nichols explains in The Nation, the terms of automaker Chrysler’s bankruptcy proceeding include plans to close down manufacturing plants across the Midwest, a strategy that undermines the entire economic justification for bailout: Sparing investors pain in order to save jobs.

“Tens of billions of taxpayer dollars are being poured into Chrysler and General Motors, ostensibly to ‘save’ the U.S. auto industry,” Nichols writes. “Yet, the companies have acknowledged that they plan to use the money to shutter factories, lay-off tens of thousands of factory workers and dramatically downsize dealership networks–at the cost of as many as 100,000 additional jobs.”

Still worse, it appears that both Chrysler executives and officials from the Obama administration mislead Congress on the implications of the bankruptcy. Nichols cites a letter from Rep. Dennis Kucinich, D-Ohio, in which the lawmaker says Congress was told there would be no permanent job losses a result of the Chrysler bankruptcy filing. The very next day, plant closings were announced in Michigan, Missouri, Wisconsin, and Ohio.

Even the economic stimulus package rewarded companies with a history of recklessness. In a piece for Salon, ProPublica journalists Michael Grabell and David Epstein reveal how contractors that have paid substantial fines for violating environmental regulations, federal safety rules and laws against racism have been able to score new business with the federal government. The worst offender? A contractor known as CACI International, which has been awarded three contracts worth $1.5 million under the stimulus package, despite ties to abuses at Abu Ghraib prison in Iraq.

CACI helped hire interrogators at Abu Ghraib, but an Army investigation found that the contractor ended up employing people with “little or no interrogator experience.” Abuses committed by CACI employees included dragging a handcuffed prisoner on the ground, placing a prisoner in an “unauthorized stress position,” dressing a prisoner in women’s underwear and lying to investigators about using dogs in interrogations, according to Grabell and Epstein.

If the government relies on criminals to build the recovery, the public is not going to get the results it needs. But the recovery is only part of the solution to the current economic crisis. If we fail to prosecute executives whose active scheming and criminal negligence brought down the global economy, we are inviting more of the same behavior in the future.

President Obama’s signing of a financial fraud crackdown bill this week has been largely overshadowed by the erroneous and irresponsible rantings of Vice President Dick Cheney and his right-wing fear-monger allies, and that’s unfortunate for two important reasons.

One, it’s a significant victory progressives should celebrate. In addition to giving the federal government new tools to detect and punish the kind of law-breaking and deception that is at the root of the economic crisis, it creates a “Financial Crisis Inquiry Commission” charged with examining “the causes, domestic and global, of the current financial and economic crisis in the United States.”

This commission is charged with playing the same role that the Senate commission led by Ferdinand Pecora in the 1930s did in exposing the wrongdoing and ethical breaches that precipitated the Great Depression. The 10 members of the commission will be chosen by the Senate and House leadership. It has a broad mandate to probe the operations of financial markets, regulatory agencies, compensation structures, tax policies—in short, all of the major factors that drove the actions that led to the economic crisis. It will have the power to subpoena witnesses (with the caveat that either the Democratic chairman and the Republican co-chairman agree or that a bipartisan majority of the commission agrees) and is charged with reporting wrongdoing that it uncovers to either the Justice Department or the appropriate state’s attorney general.

President Obama, in signing the bill, noted that the commission was important “so that we make sure a crisis like this never happens again.”

The other reason that this story should have gotten more attention is the signing statement that Obama attached to the bill. That statement says, in part:

Section 5(d) of the Act requires every department, agency, bureau, board, commission, office, independent establishment, or instrumentality of the United States to furnish to the Financial Crisis Inquiry Commission, a legislative entity, any information related to any Commission inquiry. As my Administration communicated to the Congress during the legislative process, the executive branch will construe this subsection of the bill not to abrogate any constitutional privilege.

This could be nothing more than the White House rattling sabers, but given the Bush administration’s record of using signing statements as bald-faced defiance of congressional intent, it behooves the movement to be on high alert. This is a potentially troubling signal that the administration reserves the right to obstruct the commission if it probes too deeply into the now-opaque decisions made by, for example, the Treasury Department in disbursing bailout money through the Troubled Asset Relief Program.

That is why the next critical decision that we will have to relentlessly push is the appointment of a tough-minded commission leader. That will be the job of Senate Majority Leader Harry Reid and House Speaker Nancy Pelosi, who was an active proponent of the Pecora Commission idea. Elizabeth Warren, the expertly probing chairman of the special congressional committee overseeing the Troubled Asset Relief Program, has exhibited the kind of leadership that this job needs.

What’s also clear is that we will have to watch the watchdog. The administration could hamstring this commission with constitutional privilege claims, and Republican appointees could cripple the commission to score political points and protect its Wall Street bankrollers. Finally, a media preoccupied with what it perceives to be sexier issues and weakened in its capacity to do its own investigative journalism could allow the commission’s work to fall into obscurity, thus robbing it of its power to drive fundamental reforms. We will have to be ready to push the commission to confront the tough questions; to call out the obstructionists, regardless of who they are; and to amplify the commission’s findings as we forge new and better rules for our economy.

Momentum toward a Pecora Commission-style inquest into the roots of the financial crisis got a boost from the Senate on Wednesday when it approved an amendment to a financial fraud bill that would authorize a select investigative committee.

If the bill passes with the amendment, which was approved by voice vote Wednesday night, the panel would “examine all causes, domestic and global, of the current financial and economic crisis in the United States.”

The amendment has some key elements of what we have been calling for. The committee would be comprised of 10 people chosen by both parties in the House and Senate, and would explicitly have the power to subpoena witnesses and collect sworn testimony. The committee would have a year to submit its first report to the Senate, and would have two years to submit a final report.

Sen. Kent Conrad,D. N.D., cosponsored the amendment with Sen. Johnny Isakson, R-Ga. The bill that the amendment was attached to, The Fraud Enforcement and Recovery Act, is being debated on the Senate floor today and could be voted on later today.

In the meantime, House Speaker Nancy Pelosi promised that she would flesh out her own call for a Pecora Commission by the end of this week. If it is at least as tough as the Senate bill, we will have an important foundation for driving the accountability and reform that we need.

Whew. Run your bank into the ground? Hey, it was our fault for not keeping a better eye on you. Here’s some cash. Since you’re rich guys, we trust you to do the right thing going forward, so we’re not going to bother you with a bunch of rules and oversight—but you promise to be good now, ‘K?

Also, you Bush guys and CIA operatives who thought torture was a fine idea? Yeah, we know we’ve signed a bunch of treaties that unequivocally require us to bring you up on charges; but we’re looking forward now, not back, so, y’no, whatever. It was pretty ballsy of a few of you to actually admit to committing war crimes in public. We know from “audacity” (it’s our middle name, in fact), and that was audacity with the gain turned up to 11. I mean, really: We’re impressed. Shocked and awed, even. But we’re not gonna hassle you about ancient history, because it’s so much more important that we keep our eyes firmly on the future. Just promise you won’t do it ever ever again, all right?

It’s interesting to watch the Democrats trying to work some life back into their long-neglected oversight muscle. Thirty years of conservative misrule have muddled Americans’ understanding of words like responsibility, accountability, discipline, and punishment to the point where nobody knows that they mean any more—and don’t seem to want to know, either. The social conservatives go on and on about the evils of postmodern morality and situational ethics; and on this score, I can’t quite summon myself to disagree. It’s been as though nobody on Planet Washington ever had a parent who was able to explain right from wrong, or demonstrate the role cause-and-effect plays in the ethical universe. It’s like a moral-gravity-free zone.

Stuff happens. Whatever.

I am neither an ethicist nor a philosopher. But I am a mother, and know a thing or two about disciplining children. (I’ve got a freshly grounded teenager pouting upstairs right now who would be delighted to tell you all about it. At length. With loud choruses of what a Mean Mommy I am. What he doesn’t know is: I take that tune as a clear sign I’ve done my job right.) And, as an observer of the differences between conservatives and liberals, I know that our attitudes toward discipline—whether it’s children or adults who are being called to account—is one of our core areas of disagreement.

Understanding that difference may explain something about how we got here.

For conservatives, the goal of discipline is to assert the power of external authority. In their worldview, most people aren’t capable of self-discipline. They can’t be trusted to behave unless there’s someone stronger in control who’s willing to scare them back into line when they misbehave. Don’t question the rules. Don’t defy authority. Just do what you’re told, and you’ll be fine. But cross that line, dammit, and there will be hell to pay.

In this view, the whole point of punishment is for greater beings (richer, whiter, older, male) to impress the extent of their authority upon lesser beings (poorer, darker, younger, female). I’m in control, I make the rules, and I’m the only one of us entitled to use force to get my way. Since emotional and/or physical domination is the goal, the punishments themselves often use some kind of emotional or physical violence to drive home that point. Spanking, humiliation, arrest, jail and torture all fill the bill quite nicely. I’m not interested in what you think. Do as I say, or I will be within my rights to do whatever it takes to make you behave.

Note, too, the hierarchical nature of this system. Those at the top of the heap enjoy the freedom that comes with never being held accountable by anyone. This exemption is implicit in conservative notions of “liberty,” and is considered an inalienable (if not divine) right of fathers, bosses, religious leaders, politicians, and anyone else on the right who holds power over others. The privilege of controlling others’ liberty, without enduring reciprocal constraints on your own, is at the heart of the true meaning of “freedom.”

Liberal parenting books, on the other hand, talk a lot about “logical and natural consequences.” Since liberals believe that most people are perfectly capable of making good moral choices without constant oversight from some outside authority, the goal of discipline is to strengthen the child’s internal decision-making skills in order to prepare him for adult self-governance.

Wherever possible, parents are encouraged to do this by letting misbehaving kids live with the natural consequences of their own bad choices. I’m not mad at you. I still love you. But you spent all your allowance on Tuesday, and now you get to be broke until Saturday—and I’d be lying to you if I let you think that the world works any other way. Since you two can’t figure out a peaceable way to share that toy, I’m going to take it away. Now that you’ve annoyed the bus driver to the point where the principal had to call me and put you off the bus for a week, you’re not going anywhere else for a while, either—including that big event this weekend you’ve been looking forward to for the past two months.

Ah…I’ve said too much. But you get the point: Conservative discipline is all about reinforcing power hierarchies and achieving control through “respect” (that is: fear), and liberal discipline is about teaching accountability and reinforcing the consequences of one’s own choices. And I think the muddle we’re hearing out of Washington these days is based on the seriously crossed wires between these two ideas of accountability. We’re all using the same words, but we’re also all hearing very different things.

Let’s be clear: Our system of laws was built entirely on the liberal model. The objective of a hearing, investigation, or trial is to dispassionately discover the facts of the matter, and make sure that the consequences are as natural and logical (read: fair) as possible. We’re not judging your inherent worth, just your actions. We are forbidden from using force, or punishing you just to prove to you that we can. We have a sacred obligation to ensure that the consequences are more or less proportional to the crime. A good chunk of our Bill of Rights is devoted to making sure the conservative notion of punishment—the arbitrary exercise of power for power’s sake—doesn’t ever become part of our system of justice.

Given that, we need to be very concerned that the Democrats, as the liberal party, have apparently completely forgotten how any of this is supposed to work. These days, when you broach the subject of holding someone accountable, they physically seize up. You can actually see the wave of terror gripping their bodies. Over the past 20 years, they’ve completely internalized the conservative frame that “accountability” can never be anything but an ugly partisan witch hunt designed mainly to take out enemies and bludgeon the other side with the full fury of state power. The idea that such moments might be (and, in fact, very often have been) something noble, fine, cleansing, and healthy for the country is almost beyond their comprehension. Pecora? Truman? Ervin? Church? That was a long time ago. We couldn’t possible do that sort of thing any more.

When you think about it, it’s not hard to see how this dangerously uniform bipartisan consensus against creating actual “accountability moments” came about. The bracing revelations of Watergate were followed by the Church investigations and Iran-Contra—all of which were liberal-style open inquiries that sought nothing more than to establish the truth and restore justice, but shook conservatives to the core. What the Democrats saw as doling out logical and natural consequences (break the law, go to jail—what’s so hard about this?) the conservatives experienced as being on the receiving end of an authoritarian-style punitive smackdown. They were powerful people, above punishment. This wasn’t ever supposed to happen to them. (How dare they challenge our authority?) Being who they were, they couldn’t help seeing it as anything other than pure payback, a raw demonstration of power. And the only appropriate response was to show the Democrats how very, very out of line they were—by disciplining them in the conservatives’ preferred way, with a show of unrepentant and overweening force.

Which, of course, led to the full frontal assault on Bill Clinton. They had to teach that boy who was boss, and get him back in line. The Democrats, in turn, were so stunned by the ferocity of the whole thing (there was nothing logical or natural about any of it) that they decided, en masse, to make sure it never happened again.

Unfortunately, they did this by giving up and swallowing the conservative frame whole. Yep, we get it now: “accountability” is only ever a synonym for “ugly brutal partisan persecution,” and we don’t want any part of it. Even more unfortunately, this abdication happened just in time for the arrival of George W. Bush—who, as his own parents might be the first to tell you, is the one president in history most likely to grab hold of that lack of oversight and run with it all the way to the end zone, thus clinching the all-time record for Most Fascist President.

I don’t have research on this, but I’m pretty sure that after eight years of the most lawless presidency in history, most of us had “restoring real accountability” fairly high up on the Hope and Change list when we cast our votes for Barack Obama. We were craving that even-handed, reasonable, cleansing moment—a season of transparency that would show us where we went wrong, let some air and light into the wounds, and allow us to begin to heal. He sounded for all the world like the kind of morally serious person who understands the difference between right and wrong—and between that kind of old-fashioned even-handed inquiry that simply finds what it finds and deals with miscreants without fear or favor, according to the demands of the law; and a partisan witch hunt that’s conducted for no higher purpose than terrorizing your opponents into submission with naked displays of unchecked power. He seemed like just the guy to do it.

So the last thing we expected was to hear him warbling that same terrified-Democrat line, starting within days of his inauguration. Fortunately, as outrage over the torture memos spreads, both the President and Congressional Democrats seem to finding their moral feet again. And not a moment too soon, either—because if they blow this one, it’s nothing short of the end of America as we know it.

When the administration says that “we’re not looking backward” and “we’re not out to assign blame or punish anyone,” what it’s really saying is that there no longer any real relationship between cause and effect in our government. The very idea of consequences has absolutely no meaning. If you have access to enough money and/or power, there is nothing you can say or do, no amount of money you can steal, no lie perfidious enough, no fraud brazen enough, no treason heinous enough, to get you so much as called up before a hearing to explain yourself.

And that’s a truly frightening development. A government that cannot fairly, honestly, transparently hold people to account—where, in fact, nobody can apparently even imagine that such a thing might be possible—is by definition, no longer a government of laws, because the law depends on a strong relationship between cause and effect. When our leaders have so thoroughly internalized the idea that the only possible use of justice is to use government force to seize political advantage or economic power over other people, we’ve pretty much irrevocably passed the point where we are now a government of men. When even liberals resign themselves to those medieval conservative ideas about justice as our new national norm, they have failed the country—and we have ceased to be America.

The truth about consequences is this: There can be no restoration and reconciliation until people are reassured that the outcome will actually matter, that the real story will be told, and that people will be held accountable for their choices. They are also the very definition of justice, and the necessary precondition of freedom. The most important change we need right now is leaders with a quickening sense of liberal discipline—including the self-discipline and moral courage to stop looking the other way.

Democratic Senator Chris Dodd is in deep trouble. According to Stuart Rothenberg, Dodd is the most vulnerable senator up for re-election in 2010 — despite the fact that he’s coasted to election easily in this deep blue state since his first Senate run in 1980.

In the deluge of financial news, one story that is emblematic of the colossal failure of the conservative approach to government has gotten too little attention: The Washington Post’s in-depth look Sunday at the Office of Thrift Supervision.

Like so many federal financial regulatory agencies under President Bush, it was viewed not as a guardian of the public interest but a Wall Street party-pooper that had to be reined in itself. So not only did the ideologues who took it over systematically starve it of funds, but they abashedly shifted its focus from being one of several vice cops on the beat to one of proprietors of the bordello. Regulated firms became “customers” that were ardently courted for the fees that they would pay to be regulated. (Yes, that’s right; the agency is funded by fees paid by the financial institutions, not by general tax revenues.)

The Post reports:

In the parade of regulators that missed signals or made decisions they came to regret on the road to the current financial crisis, the Office of Thrift Supervision stands out.

OTS is responsible for regulating thrifts, also known as savings and loans, which focus on mortgage lending. As the banks under OTS supervision expanded high-risk lending, the agency failed to rein in their destructive excesses despite clear evidence of mounting problems, according to banking officials and a review of financial documents.

Instead, OTS adopted an aggressively deregulatory stance toward the mortgage lenders it regulated. It allowed the reserves the banks held as a buffer against losses to dwindle to a historic low. When the housing market turned downward, the thrifts were left vulnerable. As borrowers defaulted on loans, the companies were unable to replace the money they had expected to collect.

… The agency championed the thrift industry’s growth during the housing boom and called programs that extended mortgages to previously unqualified borrowers as “innovations.” In 2004, the year that risky loans called option adjustable-rate mortgages took off, then-OTS director James Gilleran lauded the banks for their role in providing home loans. “Our goal is to allow thrifts to operate with a wide breadth of freedom from regulatory intrusion,” he said in a speech.

… Gilleran was an impassioned advocate of deregulation. He cut a quarter of the agency’s 1,200 employees between 2001 and 2004, even though the value of loans and other assets of the firms regulated by OTS increased by half over the same period. The result was a mismatch between a short-handed agency and a burgeoning thrift industry.

…He also reduced consumer protections. The other agencies that regulate banks review corporate health and compliance with consumer laws separately, which consumer advocates say helps ensure that each gets proper scrutiny from specialists. Gilleran merged the consumer exam into the financial exam. … At the time he headed the agency, he defended the consolidation of the exams, saying thrifts would be required to conduct “self-evaluations of their compliance with consumer laws.”

One of the firms that the Office of Thrift Supervision courted was Countrywide Financial—a mutually beneficial catch, because the OTS could pull in huge fees from Countrywide (fees from Countrywide would cover 5 percent of the agency’s budget) and Countrywide would end up answering to an agency that would be more compliant to its wishes than the Comprtoller of the Currency, which had been overseeing Countrywide’s operations before 2006.

Scott Polakoff, deputy director at the Office of Thrift Supervision, said that Countrywide was told that it shouldn’t expect that the agency would go easier on them. But, according to The Post,

Critics in government and industry said Countrywide’s shift from OCC oversight to that of OTS was evidence of a ‘competition in laxity’ among regulators eager to attract business. “Institutions should not be able to find a safe haven in one regulator from the reasonable concerns of another regulator,” said Karen Shaw Petrou of Federal Financial Analytics, referring to the Countrywide episode.

We’re now paying dearly for an ideology that says businesses should be treated as “customers” of a regulatory agency that are owed deference for every financial “innovation” they come up with, no matter how detrimental to the long-term health of the economy they happen to be. And while it may make sense for financial institutions to pay for the costs of having their operations monitored, those fees do not mean they own the agencies getting those fees. We the people do, and the leadership of those agencies have to be committed to work for the public interest, not as servants of Wall Street.

Ultimately, the financial regulatory structure needs to be reworked in accordance with today’s marketplace, just as today’s financial marketplace needs to be reshaped so that institutions like Countrywide and Washington Mutual can’t engage in practices that ultimately hold the American taxpayers hostage in fear of financial collapse. But while we wait for that reshaping, we can at least demand appointees within the existing structure who will not have contempt for the regulatory mission of the agencies they are chosen to lead.

Focused on the election? Might be a good idea to watch your pockets at the same time. Here’s a glance at what’s happening to the Wall Street bailout.

Hank Paulson is, no doubt, the most impressive of the Bush administration cabinet members (admittedly not a high bar). He made hundreds of millions on Wall Street, ascending to be the head of Goldman Sachs. Now, as Treasury secretary, he has brought in colleagues from Goldman to help manage the $700 billion bailout of troubled Wall Street banks, including Goldman, and… Wait one minute. Doesn’t something ring false here? Hank Paulson no doubt is honorable, but even he has conflicted interests.

When the bailout bill was before Congress, a number of outside groups, including the Campaign for America’s Future, pushed hard for the bailout to be managed by an independent agency, with an empowered board that included independent representatives of workers and consumers. Whatever the form of the bailout—Paulson’s initial demand for $700 billion left that undefined—it was vital that the transactions be accountable to more than once and future bankers.

And now we know why. After initially proposing to buy toxic securities from the banks at inevitably elevated prices, Paulson sensibly decided to follow the British model and inject capital directly into the major banks in exchange for equity. The first nine banks—Goldman Sachs, Morgan Stanley, Merrill Lynch, Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, Bank of New York Mellon and State Street Corporation—are getting $125 billion. This, plus a guarantee of new debt over the next three years, is designed to reassure other banks of their solvency, and hopefully get them to resume lending to one another and to businesses.

But Paulson didn’t exactly cut a great deal for taxpayers. He didn’t get the terms that Warren Buffett demanded, putting up a lot less cash, to invest in Goldman Sachs. And as a New York Times editorial complained, he made government a passive investor, leaving in place the boards and the directors that led their banks into crippling losses.

Paulson made no demands that the banks begin lending again instead of just hunkering down, girding for future losses. And remarkably—unlike the British—he didn’t demand that the banks stop paying out dividends to shareholders. Nor is it clear that bank regulators will perform the triage needed, merging and purging the banks of excess capacity.

That failure is likely to be very costly to taxpayers and very generous to the very folks who led us into this mess. In a New York Times op ed, David S. Scharfstein and Jeremy C. Stein show that dividends, if paid at current levels, will redirect more than $25 billion of the $125 billion to shareholders in the next year alone. One in five dollars will go out the door, and thus be unavailable to plug the large capital hole on the banks’ balance sheets.

Will those dividends be paid? Most likely, since the directors and officers of the nine banks are leading shareholders. Scharfstein and Stein estimate their personal take will amount to $250 million in the first year, nothing to sneeze at.

Worse, Paulson does nothing to curb the bloated compensation levels that characterized Wall Street in the days of debauch. Jonathan Weil of Bloomberg News shows the effect. Morgan Stanley, for example, gets $10 billion in taxpayer dollars. Yet this year it has racked up $10.7 billion in employee compensation—the vast majority not yet paid out—even as its stock market value plummeted $34.7 billion since the beginning of the company’s fiscal year. With taxpayers’ help, Morgan Stanley may well pay those bonuses.

Weil reports that the “five families of Wall Street”—Goldman, Morgan Stanley, Merrill Lynch, Lehman Brothers, and Bear Sterns—lost about $83 billion in stock market value from the start of the 2004 fiscal year. At the same time, they reported about $239 billion in employee compensation. For every dollar of shareholder value destroyed, the employees pocketed almost three. And that was before they got taxpayer money.

No one doubts that the bailout is needed to prop up the global economy. But under Paulson’s plan, we may end up, in Weil’s words, “throwing money at an industry that pays too many people more than they’re worth, to perform services the world has too much of already.”

What’s needed is an independent agency with summary powers and an independent board, to work with the Federal Deposit Insurance Corporation and other agencies to sort out the solvent banks from the broke, those that need to be saved from those that should fail. And, as in the Chrysler bailout, a suspension of dividends to shareholders until the government has been repaid.

Now maybe Paulson is making the best choices possible given the extent of the crisis. He’s got more information and is far better banker than the rest of us. But with $700 billion in taxpayers’ money at stake, surely it would be wise to have an independent board that can hold him accountable.