Office of Thrift Supervision: Asshat Central

I am trying to figure out who is the biggest jerk in this story. It is a challenge, given the collection of utter clowns and ne’er-do-wells that run that office.

First, you have some moron who helped cost the taxpayers a hundred large ($100B) back in the 1980s. 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!

That the OTS is run by such half-wits and morons, that they blamed a US Senator — for having the temerity to ask how much money the criminally incompetant managers running Indy Mac were going to cost the taxpayer — rather than their own inadequate supervision. (BTW, the answer to Schumer’s question was about $9 billion).

Recall that when James Gilleran took over the Office of Thrift Supervision, he took a chainsaw to a stack of regulations to symbolize how his agency was going to “cut red tape” for thrifts (a.k.a. S&Ls), which were heavily involved in mortgage lending. The ideologue in him declared: “Our goal is to allow thrifts to operate with a wide breadth of freedom from regulatory intrusion,” Gilleran said in a 2004 speech.

Nice work.

This wasn’t mere malfeasance by Gilleran — as we have been repeatedly noting, it was nonfeasance — the intentional failure to perform a required legal duty or obligation.

As for the FBI, the division in charge of enforcement, after sounding the warning bell, subsequently made a “strategic alliance” in 2007 with the Mortgage Bankers Association (MBA) the trade association for (then) major industry players like IndyMac and Countrywide Financial. Imagine if the FBI division in charge of organized crime set up a joint venture with the Cosa Nostra. That’s what this was the equivalent of at the FBI.

It all comes back to the radical deregulatory philosophy we discussed Sunday:  Appoint cabinet level people who share that same belief system, who think government can never work — and voila! —  this is what you get.

Anyone who thinks that really bad behavior in the corporate world needs no proscribing should not be put in charge of Regulatory agencies.

Excerpts after the jump . . .


A senior bank regulator was removed from his job after being accused of helping mortgage lender IndyMac Bancorp alter its records so it appeared to be in better shape — weeks before it was seized by the government.

The Office of Thrift Supervision has reassigned its top West Coast official, Darrel Dochow, who was also a controversial figure in the regulatory lapses surrounding the savings-and-loan crisis of the late 1980s.

In a letter sent Monday to Sen. Charles Grassley, the senior Republican on the Senate Finance Committee, the Treasury Department’s inspector general wrote that the federal OTS allowed the bank to backdate records of capital infusions last spring. That leeway made IndyMac appear more solid than was actually the case, shortly before federal regulators seized the bank in July — at a cost of $8.9 billion to the government’s deposit-insurance fund.


IndyMac Bank’s regulator let the mortgage lender backdate a capital infusion to make it appear healthier than it was and escape regulatory restrictions two months before it failed, the Treasury Department’s watchdog said.

The Office of Thrift Supervision allowed IndyMac Bank to record $18 million of a $50 million infusion from its holding company on May 9 as first-quarter capital, Eric M. Thorson, the Treasury Department’s inspector general, wrote yesterday in a letter to U.S. Senator Charles Grassley of Iowa, the top Republican on the Senate Finance Committee. Thorson said similar backdating was discovered at other OTS-regulated lenders.

“It is unclear what information OTS had at the time and what its basis was for allowing the capital infusion to be recorded for the quarter ending March 31,” Thorson wrote. “A separate inquiry as to a motive for approving and recording this transaction in the manner it was recorded is still ongoing.”

The move came to light as part of a routine federal review of the July 11 failure of IndyMac, one of five OTS-regulated lenders to be shuttered this year. The OTS, a Treasury Department agency, also oversaw Washington Mutual Inc., whose September collapse was the biggest bank failure in U.S. history.


Two months before IndyMac Bancorp collapsed in July, at a cost of $8.9 billion to taxpayers, a top federal banking regulator allowed the bank to backdate a capital infusion and gloss over its deepening problems, the Treasury Department’s independent investigator said Monday.

In what industry analysts said was an example of the excessively cozy relations between high-flying subprime lenders and federal bank regulators, the Office of Thrift Supervision’s West Coast director allowed IndyMac’s parent company to backdate an $18 million contribution to preserve its status as a “well-capitalized” institution.

Investigators reported that similar officially approved backdating appears to have occurred at other financial institutions, though they did not name them.

IndyMac, based in Pasadena, Calif., was one of the nation’s biggest subprime mortgage lenders at the time. But analysts said it was already in trouble when the maneuver occurred, because of rising default rates and a big stockpile of subprime loans on its books that investors abruptly refused to buy.

The Office of Thrift Supervision’s western regional director, Darrel W. Dochow, allowed IndyMac Bank to receive $18 million from its parent company on May 9 but to book the money as having arrived on March 31, according to the Treasury Department’s inspector general, Eric M. Thorson. The backdated capital infusion allowed IndyMac to plug a hole that its auditors had belatedly found in the bank’s financial results for the first quarter. If IndyMac had not been able to plug that hole retroactively, its reserves would have slipped below the minimum level that regulators require for classifying banks as well capitalized.

Though the $18 million transaction was minuscule in comparison to IndyMac’s $32 billion in assets, it had tremendous significance. If IndyMac had lost its well-capitalized status it would not have been allowed to accept “brokered deposits” from other financial institutions. Brokered deposits are typically high-yielding certificates of deposit arranged by brokers and sold to savings and loans. IndyMac relied heavily on brokered deposits, which amounted to $6.8 billion or 37 percent of its total deposits last spring.


Irregularity Uncovered at IndyMac
NYT, December 22, 2008

Regulator Let IndyMac Backdate Infusion
WSJ, DECEMBER 23, 2008

Regulator Let IndyMac Backdate Capital, Watchdog Says
Alison Vekshin
Bloomberg, Dec. 23 2008


  1. Dec. 21 letter from Office of Thrift Supervision to Inspector General Eric Thorson
  2. Dec. 22 letter from Inspector General Eric Thorson to Sen. Grassley

Banking Regulator Played Advocate Over Enforcer
Binyamin Appelbaum and Ellen Nakashima
Washington Post, November 23, 2008;

FBI Press Release:
FBI, March 8, 2007

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