As banks gambled on the risky mortgages that helped create the worst financial crisis in generations, the US government handed out millions of dollars in bonuses to regulators at agencies that missed or ignored warning signs that the system was on the verge of a meltdown.
The bonuses, detailed in payroll data, are the latest evidence of the government’s false sense of security during the go-go days of the financial boom. Just as bank executives got bonuses despite taking on dangerous amounts of risk, regulators got taxpayer-funded bonuses despite missing or ignoring signs that the system was on the verge of a meltdown.
The bonuses, released in response to a Freedom of Information Act request, were part of a reward program little known outside the government. Some government regulators got tens of thousands of dollars in perks, boosting their salaries by almost 25 percent. Often, though, rewards amounted to just a few hundred dollars for employees who came up with good ideas.
During the 2003 to 2006 boom, the three agencies that supervise most US banks — the Federal Deposit Insurance Corp, the Office of Thrift Supervision (OTS) and the Office of the Comptroller of the Currency — gave out at least US$19 million in bonuses, records show.
Nearly all that money was spent recognizing “superior” performance. The largest share, more than US$8.4 million, went to financial examiners, those employees and managers who scrutinize internal bank documents and sound the first alarms. Analysts, auditors, economists and criminal investigators also got awards.
After the meltdown, the government’s internal investigators surveyed the wreckage of nearly 200 failed banks and repeatedly found that those regulators had not done enough.
“OTS did not react in a timely and forceful manner to certain repeated indications of problems,” the Treasury Department’s inspector-general said following the US$2.5 billion collapse of NetBank, the first major bank failure of the economic crisis.
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