Former Regulators Find a Home With a Powerful Firm

Promontory Financial GroupThe consulting firm is filled with so many former bureaucrats and political insiders it has become known as Wall Street’s shadow regulator. Nearly two-thirds of its roughly 170 senior executives worked at the agencies that oversee the financial industry. Founder, Eugene A. Ludwig, is a former comptroller of the currency and a law school friend of Bill Clinton; latest hire, Mary Schapiro, ran Securities and Exchange Commission until late last year. Building off those connections, Promontory Financial Group has emerged as a major power broker in Washington, helping Wall Street navigate an onslaught of new rules and the regulatory scrutiny. Promontory accompanied Morgan Stanley when the bank urged regulators to rethink limits on risky trading, records show. It also joined Bank of America, Citigroup, other big banks at Treasury Department to discuss plans for dismantling failing financial firms. But Promontory and other consultants are now facing scrutiny in Congress, amid growing unease over their influence and their close ties to federal authorities. Senate Banking Committee is set to hold a hearing on Thursday to examine whether regulators inappropriately “outsource” oversight to consultants like Promontory, which are paid billions of dollars by banks. “This process raises troubling questions,” said Senator Sherrod Brown, the Ohio Democrat leading Senate hearing. “By shining a light on these practices, I hope we can prevent this kind of fragmented and frustrating effort in the future.” Promontory rejects the notion that it is beholden to Wall Street. The firm says that when it is hired by a bank, it reports to the board, not management. “I consider my client to be board members, who are keenly aware of their responsibilities and want an unvarnished and independent view,” said Peter Bass, a managing director at Promontory. Mr. Bass, once a State Department official, added that he was “in the business of telling inconvenient truths.” Over the last decade, Promontory has secured lucrative deals to clean up bank misdeeds like foreclosure abuses and money laundering, according to public records and interviews with regulators and executives. The firm has also advised the government of the United States and those of far-flung locales like Cameroon and Iceland. Behind the scenes, the firm acts as an advocate for banks, helping draft letters that challenge crucial rules and discussing reforms with the regulators. While Promontory has not registered as a lobbyist since 2009, the firm’s executives have met with regulators at least 10 times in the last two years on thorny issues like so-called Volcker Rule that curbs risky trading, according to an analysis of data from Sunlight Foundation, a nonprofit organization that tracks government disclosures. “Promontory does not seek to influence regulators and does not lobby,” the firm said. “This does not mean we never attend a government meeting with clients.” Some lawmakers and housing advocates question the quality of the consultants’ work. Promontory, was one of several firms that stumbled in the recent review of foreclosure abuses. In 2008, MF Global hired Promontory to improve its risk controls after a rogue trading blowup; 3 years later, the brokerage firm collapsed (…..)



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3 Responses to Former Regulators Find a Home With a Powerful Firm

  1. Professor Uziel Nogueira says:

    After reading this piece, I still don’t understand the criticism levied at China’s legislature as ‘rubber stamping’ decisions taken by the executive. What is the difference between laws approved in the Hall of the People and laws approved in the US Congress? laws in China are proposed by CCP while laws in the US are proposed by special lobbies. Promontory is the best example because deals with money.

  2. It’s tough to make sense of the economy these days. The latest jobs numbers show hiring is down. Taxes are up, austerity reigns in Washington and consumers are skittish. Yet the stock market is defying gravity, marching ever higher in spite of it all. Behind this seeming riddle lies a confluence of economic forces that is likely to continue to produce good times for the biggest American companies — and the stock market — even if growth, as expected, slows in the coming months. By pumping hundreds of billions of dollars a month into the global economy, central banks like the Federal Reserve and the Bank of Japan have encouraged investors to put their money into stocks and other riskier investments, increasing their prices. Bullish traders now count on a supportive Fed chairman, Ben S. Bernanke, much as their predecessors did in the 1990s when Alan Greenspan held that job. At the same time, American giants are benefiting from productivity gains and renewed growth in China and other overseas markets, allowing them to increase profits even if business at home remains lackluster. “Big companies have found a way not just to survive but to prosper despite the broader economy and all the uncertainty,” said Howard Silverblatt, a senior index analyst at Standard & Poor’s. “There’s a disconnect between them and the rest of the world.” Investors are also looking farther ahead, discounting what economists are calling a spring swoon, and focusing on prospects for healthier growth late this year and into 2014. After finally achieving what experts estimate was a healthy 3 percent annual growth rate in the first quarter of 2013, the American economy is expected to slow to half that pace in the next two quarters as higher payroll taxes and automatic government spending cuts begin to bite. Signs of that start-and-stop phenomenon have been mounting in recent weeks. After adding more than 200,000 jobs a month since November, the American economy created fewer than half that number in March, surprising some observers who thought the labor market had finally turned a corner. And on Friday, new data on retail sales showed spending fell 0.4 percent last month while consumer sentiment sank to its lowest since last summer, according to a new survey by Thomson Reuters and the University of Michigan. Despite that bearish data, the Dow Jones industrial average, made up of 30 of the biggest American companies, rose more than 2 percent last week to a record high, and stands within shouting distance of breaking the psychologically important 15,000 level. Indeed, while the outlook among small-business owners remains stuck near recession levels, Wall Street is again expecting the largest companies to report strong results when they announce first-quarter earnings in the coming weeks (…..)

  3. (NYT GOLDEN PICK) Professor Uziel Nogueira says: The golden years when what was good for GM was good for American middle class are long gone. Since then, corporations became truly transnational in nature and are only based in the US. The I&T corporations represent this new breed. Money is made in the fast growing emerging markets of Asia, Latin America and Africa. The trans-nationalization process of US corporations has produced few winners and many losers in the US. The winners are wealthy corporate and individual investors, bankers and hedge funds. The losers are manufacturing/office workers and the working/middle class unable to compete with foreign competition. What is the answer?

    The US business model — so successful in generating wealthy for a few — should be re-designed and reshaped to serve the needs and requirements of the US society as a whole in the 21st century. Otherwise, the gap between the haves and have nots will increase and the ongoing social class warfare escalates.


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