I have not yet had time to read Judge
Wheeler’s opinion in a Court of Claims case in which he decided that the
Federal Reserve had exceeded its legal authority in obtaining an equity
interest in AIG through a trust but did not award any payment to Starr
International Company (effectively, as I understand it, Maurice Greenburg).
Nevertheless, I am disappointed with two articles I read about this case this morning:
one in the Washington Post and the
other in the New York Times.
The Washington Post
article
is by Steven Pearlstein. While the article appears on the “Wonkblog” online, it
is on page A3 of the print edition, i.e.,
it appears as a regular new article. Nevertheless, it is quite clear that Mr.
Pearlstein is not writing as an objective reporter. It is obvious that he believes
the judge’s decision is wrong. For example, he writes that the judge
substituted “his judgement for that of the treasury secretary and the
five-member Federal Reserve Board.” He also criticizes the judge for not noting
“a key point. Although the government, as bank regulator, could control the behavior
of the banks, without an ownership stake it would not have had control over an
unregulated global insurance holding company to which it had just made the
largest loan in recorded history.”
Pearlstein is wrong about the AIG’s regulatory status. AIG
was a thrift holding company, then subject to the
Office of Thrift Supervision (“OTS”) oversight and regulation. At the time
of the financial crisis, this may have been overlooked because OTS was for the
most part not taken that seriously as a regulator of thrift holding companies. Nevertheless,
those managing the crisis may have been able to use OTS to control AIG’s behavior
and other agencies could have lent staff to OTS with expertise. I do not know
the limits of OTS’s holding company authority, but Pearlstein should have
mentioned this possibility. . (In passing, I would note that some insurance
companies bought small thrifts in order to be regulated by OTS as a thrift holding
company. They did this in order to operate in the European Union without being
subject to holding company regulation by an EU regulator. The EU accepted this,
even though it was clear to many that OTS would not be doing much supervision.)
I am puzzled by Pearlstein’s exact status at the Washington Post. He was a regular
columnist for the Post, but left a
few years ago to become a professor at George Mason University, which is
located in the Virginia suburbs of Washington, DC. While at George Mason (it is
not clear whether he is still employed there, though he may be), he wrote occasional
columns for the Post. Recently, I
have seen news articles written by him, with a Washington Post email address after his name. If he is now writing
news articles as a Post employee or
contract worker, he and his editors should know the difference between writing
an opinion column and a news article. I should not be able to read a straight
news article about a court decision and know that the reporter disagrees with
it.
Andrew Ross Sorkin in today’s New York Times has an article
about the AIG decision where he ignores OTS, though what he writes is not
inaccurate: “But the Fed did not have regulatory oversight of A.I.G., which is
an insurance company, and therefore couldn’t maintain the same kind of control
it did over the banks.” Sorkin also should have mentioned OTS.
I am not as critical of Sorkin as I am of Pearlstein,
because the formatting of the article in the Times (jagged right margin) serves to indicate that this is an analytical
piece reflecting the author’s views, not a straight news article. The line
between what should go on the editorial pages of the Times and what analysis is appropriate for the news pages is very
fuzzy. I have criticized Sorkin in the past for advocacy
in an article he wrote about Antonio Weiss, which I thought should be better
placed as an op-ed. I do not think, though, that he crossed any lines in today’s
article, and attribute the OTS omission as an oversight. 
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