Regulatory capture is alive and well

Keith Higgins worked to dissuade regulators from changing regulation on mortgage backed seurities during the financial crisis:

In letters to the Securities and Exchange Commission, Higgins argued that divulging more details about the mortgages and other financial products that go into such securities would only confuse investors. And it was investors, with “insufficient understanding and … commitment” to their investments, who had been the real cause of the crisis, he argued in a July 2008 letter.
Then, in May 2013, as the SEC was still hashing out the rule, Higgins was tapped to lead the very 500-person SEC division that was writing it. 

Risky assets earn more interest.  So what is happening in today's weak regulatory environment?


Thanks to the private-market loophole in the SEC’s Reg AB II, banks are selling a greater share of securitized debt than ever on private markets – largely off the radar of regulators and watchdogs.
Residential mortgage-backed securities tendered on the private market jumped to 78 percent of all new offerings last year from 46 percent in 2013 and just 10 percent in 2007, according to data obtained by Thomson Reuters. The privately sold share for commercial mortgage-backed securities jumped to 83 percent from 37 percent in 2013.  The markets for asset-backed securities today are a fraction of what they were in the run-up to the crisis. But they are showing strong signs of revival. What bothers some current and former regulators and industry watchers is that much of the regulatory framework that enabled the crisis remains in place.  “What’s playing out is exactly what we were worried about,” said Sheila Bair, former chairwoman of the Federal Deposit Insurance Corp. “Most everything is going into these private markets where regulations require little visibility of what’s happening.”
With their access to off-balance-sheet entities largely preserved, the banks continue to hold vast sums of securitized loans offshore and off their books. Together, JPMorgan Chase & Co, Bank of America Corp, Citigroup, Wells Fargo & Co, Goldman Sachs Group Inc and Morgan Stanley hold nearly $3.3 trillion of securitized loans in off-balance-sheet entities.

And the downside risk?  No worries.  These institutions are so large and so embedded in today's political environment,  taxpayers will bail them out.  (see here for link)