Regulatory capture
Posner states that the public interest theory contains the assumption that the market is fragile, and that if left unchecked, it will tend to be unfair and inefficient, and government regulation is a costless and effective way to meet the needs of social justice and efficiency.
[citation needed] Regulatory capture theory has a specific meaning, that is, an experience statement that regulations are beneficial for producers in real life.
[19] On 21 October 1966, a tip containing spoil and tailings from Merthyr Vale Colliery slipped after a period of heavy rain, killing 116 children and 28 adults in the Welsh village of Aberfan.
After three weeks of rain, the tip became saturated and 140,000 cubic yards (110,000 m3) of spoil and tailings slipped down the side of the hill, engulfing Pantglas Junior School and a row of houses.
Iain McLean and Martin Johnes, in a 2000 study of the Aberfan disaster, observed that Her Majesty's Inspectorate of Mines went largely unchallenged by the tribunal, although the two consider that the organisation failed in their duty, falling in line with the interests of the National Coal Board whose activities they were supposed to be overseeing.
[23][24] The MMS then became the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE) and on October 1, 2010, the collection of mineral leases was split off from the agency and placed under the Department of the Interior as the Office of Natural Resources Revenue (ONRR).
[27] MMS had allowed BP and dozens of other companies to drill in the Gulf of Mexico without first attaining permits to assess threats to endangered species, as required by law.
[30] The National Oceanic and Atmospheric Administration (NOAA) issued strong warnings about the risks posed by such drilling and in a 2009 letter, accused MMS of understating the likelihood and potential consequences of a major spill in the Gulf of Mexico.
[citation needed] A report by the U.S. Department of Transportation found that FAA managers had allowed Southwest Airlines to fly 46 airplanes in 2006 and 2007 that were overdue for safety inspections, ignoring concerns raised by inspectors.
[33] The House Transportation and Infrastructure Committee investigated the matter after two FAA whistleblowers, inspectors Charalambe "Bobby" Boutris and Douglas E. Peters, contacted them.
[33][36] The bill also required the rotation of principal maintenance inspectors and stipulated that the word "customer" properly applies to the flying public, not those entities regulated by the FAA.
[46] Michael K. Powell, who served on the FCC for eight years and was chairman for four, was appointed president and chief executive officer of the National Cable & Telecommunications Association, a lobby group, effective April 25, 2011.
[48] In July 2019, congresswomen Elizabeth Warren and Pramila Jayapal issued a letter (citing a report by the Project On Government Oversight) showing concerns for the composition of the FCC's Communications Security, Reliability and Interoperability Council (CSRIC), questioning whether it could effectively serve the public interest if the majority of its members were representatives of the private sector.
They wrote that "having the FCC's policy-making process rely on input from individuals employed by, or affiliated with, the corporations that it is tasked with overseeing is the very definition of regulatory capture".
Part of the New York Fed's responsibilities is the regulation of Wall Street, but its president is selected by and reports to a board dominated by the chief executives of some of the banks it oversees.
[54] Geithner engineered the New York Fed's purchase of $30 billion of credit default swaps from American International Group (AIG), which it had sold to Goldman Sachs, Merrill Lynch, Deutsche Bank and Société Générale.
[55] When it became apparent this information would become public, a legal staffer at the New York Fed e-mailed colleagues to warn them, lamenting the difficulty of continuing to keep Congress in the dark.
[58] The ICC then failed to enforce Keys vs. Carolina Coach, attempting to justify segregation on a separate but equal basis for six years before being forced by the Department of Justice under then-Attorney General Robert F. Kennedy to act in response to the Freedom Riders protests of 1961.
Regulatory capture can be countered only by vigorous public scrutiny and Congressional oversight, but in the 32 years since Three Mile Island, interest in nuclear regulation has declined precipitously.
[62] The NRC has given a license to "every single reactor requesting one", according to Greenpeace USA nuclear policy analyst Jim Riccio to refer to the agency approval process as a "rubber stamp".
[71] A year-long Associated Press (AP) investigation showed that the NRC, working with the industry, has relaxed regulations so that ageing reactors can remain in operation.
[72][note 2] However, a paper by Stanford University economics professors John B. Taylor and Frank A. Wolak compared the financial services and nuclear industries.
[74] The United States Securities and Exchange Commission (SEC) has also been accused of acting in the interests of Wall Street banks and hedge funds and of dragging its feet or refusing to investigate cases or bring charges for fraud and insider trading.
[75] Financial analyst Harry Markopolos, who spent ten years trying to get the SEC to investigate Bernie Madoff, called the agency "nonfunctional, captive to the industry".
Mack was suspected of giving insider information to Arthur J. Samberg, head of Pequot Capital Management,[78] once one of the world's largest hedge funds.
Documents were destroyed for inquiries into Bernard Madoff, Goldman Sachs, Lehman Brothers, Citigroup, Bank of America and other major Wall Street firms that played key roles in the 2007–2008 financial crisis.
The situation came to a head in December 2012, when hedge fund Pershing Square Capital management announced a $1-billion short position against the company, and evidently expected the FTC to act, which, to date, it has not.
[92] The press has widely reported on why the FTC won't act, e.g. Forbes[93] though legal opinion has been very supportive in some quarters, such as William K. Black, who was instrumental in bringing thousands of criminal prosecutions in the S&L scandal, which was also rife with problems of regulatory capture.
[99] On February 2, 2011, CRTC chair Konrad von Finckenstein testified before the House of Commons Standing Committee on Industry, Science and Technology to defend the agency's decision.
Critic Steve Anderson said, "The CRTC's stubbornness in the face of a mass public outcry demonstrates the strength of the Big Telecom lobby's influence.
