The OTS is the agency that regulates Savings & Loans.
For those who don't remember, the American Savings & Loan crisis of 1986-1991 was so severe that it cost the US over $160B in bailouts and other costs. It was a cause of years of US budget deficits and was a factor in the 1990-1991 recession. Millions of Americans lost their investments and/or their jobs. At the time it was just about the worst financial disaster imaginable.
We were told that the situation had been corrected so nothing like this could ever happen again. In the "Financial Institutions Reform, Recovery and Enforcement Act of 1989" several reforms were put in place. One was the creation of the OTS.
According to an article in the WaPo series (Banking Regulator Played Advocate Over Enforcer: Agency let lenders grow out of control, then fail):
* The OTS referred to the banks it regulated as "customers."
* It referred to subprime mortagages as "innovations."
* After a major bank failed in 2001 the OTS director admitted to congress that its regulation was too lax, but deregulation continued at an enhanced pace.
* Many of the OTS-regulated banks, such as Countrywide and Washington Mutual, are among the biggest bank failures in history.
The reason for the insanity at OTS? OTS is essentially partly privatized: it is funded by assessments on the banks it regulates, with the most of its budget coming directly from the banks. The banks were its customers. The entire problem was systemic, preventable, and foreseeable. And it wasn't like screwing up O-rings on the space shuttle: the Republican-dominated congress that forced all this deregulation on the country did it to enrich their donors.
They could have paid for regulation by increasing taxes and it could have been exactly the same cost to the banks as lower taxes plus regulatory fees, but the ideology dictates that taxes be low and services be paid by user fees. It's one of those subtle differences that spells the difference between a system that works and a system that fails, in this case spectacularly.
