New federal agency OFR stirs 'Orwellian' fears

New federal agency OFR stirs 'Orwellian' fears



By James Rosen

Published April 19, 2012

Washington Capitol Building Money Cash

It is the most powerful federal agency you’ve never heard of -- and lawmakers from both parties on Thursday vowed to keep abreast of its astonishing growth and rein it in, if necessary.

The Office of Financial Research, or OFR, was created by the Dodd-Frank financial services overhaul that President Obama signed into law in July 2010. Technically housed under the Treasury Department, the agency has until now received its funding not from the Congress, but directly from the Federal Reserve.

Starting in July, the OFR Fiscal Year 2013 budget, estimated at $158 million, will be funded entirely through assessments -- also known as taxes -- on bank-holding firms with consolidated assets worth at least $50 billion.

But as became clear at Thursday’s hearing by the House Financial Services Subcommittee on Oversight and Investigations, a close reading of the law the president signed provides no limit on the growth of OFR’s budget, nor on the taxes the agency can impose on big banks to fund it.

“We’ll call you on it,” said Rep. Michael Capuano, D-Mass., warning what would happen if he and his colleagues see the agency growing too large.

Yet the Congress’ prospects for doing that are at present limited, as it holds no power of the purse over OFR. Detractors call it "the CIA of financial regulators,” and conjure "Orwellian" visions of "an omniscient Soviet-style central risk manager."

The agency’s official mission is to collect financial data and funnel it to another Dodd-Frank creation: the Financial Stability Oversight Council. These agencies were designed with the idea of preventing another systemic shock of Lehman Brothers magnitude.

Toward that end, OFR was invested with virtually unlimited subpoena power. It can compel just about any company in America to turn over to the federal government sensitive internal data, even proprietary information.

“We're only going to be collecting the data that we absolutely need, to fulfill our mission,” testified Michele Shannon, the new agency’s chief operating officer. “We're trying to fill data gaps. We're not going to be collecting for collection's sake. We're going to be making sure that only those people who absolutely need to have access to sensitive data have that access.”

But Republicans on the panel remained skeptical about the potential for abuses of power.

“You're able to tax corporations without any oversight by the U.S. Congress,” said Rep. Steve Pearce, R-New Mex. “Our Constitution is pretty clear, and so if we're a little scratchy on our side, just understand it's because you're conducting things that we feel like are completely unconstitutional.”

Rep. Bill Posey, R-Fla., questioned both the need for OFR to exist and its ability to protect adequately the sensitive data it will collect through its subpoena power.

“Your agency…seems to think it can outsmart Wall Street, if they have enough extra people and enough software, that they can see where the next problem is going to be,” Posey said at Thursday’s hearing. “But everyone with half a brain in this country saw the last problem way before it burst. We knew there was a subprime crisis; it was just a matter of how long it would be before it burst.”

Posey also noted that the computer systems of some national defense agencies have been hacked. “I wonder whether or not you'll be able to have a safer process than some of them did,” he said.

One of the panel’s most liberal members, Rep. Maxine Waters, D-Calif., normally alarmed by unbridled expansions of subpoena power, defended OFR, citing the experience of the Great Recession. “I hope that all my colleagues agree that having, consolidating, and understanding this complex financial data would be key to preventing another systemic risk,” she said.

Read more:
http://www.foxnews.com/politics/2012/04/19/new-federal-agency-ofr-stirs-orwellian-fears/#ixzz1sbZSihIj

Dodd-Frank's Office of Financial Research Is An Affront to Privacy




By Hester Peirce

Americans' aversion to being watched, tracked, and tagged is currently playing out in the raging debates over online privacy. While Americans fight to keep some things private, a new government agency with broad monitoring abilities over financial transactions is beginning to take shape. Consumers have the ability to walk away from online companies that want their information, but the Office of Financial Research offers no opt-outs. We should not let the agency's harmless-sounding mission - collecting information, conducting research, and analyzing data in the name of financial stability - fool us.

The OFR has very broad powers and very little accountability, which could cause it to compromise our financial privacy without enhancing our financial stability. The OFR will be able to use its nebulously defined powers and supercomputers to collect any information it wants. The OFR may decide that it needs to monitor the transfers that we make among bank accounts, the type of insurance we are buying, our ATM withdrawals, and the rate at which we are paying off our credit card debt and car loans. The only limit on this power is the self-restraint of the director, who has "sole discretion" over how to do his job. He has to consult with other regulators, but does not have to follow their advice.

The OFR shares many structural flaws with another powerful and unaccountable Dodd-Frank agency, the Bureau of Consumer Financial Protection (CFPB). Congress should take both agencies back to the drawing board for an overhaul that preserves their core missions, but makes them accountable to the American people.

As they are structured now, neither the OFR nor the CFPB has to answer to anyone, including the agencies within which they are housed. A single director, rather than a politically balanced board, heads both regulators. These directors serve longer terms than the President who appoints them - six years for the OFR and five years for the Bureau. Dodd-Frank limits the President's ability to remove the CFPB director, and does not give the President the power to remove the OFR director for any reason at all. Both agencies' budgets are free from oversight by Congressional appropriators and essentially within the sole discretion of the director. Neither is bound by the constraints of the usual government pay-scale. Both agencies have subpoena power. Finally, Dodd-Frank grants both agencies broad powers through ambiguous statutory wording that allows lots of room for creative interpretation.

What's worse, the OFR won't necessarily keep the information it collects close to the vest. Dodd-Frank specifically authorizes the agency to disseminate that information to, among others, "financial industry participants" and "the general public." The statute affords a small measure of protection to "business confidential information," but there is no prohibition on the sharing of personal information. Dodd-Frank does a better job of providing OFR employees with flexible work schedules and phased retirement than offering protection of the information the OFR collects.

The lack of attention being paid to this agency only makes it more likely that the OFR will take full advantage of its essentially unconstrained authority to the detriment of Americans' (and everyone else's too) financial privacy. There is nothing preventing an ambitious director from building it into an enormously powerful bureaucracy that monitors all of our financial transactions.

Even an OFR director who is temperate by nature will have an incentive to collect as much information as he can, lest later he be faulted for leaving the rock under which the next financial crisis is lurking unturned. Without meaningful statutory constraints, we can't take much comfort in the promise by the President's nominee to be Director of the OFR that he will be "extremely thoughtful and judicious" in deciding which data to collect and what to do with it. The OFR might soon know things about you that even Google does not know.