As the financial crisis wreaked havoc on America's economy in October 2008, billionaire investor Warren Buffett made a wise observation about Fannie Mae and Freddie Mac — the two institutions at the center of the crash — and the regulatory agency that oversaw them at that time.
"It's really an incredible case study in regulation," Buffett said. "[T]he sole job of OFHEO was to watch over Fannie and Freddie. ... Two companies were all they had to regulate. OFHEO has over 200 employees now. They have a budget now that's $65 million a year, and all they have to do is look at two companies."
Of course, the catastrophic failure of the two tightly-regulated, government-sponsored enterprises is now the stuff of financial legend. Buffett's point stands as a nice antidote to the myth that tight government control can prevent most anything from going wrong. And as Fannie and Freddie were government enterprises, it also shows how government not only fails to prevent catastrophe, but often creates it or makes it possible.
On Tuesday, the Internal Revenue Service announced that about 100,000 taxpayers had had their personal data stolen from one of the agency's systems. As the Washington Examiner's Sarah Westwood reportedWednesday, this theft comes after years of warnings from the Treasury Department's inspector general about identity theft, which already costs the agency more than $5 billion each year, and which the agency remains incapable of preventing. No one expects the Internal Revenue Service — the supposedly wise guardian of millions of Americans' most private financial data — to be a leaky sieve for identity thieves to exploit. But it is.
Historically, fraudsters have exploited the tax-filing process by claiming the tax refunds of others. The IRS, ever quick to pounce taxpayers for innocent errors, is notoriously slow in dealing with such situations once they have been identified — according to the Government Accountability Office, it can take up to nine months in resolving them. And as the inspector general noted in 2012, the agency has no idea how many identity thieves exploit their processes to make bank.
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