Wrecking, Wrecking, Wrecked

The great fear that hung over the business community in the 1970s was death by regulation, and the great goal of the conservative movement, as it rose to triumph in the 1980s, was to remove that threat--to keep OSHA, the EPA, and the FTC from choking off entrepreneurship with their infernal meddling in the marketplace.

Defunding those agencies was one way to stop the killer bureaucrats; another was to stuff them full of business-friendly personnel who would go easy on regulated. The signature conservative regulatory idea became "voluntary enforcement", because everyone now knew that efficient markets regulated themselves. Bad practices or tainted products drove away consumers; therefore firms had an incentive to behave, an incentive far more powerful than some top-down scheme in which big brother told them what to do.

Whether people ever truly believed this nonsense or not, its application over the years makes up the basic story of conservative governance as I tell it in my book, The Wrecking Crew. This is the philosophy by which conservatives gutted the EPA and the Labor Department, turned over the Interior Department and the FDA to the industries they were supposed to regulate, let the CEO of Enron advise the vice president on energy policy, and generally came to regard business, not the public, as government's "customer" (a word that crops up with disturbing frequency in conservative regulatory history).

But it is only now, as we watch the financial system crumble around us, that we can really see the devastating consequences of this folly. It turns out the Securities and Exchange Commission (SEC), which was responsible for regulating investment banks, did a significant part of its job through a voluntary program which firms could participate in or not as they saw fit. As the New York Times told the story on Saturday, this system had--of course--been pushed for by the investment banks themselves, who wanted it in order to avoid the stricter rules from European governments that they would otherwise have had to obey.

And now, as a consequence, the SEC has almost no industry left to regulate. Bear Stearns, Merrill Lynch, Lehman Brothers, Goldman Sachs, Morgan Stanley: All of them are gone or restructured. At business's urging, business was left up to its own devices; its own devices turned out to be precisely the things that our grandparents set up regulatory agencies to guard against: euphoria that leads to panic; perverse incentives that lead to fraud; boom that leads to bust.

As you watch the world crumble, try taking your Armageddon with this sprinkling of irony: Over the last three decades, business has got virtually everything it wanted, and its doomsday scenario from the 1970s has come true because of it. The regulators have indeed killed the regulated--not by intrusive meddling but by doing nothing, by taking a nap while the financial sector puffed up the bubble and blew itself to pieces.

Comments

[uuunderground]

It's all going to be OK, though: Bush has said he's confident that the bail-out package will stabilize things. ........ Bwahahhahh­ahahhahhah­ahahahahha­hhahahahha­hhahahahah

[wadenelson1]

The worse part is that when interest rates skyrocket to cover all of the borrowing that's been done during this Republican administration, the Democrat in office next will get the blame. Remember 21% mortgages and Jimmy Carter? Blame Reagan, not Carter.

[Gidster]

You mean Nixon/Ford. Blame them.
Reagan came after Carter.
Unless your blaming Carter, he left domestic issues handle themselves for the most part.

[pessimist]

Despite the realities of this deregulatory philosophy ---one of the truly devastating "contributions" of the Reagan revolution that bowled over Democrats unwilling to push back because the Repubs had so convincingly taken over the country's discourse and sanity--- will Americans continue to destroy their country, unravel from the reality of reality, and elect McSame? I fear seriously that they will. And the reason will be that once middle class older white voters in swing States ---whose interests could not be worse served by more Republican policies--- will not be able to pull the lever for a black man, no matter how measured, serious, thoughtful, and honest. I think there is no underestimating that visceral reality of racism. Oh how I wish it weren't so. But I remain, yours, the pessimist

[Dynamohum]

Yes we all know about this. But, maybe the situation is not as dark as you make it sound. I truly think their numbers will not measure the amount of your apprehension over it.

There are so many cultures, other than the white culture voting in this election, and they all might surprise you. Then throw in the number of whites that will vote democratic and I think it will lead to a win. Signed, the eternal optimist.

[JohnShank]

I believe this article to be pretty darned close to pitch perfect. I do, however, thing that regulation has to be fluid. In other words, there needs to be a nimbleness about regulation so that it doesn't get too constrictive or too loose. The goverment should be able to move quickly if needed. Having said that, I have a difficult time believing that the criminals in congress and Wall Street will EVER do what is in the best interest of the vast majority of Americans. It is unbelievable to me that these people will NEVER do the perp walk. Criminals and thieves. And we expect these people to bail us out? I'd laugh if I wasn't crying.

[plebeianswillrevolt]

I was not in favor of the financial bail out. And the DEMOCRATS were more than willing last week to hand Wall Street the keys to the vault. It is interesting and ironic that Republicans were the ones that actually kicked these thieves to the curb, not the Democrats.

What do you make of that?

[pessimist]

House Republicans aren't being principled, they are as ever cynically playing the populist card when they are at the very core of the philosophy that brought us this debacle. With their election prospects either sewn up because they are in blood red districts or knowing that they must sound like they are outraged, they protest knowing full well that there is no other choice than to bail out their friends, the Wall Streeters. Without conscience or principle both House Republicans and their Wall Street allies, who are willing to take the criticism from their political friends because they get the money anyway, will walk away re-elected and richer for having failed us all ---again and as usual.

[HyperInfluential]

I don't believe there's "no choice" but to immediately bail out the industries. Why can't the banks just renegotiate the mortgages themselves, so they don't default? I read something that said they could easily do this, they'd just have to lose some profit, and maybe not take such huge bonuses. Of course I'm no expert, but I know that many economists have come out against the bailout in its current form, and I'd like my Representatives to question those economists in a hearing I can watch! Haste makes waste!

[Gidster]

And you saw this when?
House Republicans were with House Democrats in opposing the original bailout draft. No one wanted it.
No one wants this one, but it is what it is. At least there will be oversight in this version.

Remember that it was a Republican controlled house and senate that passed the Republican authored bill that allowed these loopholes and the deregulation of these securities, so be careful when you throw the blame around, throw it in the right direction Plebe!

[okjoel]

I see conservative Republicans in the House as trying to save their jobs. .......not so much the country.

[HyperInfluential]

The Democrats are such very, very nice and kindhearted people that they don't want to hurt anyone's feelings, not even the feelings of wolves preying on the people. Pelosi and Reid thought to themselves, well nobody can get EVERYTHING they want, so let's surrender the help for homeowners in exchange for the Republicans agreeing to only steal HALF as much money at first, and take the other half later.

Democrats don't seem to realize that THEY are in power, and it starts at the top, with the leader of the party, Barack Obama. As their nominee for President, he is more than just a product to be sold, he is the one person in the world who can demand that his fellow Democrats stand up to this "more of the same" trickle down bailout. Perhaps this recent failure will give the house democrats pause, and maybe even encourage them to try the shocking and novel idea of actually doing what the PEOPLE, not the corporations, want. This country survived before corporate giants existed, and the people of this nation, with our great hearts and hard work ethic, will do just fine as long as someone gives us a fair shake.