As the administration and Congress evaluate the best way to save the economy, let's hope they find new respect for regulatory oversight. For years, conservative politicians and business executive blamed the burden of over-regulation for stifling business expansion and profitability. Unfortunately, Washington listened and repealed many laws and regulations that purportedly hampered the free market and we are now facing the worst economic crisis since the Great Depression. We are now learning that lack of oversight and impotent regulations create a free me-get system in place of the free mar-ket system. With reduced regulatory restrictions and oversight, we ended up with reduced transparency, removal of reasonable caps on leverage, failure to insure independence of the rating agencies, and the inability of corporate owners to keep a lid on excessive executive compensation. Ironically, we now find that at least some regulations are essential tools, not burdens.
Our current crisis is also in part due to the ADD of our political and business leaders who failed to acknowledge the growing problems brought by deregulation and either lacked the imagination to see the impending train wreck or refused to rain on the profiteers' parade. The savings & loan debacle in the late 1980s illustrated the danger of deregulation, yet the ascendancy of deregulation continued. Enron spotlighted the risk of rating agencies shaping their ratings to get the fee, yet nothing was done to increase their objectivity. The collapse of the Long-Term Capital Management hedge fund in 1999 highlighted the danger of leverage and lack of transparency of the derivative market, yet our political and business leaders looked the other way and the derivative market and leverage ran amok. Shareholder impotence when it comes to controlling executive compensation has long been apparent and we are now on the verge of class warfare.
Wall Street excess and Washington negligence figure spectacularly in our current collapse. While our political leaders need to be careful to avoid burdensome regulations that only add costs to business without contributing to the sound working of our economy, it seems clear that at least balanced regulations that promotes transparency, eliminates conflicts of interest, and enhances ownership control are critical for the free market system to properly function. The election of Barack Obama as our next president offers hope that the era of greed and fraud will be put behind us. But the rest of us will not do our part if we do not participate and demand changes. We need to be more vigilant than we have been in the past in demanding effective leadership and vote with both our ballots and our wallets when we get anything less.