While most intelligent beings in the known universe are focusing their attention on the presidential election scheduled to take place in twelve days, the implications of the last national election are still cause for some discombobulation, at least to my eyes. By which I mean that without the change in power in Congress in 2006, we would not have the pleasure of witnessing Rep. Henry Waxman, D.-Calif., grandstanding to imposing effect at the outset of a House Committee on Oversight and Government Reform hearing looking into the role of federal regulators in perpetrating the financial crisis. Even though its been almost two years since Democrats took over the House and Senate, I still find myself dumbfounded at the change in, er, tone.
Our focus today is the actions and inaction of Federal regulators. For too long the prevailing attitude in Washington has been that the market always does best.
The federal reserve had the authority to stop the irresponsible lending practices that fueled the subprime mortgage market, but its longtime chairman, Alan Greenspan, rejected pleas that he intervene.
The SEC had authority to insist on tighter standards for credit rating agencies, but it did nothing, despite urgings from Congress.
The Treasury Department could have led the charge for responsible oversight of financial derivatives. Instead, it joined the opposition.
The list of regulatory mistakes and misjudgments is long, and the cost to taxpayers and our economy is staggering.
The SEC relaxed leverage standards on Wall Street. The Offices of Thrift Supervision and the Comptroller of the Currency preempted state efforts to protect homebuyers from predatory lending. And the Justice Department slashed its efforts to prosecute white-collar fraud.
Congress is not exempt from responsibility. We passed legislation in 2000 that exempted financial derivatives from regulation, and we took too long — until earlier this year — to pass legislation strengthening oversight of Fannie Mae and Freddie Mac.
Over and over again ideology trumped governance. Our regulators became enablers rather than the enforcers. Their trust in the wisdom of the markets was infinite. The mantra became government regulation is wrong. The market is infallible.
Today’s hearing is the fourth in a series led by Waxman. Previous torturees included Lehman Bros., AIG, and the credit ratings agencies. On the hot seat today: former Federal Reserve Chairman Alan Greenspan, former Treasury Secretary John Snow, and current SEC Chairman Christopher Cox. Stay tuned to How the World Works for regular updates throughout today mocking their lame attempts to defend themselves.