Politics will undermine regulation plan
Analysts and lawmakers are questioning the Obama administration's plan for re-regulating the financial sector. Commentator Thomas Frank says the plan fails to address the largest problem of all -- politics.
Thomas Frank, commentator and author of "What's the Matter with Kansas?" and "The Wrecking Crew" (us.macmillan.com)
More on Commentaries, America's Financial Crisis
TEXT OF STORY
Kai Ryssdal: We've been talking so far today about the structural changes the White House wants to make to the financial industry. Commentator Thomas Frank says it's time to start paying attention to the political part of the problem too.
THOMAS FRANK: Everyone agrees that the financial sector needs a regulatory overhaul in the aftermath of the recent disaster. But the reason our banking regulators napped through the housing crisis is not merely because of confusing jurisdictions. It's also because of the kind of people who were chosen for the job. They were asleep at the switch because industry wanted them to be sleep.
Now, the reason for that is simple: There are enormously powerful institutions in America that don't want to be regulated. Regulation cuts into their profits. And they have used the political process to sabotage, capture, defund, or undo the regulatory state since the very beginning.
The first regulatory agency, the Interstate Commerce Commission, was set up to regulate railroad freight rates way back in 1887. Immediately thereafter, a prominent railroad lawyer came to Washington as attorney general. His former boss asked him if he would kill off the hated Commission. His response, I think, should be on display in the National Archives next to the country's other great founding documents.
This is what he said: "The Commission is, or can be made, of great use to the railroads. It satisfies the popular clamor for a government supervision of the railroads, while at the same time that supervision is almost entirely nominal. The part of wisdom is not to destroy the Commission, but to utilize it."
And so it has been, on and off, ever since. A FDA run in the interests of Big Pharma. A Labor Department that apparently thinks its mission was to police workers' organizations. And, of course, banking regulators who posed for pictures with banking lobbyists, holding a chainsaw to a pile of regulations. Let WaMu do whatever they want. Smiles all around.
Look, the problem with bad regulators is a political one, not merely a structural one. And President Obama can't solve it by ignoring it. To counter industry's endless effort to undermine regulation we must have an informed and maybe even an angry public. Obama needs to tell us what happened and why, and prepare us to remain vigilant even after the crisis has passed.
RYSSDAL: Thomas Frank is a columnist for the Wall Street Journal.
Comments
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From Colorado Springs, CO, 10/08/2009
Mr. Goldfinch, I agree that profits are not good, at least in the instance that they derive from regulation as dexcribed here. Regulations which protect the industry from competitive pressure are unfortunately all to common. What is concerning is why persons like Mr. Frank see that regulatory capture occurs and says that the answer is more regulation. Isn't the definition of insanity to do the same thing and expect a different result?
07/07/2009
Mr Fleischer, it may be new to you, but profits are not always or inherently good. Government has a valid interest in recognising corporations and corporate profits, that of the nation's prosperity, but it also has a valid interest in regulating corporations in ways that may reduce profits, which you should recognise unless you prefer to be lied to vastly about the contents of your food or the safety of your drugs or suffer a wide variety of other dangers and indignities at the hands of lawless corporations -- for unregulated is a euphemism for that L-word.
From TX, 06/19/2009
I find it more than a little troubling that all of the responses so far appear to have missed Mr. Franks' thesis. The well-heeled few understand that all institutions can be easily manipulated. Other than their discretion and honor, the only check on that subverting power is intelligent, collective, sustained participation by the rest of us. Dogma, laws, and regulators can assist, but cannot replace, our responsibilities as a free people.
From Minneapolis, MN, 06/19/2009
I just wanted to thank MarketPlace for featuring Thomas Frank's commentary. It has been a very long time since I have heard something so cogent, relevant, and thoughtful. I look at regulation as necessary. Why you have referees officiating sports events; so everyone knows and obeys the rules.
From huntington beach, CA, 06/19/2009
Mr Frank, you are absolutely correct! The failure of our regulatory system was congress. They unraveled regulations and pressured regulators. Everyone should re-watch the PBS Frontline documentary called Dot Con. In it the SEC chairman tells how congress threatened to cut off SEC funding if he tried to implement some new regulations which would have prevented some of the dot com bubble abuses.
06/19/2009
Mr. Frank gives an interesting overview of the history of gov. reg, agencies but you sir miss the point. You seem to imply that profits are bad. You seem to imply that regulation is good. You are way off base. Anything that increases profits in a truly free market is a good thing. thats the way that the free market rewards a producer of a good or service for producing something with less expense , of better quality and more efficiently. The existence of the gov, agencies opens the door for crony capitalism and favoritism. The solution is to GET RID OF THE REGULATORY agencies COMPLETELY. Then companies would have to compete in a real free market. They would have to provide quality goods and services at competitive prices in order to voluntarily attract and retain customers. The gov should be there but only to enforce laws about fraud and violation of property right and violation of contracts.
Why on earth would someone on a business show, denigrate profits?
From Emeryville, CA, 06/18/2009
1) Googled and searched Wikiquote for the name of the quoted AG. Can Marketplace/ Mr Frank please name him?
2) Good grief! By my reckoning that was during Grover Cleveland's Presidency, as I recall it, the most progressive between Lincoln and TR. I shudder to think about the thoughts of an AG in one of the other temporally contigous Republican administrations.
From Emeryville, CA, 06/18/2009
1) Googled and searched Wikiquote for the name of the quoted AG. Can Marketplace/ Mr Frank please name him?
2) Good grief! By my reckoning that was during Grover Cleveland's Presidency, as I recall it, the most progressive between Lincoln and TR. I shudder to think about the thoughts of an AG in one of the other temporally contingous Republican administrations.
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