Gov’t Gridlock: Is America Paying the Price?
by Efin Advisor | October 24, 2008
Is fractured government, divided government and political gridlock responsible for America’s financial problems? Based on recent congressional testimony, the answer that is suggested is affirmative.
In the House Oversight Committee, chairman Henry Waxman, and chairman of the SEC, Christopher Cox, exchanged pointed views on congressional breakdown while Allen Greenspan, former Chair of the Federal Reserve, and Tom Davis, senior Republican on the House Oversight Committee, pointed fingers at political parties, complaining about their responsibility for the economic collapse.
Waxman assigned blame to other congressional committees that failed to act in time, and the former Republican controlled House of Representatives. The congressional watchdog asserted the need for tougher regulations on businesses and more oversight.
For instance, Waxman blamed the Federal Reserve for failing to curb aggressive lending practices, the SEC for allowing credit rating agencies to operate under lax standards and the Treasury for opposing ”responsible oversight” of financial derivatives.
Chairman Cox had a different take on the situation. Instead of assigning blame to a particular party, he assigned blame to politicians in general. Their constant fighting allows real problems to slip through the cracks. Responsibility in Congress was not correctly divided, he asserted..
Cox claimed that the organization of Congress itself is posing a major economic problem. The committees of Congress are fractured instead of unified, working separately on issues which require similar regulation and coordination. There is the banking and financial services committees, which regulate banking, insurance and securities, and the agriculture committees, which regulate futures. Cox believes these groups need to work together. ”This jurisdictional split threatens to forever stand in the way of rationalizing the regulation of these products and markets,” Mr Cox said.
Alan Greenspan sought to eschew personal responsibility by insisting that the policies of the Federal Reserve under his leadership had 40 years of evidence to back them up. He remarked that the past has shown that financial institutions will check themselves, even if other aspects of the economy do not. He claims that no one could have seen this collapse coming that far in advance.
Lastly, Republican law makers claimed that it was not a lack of market solutions that caused the current problem, but the “mish-mash of regulations and regulators, each with too narrow a view of increasingly integrated national and global markets.”
Echoes of “Government is the problem,” seemed to resonate in the halls of Congress, and yet effective government regulation could be America’s best choice going forward.
Typical government, always pointing the fingers at everyone else and never accepting responsibility for their own actions. We should stop worrying about who caused the problem and try and figure out what we should do to fix it. We have a problem, solutions need to be presented and we should be concentrating on how to fix and perfect our solutions to the problem.
What makes this worse is that there were obviously a lot of problems that caused the current crisis. No one person is to blame. Everyone is responsible: the government for not putting in proper checks, the SEC for not considering the problem extensively enough, the financial institutions for poor long term practices. Everyone is to blame. Get over it and lets fix it
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Jonah, you could not be more wrong. Determining who got us into this problem will help us figure out the solution to this mess. If the economy were a person, and the crisis were an illness, figuring out precisely what that illness is will help us figure out the best treatment. Unlike on “House,” we cannot keep guessing at what the problem is until we find the right cure. We need to find it now so that our economy isnt put in even more of a mess.
Furthermore, the blame is clearly with the lack of regulations passed by Congress and the SEC. They need to require companies to have better lending practices because they clearly affect everyone. Its not a matter of business decisions, its a matter of country.
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I agree with Caroline for parts, and disagree with others. I think the problem is too much regulation. Corporations are always watchful of ensuring they meet governmental regulations and spend so much money on compliance. When they do this, they lose sight of the real goal: making money. This crisis isnt a product of greed, its a product of mismanagement. Companies clearly want to make money, and when people default on loans and when people stop investing, they lose money. We need to get rid of these regulations so they can keep their eye on the ball.
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It seems to me that congress should create some sort of regulatory agency to oversee this crisis. The lawmakers could delegate authority and power to this agency who would be solely responsible for the economic crisis, and would not be able to pass the buck. We could have a panel of experts on the economy making the decisions about regulation/deregulation. Needless to say- our congress is not an expert on the economy, it would be very nice to have an agency with the express purpose of protecting our economy.
This solution would mirror the concerns of chairman cox about the stiff structure of congress. If a small and nimble group was given the power to protect the economy, we wouldn’t have to wait for all of the procedural mumbo-jumbo of the congress. Any body which could potentially filibuster a resolution aimed at helping those in need, cant be the best place to respond to economic crises.
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Jaques, all due respect, but the plan you propose would be a serious breach of the constitution. Anyone who has even read the document can tell you that the power to create rules is a legislative right- belonging solely to congress, and that enforcement of those rules is a power of the executive branch (the president). This agency that you talk about sounds like a tyrannical amalgamation of power that endangers the separation of powers. Our current system is structurally fine, it is just that many members of the government are not in favor of more regulations. We need to elect people who can responsibly regulate the markets from the positions of power that the constitution allows.
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Actually Richard, there is an entire body of law related to exactly this question, and Jaques you are right to say that congress is not an expert in every issue. For this reason, they have created several administrative agencies to deal with specific issues including the SEC. I am not sure that a NEW agency is needed to solve the problem, although congress would certainly be within their rights to create an agency. Current law states that they can give almost unlimited power to the agency as long as they establish basic operational guidelines, although these tend to be more procedural than policy-based. I believe that jurists refer to the “Mistretta” case when determining if an agency has been given an appropriate mandate. This case says that it is acceptable for congress to delegate power to an agency so long as it provides an “intelligible principle” for the agency’s operational guidelines. Just to reiterate, I don’t think it is the best idea, but it is certainly not illegal
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Posturing about a new agency aside (kudos on knowing about Mistretta) I think that the real question we need to answer here is: when will our leaders stop arguing and passing the buck, and do something? In my mind, even creating a new agency or task force, would just be passing the buck. I am waiting to see some real responsibility for actions or inactions from the government. I think that stepping up with the bailout was a good first step, but I am waiting for more. I have put so much faith in our leaders, I find it incredibly disheartening when they do nothing but bicker. I am glad that someone has posted about this problem on a significant forum like this, I only hope that this will cause our leaders to take more responsibility for their actions.
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Honestly, this is all Alan Greenspan’s fault. He and Clinton wanted to make sure all Americans had a home so they encouraged lending practices that were economically unfeasible. Not everyone can afford a home. By getting more people to buy, more people were lending and they were lending mortgages that would not get paid off. The bubble burst and we are seeing the affects of this. I don’t care what Greenspan says, he is definitely at fault and his lack of foresight and understanding that caused this mess
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Well OBVIOUSLY people in the government are going to be pointing fingers at each other. Politicians are election-seeking machines! And can you really fault them? Democracy is flawed insofar as politicians are forced to look out for themselves first and their country second. I’m sure these guys want to help America, but their hands are tied because they need to minimize the damage to their own political careers. I’d be doing the exact same thing if I were in their shoes– pointing fingers at others to scatter the blame and make it look like I had little to do with the problem. That’s the sad reality of politics, ladies and gentlemen, and complaining about it will do nothing.
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Rebecca, the problem is that there aren’t enough regulations. Companies wanting to just make money is what got us into this mess in the first place! I think the right thing to do is ban mortgage brokers from letting people sign bad mortgages. Then banks won’t have to deal with them and people won’t lose their homes anymore. Seems simple enough. The only reason we allow it to happen in the first place is because they’ve all got the government in their pockets.
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What right does Henry Waxman have to comment on housing issues? This is the same guy who banned federal funding on subways in his district in the 80’s so that poor people and minorities couldn’t easily get to more affluent communities. He said it was a “safety issue”… convenient that this safety issue just happened to allow his high-priced housing areas to keep the “bad” people out. His idea of property values is the broken windows theory gone haywire– keep the good and bad areas segregated as much as possible. Please forgive me if I don’t exactly trust him to solve housing issues when his frame of mind is like that.
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Forgive me Maya, but I’m not sure what Waxman’s actions in the ’80s have to do with assigning blame for the current housing crisis. This is the classic example of acting the speaker rather than attacking the argument. Just because Waxman may be a bad guy, that does not mean that his comments are incorrect. It is not as though he is the only person making these arguments either. The writer of this article probably just concentrated on Waxman because he is the chair of the committee, but others probably echoed the same beliefs.
In the future, concentrate on the content rather than the character. I do not know if he’s wrong, but I do know that’s what we should be talking about
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The best way to get rid of finger pointing is to get rid of the pointers. We need to set up a totally independent body to deal with many of our economic issues. The people in it should have tenure and be appointed through a lengthy process. Additionally, it should be required to have a certain number of people with a certain number of beliefs on it. It should be like the FEC.
If we do this, politicians, who only respond to political incentives, will not be able to make the decisions, but instead, top economists will be able to set the proper regulations. This would get us a board of really smart people, people who are experts in their field to run some matters that are not political in nature and shouldn’t be political. Issues like tax cuts are political, but monetary and regulatory policy really shouldn’t be. There is probably a correct action out there, we just need to get the bs out of the way.
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Woah there Anna-Lisa. What you are saying sounds a lot like a tyranny. Democracy, through all its flaws, is the best system we have, and we should keep the power in the hands of the people. If we give it away to another group then the people can never control the economy. I don’t trust economists so much as to just blindly give them power. Election incentives keep the politicians in tune with the people’s needs and economists are not in tune with these needs. Keep the people involved so the people want to stay involved and fight for change. Thats the only way a government can work
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Greenspan says no one could have seen this collapse coming? Then how do you explain the investors who correctly read the market and made tons of money by bailing out shortly before things collapsed? The fact that the “genius” Alan Greenspan is worse at reading the economy than some 20-something part-time investors means that either economics is a fallacious science (hardly) or that our politicians are painfully incompetent (probably). This entire thing is Greenspan’s fault, and anyone who says different doesn’t know how the economy works.
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With all due respect Kyle, i don’t think our current government is the paradigm of a working government. Maybe Anna Lisa is right and we do need more independent boards. Maybe we just need a sort of philosopher king or, in this case, economist king to rule us. People are sheep and do not think critically or act in their best interest. Others need to take charge to do what is best for the nation. Accountability just makes people not do smart actions because of popular misgivings. Strong powerful government will get us out of this situation. Hell, we should just nationalize the banks so we can give more loans out. That would get us out of this much faster
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I think that it is very irresponsible of our leaders to be pointing fingers at this point in time. With a very serious crisis on our hands, I think you will agree with me when I say that I do not care who broke the system, I do not care who’s fault it is (except maybe not to vote for them.) What I want to know is who is going to fix the problem. There are many economic experts who all should have some ideas about what the right course of action is to avert a more serious crisis than what we have now. The appropriate response to a crisis is to solve the problems first, and deal with the personal problems second.
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Has everyone lost their minds!!! Two people have suggested what is tantamount to fascism as a means to fix the economy and no one finds this all that odd. Aside from the fact that dictatorships tend to have terrible economies when they aren\’t building war machines (and no, Mussolini\’s trains did not actually run on time), there is also the freedom implication. We just need to give things time and democracy will have a tendency to solve. Things may get bad before they get better, but the night is always darkest before the dawn. Just ride it out people, we are a strong nation with the fundamental elements of a good economy. We will bounce back.
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I disagree- I feel that knowing who caused the problem is key to solving it. I do believe that solving the problem should be the first step, but I know that we must figure out what the cause of the problems are before we can solve them. This is at the heart of the finger pointing. Each person attributes the crisis to some policy (which they are presumably not a proponent of) and an actor which enacted the policies. If they can target the problem, they can find a solution. It is also important in an election year to know who is backing the policies that are good, and who is not, so that we can get political change- elect leaders who will make the right decisions and solve our crises.
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Why isn’t the tax payer vying for a piece of the tax payer funded pie? Because the tax payer has no real representation in Washington. If congress were to send this money to the tax payer/consumers you would quickly see this economy turn around. The tax/payer should be first on the list to receive tax payer funds. It is a no-brainer. (The next thing congress needs to do is obviously pass a huge education spending bill. What is going on right now in Washington makes the case of a need for better education a given.)
The problem with this world wide crisis is fixable.
This is a consumer driven recession and it’s going to be the consumer that will get us out of it.
All these other economist keep saying that there needs to be a price correction/discovery and let the market take care of it. But, they are all missing the simple fact that debt will not price correct easily. In fact it is quite difficult. For example, a basket of goods bought on CREDIT for $1000 last year will not correct in price if that same basket of goods cost $500 next year. The consumer who bought that basket of goods last year is still in debt for $1000 – plus interest.
I clearly see what the problem is with all the treasuries efforts to fix this economic catastrophe.
The money from the treasury is being allocated to non-productive companies. How are these companies going to make any money in the future with the middle class being dead in the water? And, how much do you think the GDP will soon decrease if you continue to throw money at non-productivity? You can give all the money you want to the banks, car manufacturers, etc., if they don’t have the costumers they are not going to be productive and therefore non-profitable. The consumer is stressed for cash and has no credit.
Look, the government returned money to the tax payer in the form of rebates earlier this year, but it was not enough. What the tax payer did with the money was either pay off debt or save the money, which is precisely what needs to be done first to save this economy. So, the tax rebate was exactly what this economy needed but is was hardly enough. So I ask you, what else can possibly be done to boost consumer spending that would be more effective than putting money directly into the tax payer hands? Nothing. The consumer needs a larger tax rebate. How about $250 Billion every quarter until the economy climbs out of this rut?
Once these billions of dollars trickles up into the economy the GDP growth will trump any hint of inflation. The deflationary spiral is going to spin out of control if the consumer is not saved.. Giving billions of dollars to these big companies in hope that it will “trickle down” to a consumer in a mountain of debt will never work. It’s classic “tickle down” economics that has not worked in the past without also helping the middle class tax payer to the same degree.
Returning more money to the tax payer/consumer would have kept a majority of people from taking money out of mutual funds, 401 K, bank deposits etc. Some consumers would have paid mortgages, bought cars, paid off credit cards, etc. Many new home buyers would have even gotten into the home market. The economy is sinking into a deep hole. Either the CONSUMERS get the BAIL-OUT or none of us will ever be able to see the light of day for a very long, long time.
My hope is that the Treasury Department is already planning to save the consumer in the same way aforementioned. If it is, my only concern to you is that this economic problem would have been a lot cheaper by correctly saving the consumer first.
Think of the invisible hand of consumer sovereignty. The consumer will guide this economy out of this recession with a little capital and some tax relief.
The only way to save this economy is from the bottom up, not from the top down.
The Government has wasted our tax money for too long. It’s called wasteful spending. Now the chickens have finally returned home to roost. We have been over taxed and it’s time to claim our money back, or this country, along with the rest of the world, will suffer a global depression. Every developed country needs to follow America’s lead in cutting taxes or they will be left behind.
It’s quite sad that these congressmen and senators we elect don’t have a clue-and the market recognizes that.
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