Robert G. Kaiser, veteran Washington Post reporter, has written an important chapter in the necessarily collective post mortem on the Great Recession: the saga of the Dodd-Frank regulatory legislation said to be designed to reign in the financial sector. Kaiser says Congress is broken and dramatizes it through the often farcical tale of how Dodd-Frank passed. Mark Twain has already covered the major varieties of farce on Capitol Hill. Kaiser, a member of the Washington insider club, is far kinder to the players.
Some key points:
The General Explanation. Kaiser’s tale makes me believe that the single most important explanation for the Great Recession as to the crucial role of Government is this:
The growing importance of TV in political campaigns beginning in the 1980s.
This point, I think, is Kaiser’s great contribution.
Pushed to the wall, people who have done valuable post mortems on the role of the financial sector in the drama of the Great Recession, such as Bethany McLean and Joe Nocera in All the Devils Are Here, single out the captive ratings agencies such as Moody’s which, to their own reward, rated subprime mortgages far too highly (though obviously McLean/Nocera and other key analysts of the Recession indict other players as well in a complex mendacity).
Kaiser, covering the post Recession political side, probably has discovered a more fundamental cause: Because of the cost of TV campaigning, politicians now must raise much more money for election campaigns than ever before. These costs, however, are little money to the financial sector, and that sector has contributed crucially to members from both parties to meet the rising costs of getting elected. In a terse, well-written chapter, Kaiser nicely gives the statistics and identifies the key people.
Should we be surprised by the consequences? The deregulation of the financial industry in the years leading up to the Recession, and the fact that Dodd-Frank is a “conservative” (as in less-than-severe) legislation to impose new regulations on that industry, speak to the problem. Elected members on Capitol Hill are not, through Dodd-Frank, biting the hand that feeds them; it is more that they are slapping that hand. There is plenty of showbiz here, much posturing and pious public declarations, on all sides to obscure the reality.
The cynical confidence of the financial sector that it can do just as it wills has been breathtaking. Kaiser leaves little doubt that prominent lobbyists from the financial sector probably believed just after the Recession exploded that despite the loosing of financial weapons of mass destruction and the confused but intense anger of voters, their sector would pretty much get off with no serious legislative consequences.
Soon, however, Capitol Hill and the financial industry came to understand that the latter would have to settle for at least a “conservative” consequence: Members of Congress, caught between keeping the peace with crucial money sources from the financial sector and appeasing angry voters, and themselves hugely complicit in the disastrous deregulation of the financial industry which propelled the Great Recession, could not expect to win elections, even given the abject ignorance of the public, by appearing to do little or nothing toward redress.
Reading Kaiser, and remembering my own research into the Recession, I came up with this interpretation of what “conservative” legislative consequences might specifically mean: (i) pursuing mostly civil, not criminal, government prosecutions of people and institutions in the financial sector alleged to have broken rules in the runaway risk-taking which led to the Crash and with very affordable fines; (ii) making sure the many rules for implementing Dodd-Frank–the specific new directions that control how the newly established regulatory initiatives actually will be carried out on the ground–are parceled out to, and written by, the jealous and turf-protecting agencies from SEC to CFTC, the regulatory “community,” invoking the divide-and-conquor and bureaucratic-ineptitude principles of offense and defense to reassure the financial sector that no matter how tough the provisions of Dodd-Frank sound, there will be considerable damage-limitation in the actual follow-through owing to the certain in-fighting; (iii) being stingy in approving funding needed to allow the previously lax regulatory “community” in fact to carry out the new regulations; (iv) weakening consumer protection initiatives by avoiding creation of a new stand-alone agency to carry out the protective measures; (v) talking about, but somehow making little progress on, forcing banks to take on less leverage (e.g., by raising capital-retention requirements); (vi) talking about, but somehow making little progress on, forcing transparency in derivatives trading; (vii) talking about, but somehow making little progress on, “the Volcker Rule,” which would force separation of the depository and investment sides of the “megabanks”; (viii) talking about, but somehow never having enough data in hand (in this case at the CFTC) to make progress on, curtailing the massive speculation in commodities futures by denizens of the financial sector which has substantially raised prices of gas at the pump (and the price of other commodities).
In some of these outcomes, the Executive Branch has been highly complicit. And in some of them, it seems mandatory to observe, you see virtually invisible extensions of TARP, for example, in the failure to impose constraints on banks’ hugely profitable rampant speculation in commodities futures (and thereby also prolonging price-gouging at the pump). This stuff is going on in plain sight, but hardly any voters can connect the dots between failure to constrain and a huge bonus to the financial sector. It’s something like Poe’s story, “The Purloined Letter.” (We’ll talk more about that below.)
At the moment, it remains unclear just how much the detailed rules of Dodd-Frank, many still being specified or yet to be written, will be watered down. Of course, a big effort with large water hoses is underway.
The Pols. The recently retired Barney Frank, probably the smartest and most financially savvy member on Capitol Hill in this period, tells Kaiser that out of the 535 members–435 in the House and 100 in the Senate–the number with acceptable understanding of the financial dynamics of the Recession probably was that of a major league baseball team–25. Frank says he himself needed to take his own crash course on the Crash and that he “worked hard.” He also reports that on the eve of the first congressional recess after TARP, a line of congressional members stretched down the hallway outside his office, each member waiting for (i) a tutorial from Frank on the basics of the Recession and TARP and (ii) advice on how to pitch same in the member’s district or state.
Chris Dodd displayed a strong political sense of legislative dynamics in helping to push Dodd-Frank through.
Some congressional staff were crucial.
Mitch McConnell…the worst of the worst. From Kaiser’s book, you cannot imagine that McConnell, with his tight control over Republican senators, prioritized anything, including efforts to relieve the massive public pain from the Recession, ahead of the unseating of Obama and finding more money on Wall Street to return the Republicans to a majority on the Hill.
The Media. Kaiser is himself in the media. He goes through some faint motions of criticism of the media on the Recession, but he says little about the huge reality of today’s media news programming (i.e., “news”): there is no longer a distinction between news and pop entertainment. Barring The New York Times, The New York Review of Books and all-too-few others, the media coverage of the Recession was almost nonexistent and ever trivial, except for the finance sector’s cheerleaders such as The Wall Street Journal and CNBC in which the analysis was at best mischievous. Those of us who took our own crash courses on the dynamics of the Great Recession know this trend all too well. Much could be said about the growing problem, but perhaps the simplest point to make is that basically the media is largely and increasingly devoted to the business of consumers, a business antithetical to explaining financial crises or indeed to saying much at all about serious news. Millions are spent on hiring programming consultants whose only intent is to “push the buttons” of consumer-viewers to capture the ratings (which largely means to keep the viewers’ eyes and ears there during commercials and never to offend any powers that be who could punish the media). Probably the most dramatic changes going on in media “news” programing today are (i) the displacement of “If it bleeds, it leads” with “If it weeps, it keeps”; and (ii) the beginnings of traditional media news actually featuring as major stories whatever “viral” nonsense is occupying Tweetland at the moment. In the case of (i), a classic is the report template, either on national network “news” or on local “eyewitness news,” of rising prices at the gas pump in which the news crew waits at a gas station for some poor old landscaper in a battered truck to pull up to a pump, then asks him how much it hurts to pay $4.50 a gallon and he breaks into tears about having to keep on working just to fuel his truck while his seriously ailing wife remains home alone; now back to the studio. In sum, no explanation, just tears. As to (ii), a typical example is a lengthy segment on an airline coach passenger who has taken a video of his seatmate who has gone to sleep with his head resting on the complainer’s knee. Which brings us to…
The Voters. Barney Frank, responding to the low public esteem for Congress, says, “The voters are no bargain.” Kaiser writes a too-gentle but telling story of the ignorance of the voters during and following the explosion of the Recession. There was a pitiful lack of understanding, for example, over the bailout of AIG (a well-written account by Kaiser). The usual pandering defense of voter ignorance invokes “predatory” lenders and “complex” financial instruments beyond the understanding of all but the financial priesthood. The simple fact is that it is not difficult to understand that (a) the financial system cannot and will not regulate itself, (b) there must be tough cops on the financial beat to serve and protect the general public, and (c) we cannot expect protection of our Main Street and Wall Street interests from a government seriously dependent on the financial sector for “donations.”
Regarding (c): Checks and balances? Separation of Powers? Creative tension? Sobering, eh?
It would be easy for the news media to monitor and evaluate the status of (a), (b) and (c) for an interested electorate; forms for monitoring the state of these problems at various levels of detail could be developed. The issues are that the media sees no business value in doing so and that most of the audience does not want to understand such things. Certainly, as Kaiser shows, there is little motivation for most on Capitol Hill as well as too often for people in the Executive Branch to explain how things are really going in (a), (b) and (c).
Kaiser at least seems to hint that the foundation for a more aware public would be for it to operate with canonical wisdom: People are no damned good, especially around lots of easy money; there is no free lunch; a fool and his money are soon parted; there’s a sucker born every minute; all politics is local; unchecked greed is bad; the true oldest profession is the con; never give anyone power indefinitely since power corrupts; we’ve never been happy East of Eden; know the ideas of the Enlightenment; and so forth.
On that platform of wisdom, books like All the Devils Are Here, Byron Dorgan’s Reckless (a history of deregulation of the financial sector over the past few decades, i.e., the cutbacks in cops on the financial beat) and Act of Congress lay out more than enough structure for organizing the news about financial status and risks.
Perhaps the most alarming problem is that such books, precious books very difficult to write in every way, seem almost the sole sources of knowledge on (a), (b) and (c).
I wouldn’t call Kaiser’s book great, but I am exceedingly grateful to him for writing it and must judge it of large value and importance.
Bartender, I’ll take another Bombay Sapphire martini up with no vermouth. And turn that wall clock around so it faces the wall.