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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.
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