Is Congress to Blame for Failing to Regulate the Financial Sector?
Question: On the Newshour a few weeks ago, there was a piece about the bonuses being paid to AIG’s Financial Products Division. In that coverage, one guest mentioned regulators were blocked from overseeing derivatives. I assume that was done by the Congress.
If so, much of the mess we are in is the fault of the representatives and senators who are so “outraged” now. Can you provide background on what exactly happened? It seems that it would make a great story for the Newshour.
Paul Solman: It’s spelled out in a story of ours in early 2002, Where Were the Watchdogs? At the time, Congress was lambasting the private sector for its failure to oversee Enron. For the segment, we spoke to a former senator from Louisiana, Bennett Johnston, who had become a lobbyist (Enron was a client):
BENNETT JOHNSTON: Because members of Congress, by and large, are not experts— they are generalists. They come in, as I came in, a lawyer from a fairly small, medium-sized town, and without expertise in a lot of areas.
PAUL SOLMAN: So how much did Enron’s money influence the deregulation debate?
BENNETT JOHNSTON: Most politicians cannot be pushed too far, but… to go against the grain of what they would otherwise do. But if they don’t have a view on a particular issue, and a Ken Lay comes in and he is a good friend, he’s well respected, and he’s also been a contributor, and he suggests a certain course of conduct, and the member doesn’t have a view on it, he’s likely to accept that view, or at least consider it very carefully.
You know, there’s been a lot talk about how no one in the media warned the public about what was happening in this economy. Let me take this opportunity to point readers to our own efforts. For example, our business ethics series, of which the above story was just one segment. Others:
Accounting Alchemy: The financial magic act that contributed to the rise and ultimate fall of Enron.
Silent Watchdogs: A look at those who failed to keep watch on Enron before it fell.
Plus, our three-part Money and Ethics series.