Lack of oversight ends predictably

9/17/08
There was a time (for many, we're still in it) when the fashion was to rail against government regulation in all its forms. If only we could get that pesky oversight out of the way, then the economy could reach its real potential, or so the thinking went.

If the events of the past week haven't convinced people of that notion's fundamental misguidedness, it's likely nothing will.

The oversight that kept the excesses of Wall Street largely in check since the Great Depression have been over the past decade systematically swept aside. It's the free market run wild -- Congress and federal regulatory agencies were told to step aside.

Now look where we are.

First, the U.S. Treasury took over the mortgage finance companies Fannie Mae and Freddie Mac; then came the collapse of Lehman Brothers and the sale of Merrill Lynch. The topper, though, was the unprecedented $85 billion government bailout of the insurer American International Group.

Meanwhile, the stock market on Monday suffered its worst day since the 9/11 terrorist attacks. The takeover or sale of so many venerable institutions has everyone who is not a financial expert perplexed, and profoundly worried about the overall state of our economy.

There is no single factor to blame for the debacle, but surely the decline of regulatory influence has played an important role. Without anyone keeping watch, financiers took enormous gambles on ever-larger profits -- gambles they took with other people's money.

Those gambles may have paid off for a while, but eventually, as always happens, there was a price to be paid. That time is now.

The events of the past few weeks should be enough to turn the tide against the anti-regulatory status quo of the recent past. At the very least, though, the current situation should be enough to make people think twice before blaming an ordinary homeowner facing foreclosure or other fiscal calamity. People make bad decisions, but not all of us can count on an $85 billion package to bail us out.

This is what it looks like when government looks out for the interests of the powerful at the expense of the powerless.