While no one was looking, a Congressional committee voted to gut Sarbanes-Oxley, the financial reporting regulation that was passed by a Republican Congress and signed into law by President Bush mere weeks after the Enron scandal broke. While everyone is understandably focused on health care, and having learned precisely nothing from the economic calamities of last year, Congress is busily seeing to it that our economic future is at risk.
A Democratic Congress cannot do enough to make business happy, and to accommodate Wall Street:
It took just five weeks after the WorldCom accounting scandal erupted in 2002 for Congress to pass, and President George W. Bush to sign, the Sarbanes-Oxley Act. That law required public companies to make sure their internal controls against fraud were not full of holes.
It took three more years for Bernard Ebbers, the man who built WorldCom into a giant, to be sentenced to 25 years in prison for his role in the fraud.
Mr. Ebbers will be 85 years old before he is eligible for release from prison. He may be freed, however, before the law is ever enforced on the vast majority of American companies. A Congressional committee voted this week to repeal a crucial part of the law. Other parts are also under attack.
Sarbanes-Oxley was passed, almost unanimously, by a Republican-controlled House and a Democratic-controlled Senate. Now a Democratic Congress is gutting it with the apparent approval of the Obama administration.
Have the Dems gone nuts? There is one reason the lackluster Jon Corzine lost his gubernatorial election on Tuesday. He is an ex-CEO of Goldman Sachs. End of story. Four years ago, that fact wasn't quite so much of a negative for Mr. Corzine as it is now, when Wall Street's economy is doing just great while the rest of the country remains in a worsening recession.
However, Obama's lack of initiative in this critical area is mirrored by the incompetence and unresponsiveness of his fellow Dems in Congress. What accounting oversight exists in the financial industry is under assault in Congress:
The Sarbanes-Oxley law also took steps to reinforce the independence of the Financial Accounting Standards Board, which writes accounting rules in the United States. By giving the board a secure source of financing, legislators said they were protecting it from the threats of the companies that had previously made donations to keep the board functioning.
But this Congress has made clear that independence for the accounting rule writers can go too far — particularly if the rules force banks to reveal the horrid mistakes they previously made.
This year, a subcommittee of the House Financial Services Committee held a hearing at which legislators sought no facts but instead threatened dire action if the chairman of the financial accounting board did not promptly make it easier for banks to ignore market values of the toxic securities they owned. The board caved in, which may be one reason why banks are reporting fewer losses these days.
But the board’s retreat was not enough to satisfy the banks. The American Bankers Association is now pushing Congress to give a new systemic risk regulator — either the Federal Reserve or some panel of regulators — the power to override accounting standards. The view of the bankers is that the financial crisis did not stem from the fact that the banks made lots of bad loans and invested in dubious securities; it was caused by accounting rules that required disclosure when the losses began to mount.
Obama's team, by the way, has endorsed the idea of a systemic risk regulator. What does that tell you, given that this was the lobbyists' idea? But that's not all. Look at the danger imminent from the Supreme Court:
[A] Supreme Court case, to be heard Dec. 7, is on the somewhat arcane question of whether it was legal for Congress to require that the members of the oversight board be appointed by the S.E.C. rather than by the president or someone directly responsible to him, like the secretary of the Treasury.
If the Supreme Court rules that the board is illegally appointed, Congress could quickly act to save it by changing the appointment process. But who can be confident that this Congress would want to save the reforms of 2002?
So let me get this straight. The banks didn't screw things up because they wrote massive quantities of bad loans and connived with the bond rating companies to package and approve fraudulent securities and export their reckless practices across the world, putting the entire world economy at risk. No, the problems occurred because they were forced to report the facts about how they were cooking the books.
What's the ultimate upshot of all this? Obama, stop coddling the banks, or you're next!
...Tuesday’s [Congressional loss in NY-23] revealed that they’re better at luring freak-show gawkers into Fox’s tent than voters into the G.O.P.’s. As if to prove the point, protesters hoisted a sign likening health care reform to Dachau at the raucous tea party rally convened by Michele Bachmann on Capitol Hill on Thursday.
Should the G.O.P. avoid self-destruction by containing this fringe, then the president and his party will have to confront their real problem: their identification with the titans who greased the skids for the economic meltdown from which Wall Street has recovered and the country has not. If there’s one general lesson to be gleaned from Christie’s victory over Jon Corzine in New Jersey, it’s surely that in today’s zeitgeist it’s less of a stigma to be fat than a former Goldman Sachs fat cat, even in a blue state.
Unfortunately, complacency is not warranted. I don't think the Republican Fringe and Obama's quickly forgotten economic populism can be separated. If these people have an eye for anything, it's for the main chance. The entire Republican House leadership was at the Bachmann rally. Not only have the loonies taken over the asylum; they have no interest in governing and pose a real danger to our nation. Why? Can you imagine this bunch of teabagger clowns in charge of legislation? If you thought President Obama was bottlenecked in Congress now, just wait till December 2010.
And yet, given the lamentable disinterest on Obama's part for endorsing and visibly backing real financial reform, and his direct identification with Wall Street figures like Timothy Geithner and Lawrence Summers (And the aforementioned and failed Mr. Corzine), Obama runs a real risk of squandering his numerical advantages on Capitol Hill (and with them his Presidency).
Congress is held hostage to the lobbyists of the financial industry, and so is Obama's administration. This is a recipe for massive cynicism on the part of the American voting public. There is literally nowhere for the average American voter to turn. Obama offered that, but has manifestly (and quickly) forgotten why (and by whom) he was elected in the first place.
Rarely has a piece of Congressional legislation been as badly named as the 2009 Investor Protection Act. (Healthy Forests Initiative, anyone?) It is an insult that Congress and its leadership, Obama's financial team and the president himself continue to ignore the very real anger and frustration that Americans feel towards those who wrecked our economy and treated the massive TARP bailout as an entitlement, and who all too plainly 'own' the current political establishment.
Meanwhile, for all its incompetence and stupidity, the so-called 'political opposition' is desperately trying to appropriate the economic populism position on which the Democrats have historically run. Now, unfortunately, the Capitol Hill Democrats and the Obama Administration look, feel and legislate like the corporate elite Republicans of yesteryear.
All this makes them a plump and inviting target for any right-wing politician who wants to make hay off of Americans' very real and burgeoning anger about the economic situation, in which Wall Street does better by the day while unemployment continues to grow. This is a recipe for major trouble.