The new mantra of the Republican Party is the old mantra --
regulation is a "job killer." It is certainly possible to have
regulations kill jobs, and when I was a financial regulator I was a
leader in cutting away many dumb requirements. But we have just
experienced the epic ability of the anti-regulators to kill well over
ten million jobs. Why then is there not a single word from the new House
leadership about investigations to determine how the anti-regulators
did their damage? Why is there no plan to investigate the fields in
which inadequate regulation most endangers jobs? While we're at it, why
not investigate the areas in which inadequate regulation allows firms to
maim and kill. This column addresses only financial regulation.
Deregulation, desupervision, and de facto decriminalization (the
three "des") created the criminogenic environment that drove the modern
U.S. financial crises. The three "des" were essential to create the
epidemics of accounting control fraud that hyper-inflated the bubble
that triggered the Great Recession. "Job killing" is a combination of
two factors -- increased job losses and decreased job creation. I'll
focus solely on private sector jobs -- but the recession has also been
devastating in terms of the loss of state and local governmental jobs.
From 1996-2000, for example, annual private sector gross job
increases rose from roughly 14 million to 16 million while annual
private sector gross job losses increased from 12 to 13 million. The
annual net job increases in those years, therefore, rose from two
million to three million. Over that five year period, the net increase
in private sector jobs was over 10 million. One common rule of thumb is
that the economy needs to produce an annual net increase of about 1.5
million jobs to employ new entrants to our workforce, so the growth rate
in this era was large enough to make the unemployment and poverty rates
fall significantly.
The Great Recession (which officially began in the third quarter of
2007) shows why the anti-regulators are the premier job killers in
America. Annual private sector gross job losses rose from roughly 12.5
to a peak of 16 million and gross private sector job gains fell from
approximately 13 to 10 million. As late as March 2010, after the
official end of the Great Recession, the annualized net job loss in the
private sector was approximately three million (that job loss has now
turned around, but the increases are far too small).
Again, we need net gains of roughly 1.5 million jobs to accommodate
new workers, so the total net job losses plus the loss of essential job
growth was well over 10 million during the Great Recession. These
numbers, again, do not include the large job losses of state and local
government workers, the dramatic rise in underemployment, the sharp rise
in far longer-term unemployment, and the salary/wage (and job
satisfaction) losses that many workers had to take to find a new,
typically inferior, job after they lost their job. It also ignores the
rise in poverty, particularly the scandalous increase in children living
in poverty.
The Great Recession was triggered by the collapse of the real estate
bubble epidemic of mortgage fraud by lenders that hyper-inflated that
bubble. That epidemic could not have happened without the appointment of
anti-regulators to key leadership positions. The epidemic of mortgage
fraud was centered on loans that the lending industry (behind closed
doors) referred to as "liar's" loans -- so any regulatory leader who was
not an anti-regulatory ideologue would (as we did in the early 1990s
during the first wave of liar's loans in California) have ordered banks
not to make these pervasively fraudulent loans.
One of the problems was the existence of a "regulatory black hole" --
most of the nonprime loans were made by lenders not regulated by the
federal government. That black hole, however, conceals two broader
federal anti-regulatory problems. The federal regulators actively made
the black hole more severe by preempting state efforts to protect the
public from predatory and fraudulent loans. Greenspan and Bernanke are
particularly culpable. In addition to joining the jihad state
regulation, the Fed had unique federal regulatory authority under HOEPA
(enacted in 1994) to fill the black hole and regulate any housing lender
(authority that Bernanke finally used, after liar's loans had ended, in
response to Congressional criticism). The Fed also had direct evidence
of the frauds and abuses in nonprime lending because Congress mandated
that the Fed hold hearings on predatory lending.
The S&L debacle, the Enron era frauds, and the current crisis
were all driven by accounting control fraud. The three "des" are
critical factors in creating the criminogenic environments that drive
these epidemics of accounting control fraud. The regulators are the
"cops on the beat" when it comes to stopping accounting control fraud.
If they are made ineffective by the three "des" then cheaters gain a
competitive advantage over honest firms. This makes markets perverse and
causes recurrent crises.
From roughly 1999 to the present, three administrations have
displayed hostility to vigorous regulation and have appointed regulatory
leaders largely on the basis of their opposition to vigorous
regulation. When these administrations occasionally blundered and
appointed, or inherited, regulatory leaders that believed in regulating
the administration attacked the regulators. In the financial regulatory
sphere, recent examples include Arthur Levitt and William Donaldson
(SEC), Brooksley Born (CFTC), and Sheila Bair (FDIC).
Similarly, the bankers used Congress to extort the Financial
Accounting Standards Board (FASB) into trashing the accounting rules so
that the banks no longer had to recognize their losses. The twin
purposes of that bit of successful thuggery were to evade the mandate of
the Prompt Corrective Action (PCA) law and to allow banks to pretend
that they were solvent and profitable so that they could continue to pay
enormous bonuses to their senior officials based on the fictional
"income" and "net worth" produced by the scam accounting. (Not
recognizing one's losses increases dollar-for-dollar reported, but
fictional, net worth and gross income.)
When members of Congress (mostly Democrats) sought to intimidate us
into not taking enforcement actions against the fraudulent S&Ls we
blew the whistle. Congress investigated Speaker Wright and the "Keating
Five" in response. I testified in both investigations. Why is the new
House leadership announcing its intent to give a free pass to the
accounting control frauds, their political patrons, and the
anti-regulators that created the criminogenic environment that
hyper-inflated the financial bubble that triggered the Great Recession
and caused such a loss of integrity?
The anti-regulators subverted the rule of law and allowed elite
frauds to loot with impunity. Why isn't the new House leadership
investigating that disgrace as one of their top priorities? Why is the
new House leadership so eager to repeat the job killing mistakes of
taking the regulatory cops off their beat?
Our work is licensed under Creative Commons (CC BY-NC-ND 3.0). Feel free to republish and share widely.
The new mantra of the Republican Party is the old mantra --
regulation is a "job killer." It is certainly possible to have
regulations kill jobs, and when I was a financial regulator I was a
leader in cutting away many dumb requirements. But we have just
experienced the epic ability of the anti-regulators to kill well over
ten million jobs. Why then is there not a single word from the new House
leadership about investigations to determine how the anti-regulators
did their damage? Why is there no plan to investigate the fields in
which inadequate regulation most endangers jobs? While we're at it, why
not investigate the areas in which inadequate regulation allows firms to
maim and kill. This column addresses only financial regulation.
Deregulation, desupervision, and de facto decriminalization (the
three "des") created the criminogenic environment that drove the modern
U.S. financial crises. The three "des" were essential to create the
epidemics of accounting control fraud that hyper-inflated the bubble
that triggered the Great Recession. "Job killing" is a combination of
two factors -- increased job losses and decreased job creation. I'll
focus solely on private sector jobs -- but the recession has also been
devastating in terms of the loss of state and local governmental jobs.
From 1996-2000, for example, annual private sector gross job
increases rose from roughly 14 million to 16 million while annual
private sector gross job losses increased from 12 to 13 million. The
annual net job increases in those years, therefore, rose from two
million to three million. Over that five year period, the net increase
in private sector jobs was over 10 million. One common rule of thumb is
that the economy needs to produce an annual net increase of about 1.5
million jobs to employ new entrants to our workforce, so the growth rate
in this era was large enough to make the unemployment and poverty rates
fall significantly.
The Great Recession (which officially began in the third quarter of
2007) shows why the anti-regulators are the premier job killers in
America. Annual private sector gross job losses rose from roughly 12.5
to a peak of 16 million and gross private sector job gains fell from
approximately 13 to 10 million. As late as March 2010, after the
official end of the Great Recession, the annualized net job loss in the
private sector was approximately three million (that job loss has now
turned around, but the increases are far too small).
Again, we need net gains of roughly 1.5 million jobs to accommodate
new workers, so the total net job losses plus the loss of essential job
growth was well over 10 million during the Great Recession. These
numbers, again, do not include the large job losses of state and local
government workers, the dramatic rise in underemployment, the sharp rise
in far longer-term unemployment, and the salary/wage (and job
satisfaction) losses that many workers had to take to find a new,
typically inferior, job after they lost their job. It also ignores the
rise in poverty, particularly the scandalous increase in children living
in poverty.
The Great Recession was triggered by the collapse of the real estate
bubble epidemic of mortgage fraud by lenders that hyper-inflated that
bubble. That epidemic could not have happened without the appointment of
anti-regulators to key leadership positions. The epidemic of mortgage
fraud was centered on loans that the lending industry (behind closed
doors) referred to as "liar's" loans -- so any regulatory leader who was
not an anti-regulatory ideologue would (as we did in the early 1990s
during the first wave of liar's loans in California) have ordered banks
not to make these pervasively fraudulent loans.
One of the problems was the existence of a "regulatory black hole" --
most of the nonprime loans were made by lenders not regulated by the
federal government. That black hole, however, conceals two broader
federal anti-regulatory problems. The federal regulators actively made
the black hole more severe by preempting state efforts to protect the
public from predatory and fraudulent loans. Greenspan and Bernanke are
particularly culpable. In addition to joining the jihad state
regulation, the Fed had unique federal regulatory authority under HOEPA
(enacted in 1994) to fill the black hole and regulate any housing lender
(authority that Bernanke finally used, after liar's loans had ended, in
response to Congressional criticism). The Fed also had direct evidence
of the frauds and abuses in nonprime lending because Congress mandated
that the Fed hold hearings on predatory lending.
The S&L debacle, the Enron era frauds, and the current crisis
were all driven by accounting control fraud. The three "des" are
critical factors in creating the criminogenic environments that drive
these epidemics of accounting control fraud. The regulators are the
"cops on the beat" when it comes to stopping accounting control fraud.
If they are made ineffective by the three "des" then cheaters gain a
competitive advantage over honest firms. This makes markets perverse and
causes recurrent crises.
From roughly 1999 to the present, three administrations have
displayed hostility to vigorous regulation and have appointed regulatory
leaders largely on the basis of their opposition to vigorous
regulation. When these administrations occasionally blundered and
appointed, or inherited, regulatory leaders that believed in regulating
the administration attacked the regulators. In the financial regulatory
sphere, recent examples include Arthur Levitt and William Donaldson
(SEC), Brooksley Born (CFTC), and Sheila Bair (FDIC).
Similarly, the bankers used Congress to extort the Financial
Accounting Standards Board (FASB) into trashing the accounting rules so
that the banks no longer had to recognize their losses. The twin
purposes of that bit of successful thuggery were to evade the mandate of
the Prompt Corrective Action (PCA) law and to allow banks to pretend
that they were solvent and profitable so that they could continue to pay
enormous bonuses to their senior officials based on the fictional
"income" and "net worth" produced by the scam accounting. (Not
recognizing one's losses increases dollar-for-dollar reported, but
fictional, net worth and gross income.)
When members of Congress (mostly Democrats) sought to intimidate us
into not taking enforcement actions against the fraudulent S&Ls we
blew the whistle. Congress investigated Speaker Wright and the "Keating
Five" in response. I testified in both investigations. Why is the new
House leadership announcing its intent to give a free pass to the
accounting control frauds, their political patrons, and the
anti-regulators that created the criminogenic environment that
hyper-inflated the financial bubble that triggered the Great Recession
and caused such a loss of integrity?
The anti-regulators subverted the rule of law and allowed elite
frauds to loot with impunity. Why isn't the new House leadership
investigating that disgrace as one of their top priorities? Why is the
new House leadership so eager to repeat the job killing mistakes of
taking the regulatory cops off their beat?
The new mantra of the Republican Party is the old mantra --
regulation is a "job killer." It is certainly possible to have
regulations kill jobs, and when I was a financial regulator I was a
leader in cutting away many dumb requirements. But we have just
experienced the epic ability of the anti-regulators to kill well over
ten million jobs. Why then is there not a single word from the new House
leadership about investigations to determine how the anti-regulators
did their damage? Why is there no plan to investigate the fields in
which inadequate regulation most endangers jobs? While we're at it, why
not investigate the areas in which inadequate regulation allows firms to
maim and kill. This column addresses only financial regulation.
Deregulation, desupervision, and de facto decriminalization (the
three "des") created the criminogenic environment that drove the modern
U.S. financial crises. The three "des" were essential to create the
epidemics of accounting control fraud that hyper-inflated the bubble
that triggered the Great Recession. "Job killing" is a combination of
two factors -- increased job losses and decreased job creation. I'll
focus solely on private sector jobs -- but the recession has also been
devastating in terms of the loss of state and local governmental jobs.
From 1996-2000, for example, annual private sector gross job
increases rose from roughly 14 million to 16 million while annual
private sector gross job losses increased from 12 to 13 million. The
annual net job increases in those years, therefore, rose from two
million to three million. Over that five year period, the net increase
in private sector jobs was over 10 million. One common rule of thumb is
that the economy needs to produce an annual net increase of about 1.5
million jobs to employ new entrants to our workforce, so the growth rate
in this era was large enough to make the unemployment and poverty rates
fall significantly.
The Great Recession (which officially began in the third quarter of
2007) shows why the anti-regulators are the premier job killers in
America. Annual private sector gross job losses rose from roughly 12.5
to a peak of 16 million and gross private sector job gains fell from
approximately 13 to 10 million. As late as March 2010, after the
official end of the Great Recession, the annualized net job loss in the
private sector was approximately three million (that job loss has now
turned around, but the increases are far too small).
Again, we need net gains of roughly 1.5 million jobs to accommodate
new workers, so the total net job losses plus the loss of essential job
growth was well over 10 million during the Great Recession. These
numbers, again, do not include the large job losses of state and local
government workers, the dramatic rise in underemployment, the sharp rise
in far longer-term unemployment, and the salary/wage (and job
satisfaction) losses that many workers had to take to find a new,
typically inferior, job after they lost their job. It also ignores the
rise in poverty, particularly the scandalous increase in children living
in poverty.
The Great Recession was triggered by the collapse of the real estate
bubble epidemic of mortgage fraud by lenders that hyper-inflated that
bubble. That epidemic could not have happened without the appointment of
anti-regulators to key leadership positions. The epidemic of mortgage
fraud was centered on loans that the lending industry (behind closed
doors) referred to as "liar's" loans -- so any regulatory leader who was
not an anti-regulatory ideologue would (as we did in the early 1990s
during the first wave of liar's loans in California) have ordered banks
not to make these pervasively fraudulent loans.
One of the problems was the existence of a "regulatory black hole" --
most of the nonprime loans were made by lenders not regulated by the
federal government. That black hole, however, conceals two broader
federal anti-regulatory problems. The federal regulators actively made
the black hole more severe by preempting state efforts to protect the
public from predatory and fraudulent loans. Greenspan and Bernanke are
particularly culpable. In addition to joining the jihad state
regulation, the Fed had unique federal regulatory authority under HOEPA
(enacted in 1994) to fill the black hole and regulate any housing lender
(authority that Bernanke finally used, after liar's loans had ended, in
response to Congressional criticism). The Fed also had direct evidence
of the frauds and abuses in nonprime lending because Congress mandated
that the Fed hold hearings on predatory lending.
The S&L debacle, the Enron era frauds, and the current crisis
were all driven by accounting control fraud. The three "des" are
critical factors in creating the criminogenic environments that drive
these epidemics of accounting control fraud. The regulators are the
"cops on the beat" when it comes to stopping accounting control fraud.
If they are made ineffective by the three "des" then cheaters gain a
competitive advantage over honest firms. This makes markets perverse and
causes recurrent crises.
From roughly 1999 to the present, three administrations have
displayed hostility to vigorous regulation and have appointed regulatory
leaders largely on the basis of their opposition to vigorous
regulation. When these administrations occasionally blundered and
appointed, or inherited, regulatory leaders that believed in regulating
the administration attacked the regulators. In the financial regulatory
sphere, recent examples include Arthur Levitt and William Donaldson
(SEC), Brooksley Born (CFTC), and Sheila Bair (FDIC).
Similarly, the bankers used Congress to extort the Financial
Accounting Standards Board (FASB) into trashing the accounting rules so
that the banks no longer had to recognize their losses. The twin
purposes of that bit of successful thuggery were to evade the mandate of
the Prompt Corrective Action (PCA) law and to allow banks to pretend
that they were solvent and profitable so that they could continue to pay
enormous bonuses to their senior officials based on the fictional
"income" and "net worth" produced by the scam accounting. (Not
recognizing one's losses increases dollar-for-dollar reported, but
fictional, net worth and gross income.)
When members of Congress (mostly Democrats) sought to intimidate us
into not taking enforcement actions against the fraudulent S&Ls we
blew the whistle. Congress investigated Speaker Wright and the "Keating
Five" in response. I testified in both investigations. Why is the new
House leadership announcing its intent to give a free pass to the
accounting control frauds, their political patrons, and the
anti-regulators that created the criminogenic environment that
hyper-inflated the financial bubble that triggered the Great Recession
and caused such a loss of integrity?
The anti-regulators subverted the rule of law and allowed elite
frauds to loot with impunity. Why isn't the new House leadership
investigating that disgrace as one of their top priorities? Why is the
new House leadership so eager to repeat the job killing mistakes of
taking the regulatory cops off their beat?