Republic, Lost_ How Money Corrupts Congress--And a Plan to Stop It - Lawrence Lessig [37]
As that money flowed, the appetite for the insane policies of deregulation grew. And in line with the analysis of the previous chapters, the question we need to ask is whether we believe the campaign money had anything to do with this insanity. No doubt the ideology was widespread. But without the money, would it have prevailed?
No one can know the answer to that question for sure. But there are some important clues. Take the case of Congressman Jim Leach, from Iowa, who was the leading Republican on the House Banking Committee in 1994. Leach was convinced that the derivatives market produced systemic risk to the economy. After the savings-and-loan crisis of the early 1990s, he issued a report that called for strong regulations of derivatives. That report was criticized by many in the industry. As one industry representative told the Washington Post, “I have a tough time conceiving of any event that would make derivatives the culprit of something that really crashed the system.”58 (Presumably, this is an easier thing for this industry representative to “conceive” of today.) Most people simply ignored Leach’s report.
The interesting question isn’t why the world ignored Jim Leach. It is instead why, as Frank Partnoy asks, “Leach [was] so different from his colleagues, who were uninterested in derivatives regulations? Why was Leach alone in publicly warning that derivatives markets were out of control and might cause a system-wide collapse?” Partnoy answers his own question: “The only discernible difference between Leach and other members of Congress was that Leach did not receive financial support from Wall Street…. Because he refused to accept contributions from political action committees, Leach could speak with an independent mind.”59
No doubt we had enough ideological minds guiding government policy as it affected Wall Street. But did we have enough independent minds in government? And had we had more, would the government have made the same mistakes it made?
Or, in the terms of this section of the book, does the presence of the largest amount of campaign cash of any single industry affect your ability to believe this policy was guided by good sense rather than the need for campaign dollars?
Where Were the Regulators?
At the end of her fantastic book Fool’s Gold (2010), Gillian Tett quotes JPMorgan Chase’s Jamie Dimon at a Davos event: “God knows, some really stupid things were done by American banks and American investment bankers…. Some stupid things were done… but it wasn’t just the bankers. Where were the regulators in all this?”60
Later she quotes some of the original derivatives geniuses from JPMorgan reflecting to each other on the consequences of their “innovations”: “ ‘It wasn’t our job to stop other banks being so stupid!’ another shot back. ‘What about the regulators? Where were they?’ ”61
When I read those passages, however, my first thought was, “Wow. This is chutzpah.”
“Where were the regulators?” Are you kidding, Jamie Dimon?
This is the son who has murdered his parents begging for mercy from the judge on account of his being an orphan. “Where were the regulators?” You got the regulators sent home!
The real story of the Great Recession is simply this: Stupid government regulation allowed the financial services industry to run the economy off the rails. But it was the financial services industry that drove our government to this stupid government regulation. They benefited enormously from this policy. And as carefully as I have tried to frame these puzzles in a way that might allow both sides some space, this case brings even me to the brink. Strain as I may, I find it impossible to believe that our government would have been this stupid had congressmen