The weekend Barron’s had a telling article entitled “Money Talks Regs Walk” written by Susan Witty outlining the regulatory easing done by recent administrations as a result of political contributions from the financial sector which then led to the financial crisis. The author bases her information on a recent report entitled “Sold Out” written by the public-information groups Essential Information and Consumer Education Foundation with lead author Robert Weissman which describes political contributions in excess of $5 billion over the past 10 years by the financial sector in return for massive deregulation. This includes $1.7 billion in contributions to congresspersons and U.S. presidents and $3.4 billion to lobbyists of whom almost 3 000 were working in the financial industry in 2007.
The article goes on to say that Congress and the Clinton administration hindered regulation of financial derivatives in 1998 to 2000. In 1999 Congress repealed an act in place since the Great Depression disallowing banks to enter the insurance and banking businesses which then allowed investor’s money to be used for financial derivatives. George W. Bush’s administration was involved with the lessening of rules which protected consumers from predatory lending practices during the housing boom. Finally in 2004 the SEC allowed investment banks to determine their own reserve levels and raise leverage levels from the prior 12-to-1 to 40-to-1.
The now in charge Democrats received more than half of the political contributions from the financial sector in the 2008 election. Weissman states that Ben Bernanke and the Chamber of Commerce are in favor of regulation and that it needs to be aggressive. Thank you to Ms. Witty for writing an interesting and easy to understand article that enlightens us on the political events which contributed to this financial crisis. Now we can hope that important lessons have been learned that will lessen the likelihood of another such an event in the future.