How on earth did this financial disaster come about? Here's the recipe: (1) repeat over and over again that less regulation and oversight will mean more competition, growth, and that Wall Street will police itself. (2) Spend billions lobbying an administration and a Congress all too willing to give Wall Street and big business every break and legal protection it wants. (3) Convince Congress to pass laws allowing insurance companies to act as banks and offer financial services, and banks to offer insurance and other financial products.
Case in point? In 1999, a Republican Congress passed, and President Clinton signed, The Graham-Leach-Bliley Act, which repealed a 60 year law passed after the Depression that outlawed the comingling of these industries. Here's what Sen. Phil Graham (who is now one of Sen. John McCain's economic advisors and who just a few weeks ago accused Americans of being a bunch of whiners about the economy) said about the bill:
"I believe we have passed what will prove to be the most important banking bill in 60 years. It overturns the key provision of the Glass-Steagall act that divided the American financial system.
"Over time, the market and the regulators have used a variety of innovations to try to undo this separation. As a result, we have substantial competition occurring, but it is competition that is largely inefficient and costly, it is unstable, and it is not in the public interest for this situation to continue.
"The Gramm-Leach-Bliley Act strikes down these walls and opens up new competition. It will create wholly new financial services organizations in America. It will literally bring to every city and town in America the financial services supermarket."
(Note: since both parties were responsible for this bill I'm sure you won't hear much about it on the campaign trail...)
Now, back to the empathetic Sen. Gramm. Financial supermarket? More like a wild west lab experiment fueled by abject greed. And the test subjects have been ordinary Americans sold risky mortgages that were then packaged into securities and sold and resold, and we know the rest of the picture.
But there's another layer of hypocrisy to add to this story. At the same time these paragons of virtue and trust (note sarcasm here) were going hog wild in this financial feeding frenzy, they were also lobbying for legal reform. The claim? Lawsuits of all kinds, like class actions and personal injury lawsuits, were limiting their competitiveness, draining the economy, and killing jobs. So, at the same time these behemoths were given free financial reign, Congress passed class action "reforms" making it more dificult for ripped off consumers to sue big business.
The biggest cheerleader for all this legal reform? None other than AIG Chairman and CEO ($29 million per year) Maurice Greenberg. Below is an excerpt from an excellent article in The Washington Monthly chronicling the orchestrated movement by big business and insurance companies to restrict personal injury lawsuits:
In the mid-1980s, with insurance companies hitting a slump, the insurance industry's "tort reform" movement, as it became known, broadened its emphasis. Instead of limiting itself to targeting individual jurors through mass media advertising, the industry began to heavily lobby legislators to restrict citizens' ability to sue. The movement pursued strict caps on damage awards, tougher standards for proving liability, and caps on plaintiffs' attorney fees. The industry's crusade was taken up by small government conservatives, who believed that tort reform paralleled their own efforts to fill the federal bench with pro-business jurists and roll back government regulations. They were also upset by changes in the 1960s and 1970s that broadened legal protections for women and minorities, such as the 1964 Civil Rights Act, and the expansion of product liability doctrines that made it easier for injured consumers to force companies to compensate them for faulty products. Politically, it was a lot easier to attack juries and trial lawyers than the popular consumer, civil rights, and environmental protection laws they enforced--or the injured victims they represented.
Advertising was a key component of those efforts. In 1986, Newsweek ran a series of ads sponsored by the insurance industry under the heading, "We all pay the price." The ads warned that lawsuits were driving ob/gyns out of business, shuttering local school sports programs, and scaring the clergy out of counseling their flocks--though few of these assertions turned out to be true. That same year, 1,600 tort reform measures were introduced in 44 state legislatures, 21 of which passed significant restrictions on lawsuits and jury awards before adjourning.
Tort reformers still weren't satisfied but were hamstrung by the fact that most Americans didn't see lawsuits as a huge problem. After all, most people never have any contact with the legal system unless they're getting divorced. So, a group of corporate leaders, including AIG's Greenberg, set about to change that by pumping money into right-wing think tanks to prepare a body of "evidence" proving that not only was there a crisis in the courthouse but also that "we all pay the price" as a result.
Seems like Mr. Greenberg was right about one thing. We ARE all paying the price right now for a toxic mix of lax regulation and a simultaneous rollback of laws that make it much more difficult to sue these companies under all kinds of circumstances. I'm sick and tired of certain politicians screaming about a "lack of personal responsibility and accountability," which are code words of the tort reform movement. I'm all for those concepts on a personal level. But where is the hue and cry now for corporate responsibility and accountability from these same politicians?
Looks like AIG just got an $85 billion pass on that train...
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