Thursday, June 11, 2009

The Hearings That Weren't

If you haven't heard any of This American Life's coverage of the financial crisis, check it out. Teaming up with the folks from Planet Money, TAL does a great job. Their most recent broadcast deals with the government regulators and the credit rating companies. Both function - or are supposed to function - as gatekeepers. During the last decade or so, they did anything but.

If the latest episode doesn't clarify why some level of legal literacy is important in a democracy, I don't know what will. For years, under Democratic and Republican administrations and Congresses, American kept saying they wanted less regulation. Based on their anger these days, it doesn't seem like they knew what they were asking for. But they got it, in spades.

I do need to say one thing before you listen to the first act. They talk about AIG's collapse and the regulatory failures that enabled it. There is some naive amazement at how AIG was structured, with different subsidiaries spread out around the world, each legally separate. First, this is nothing special. Second, I don't think TAL makes a clear enough point that even with this structure, the real regulatory failure was not that AIG could structure itself this way. The failure was in failing to regulate it. This should not be heard as an argument against corporations. Be careful with your pitchforks - the anti-regulation pitchforks have made enough trouble already.

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