Two things should be clear to anyone trying to figure out the
financial crisis. One is that we need to get to the bottom of what
caused it and why. The second is that we can't rely on Congress to
conduct such an investigation.
Politicians love to hold hearings when things go wrong. It gives
them a chance to look concerned, to preen for the cameras and to
attack unsympathetic witnesses -- typically wealthy corporate
executives. The main point of these hearings, of course, is to
assign blame elsewhere. But any fair investigation will reveal that
congressional actions over the years contributed to the crisis.
Rep. Henry Waxman, D-Calif., chairs the House Oversight and
Government Reform Committee. On Oct. 6 and 7 he hosted hearings
bashing the former CEOs of Lehman Brothers and insurance company
AIG. Such a bashing may even be deserved in some cases.
Yet Waxman has declined to even schedule a hearing involving the
major culprits in the meltdown, government-sponsored enterprises
Fannie Mae and Freddie Mac. (A GSE is a federally chartered
corporation that is privately owned, meaning investors get the
profits but Uncle Sam shares the risk.)
As housing policy expert Ronald Utt wrote in a Heritage
Foundation paper in 2005, "With such market power concentrated in
the hands of only two companies, the stability of U.S. financial
markets could be undermined by financial problems in just one
of them," warned Utt, who served with the Department of Housing and
Urban Development in the 1970s. "Of course, if a bailout ever
becomes necessary, the taxpayers could end up paying the bill." As,
indeed, we now are.
Yet Fannie and Freddie evaded attempts to regulate them. A big
reason is that they cultivated powerful friends in Congress, such
as Sen. Christopher Dodd, D-Conn. As chair of the Senate banking
committee, he pocketed more than $165,000 in campaign contributions
from people associated with Fannie Mae and Freddie Mac.
Over in the House, the GSEs also enjoyed vocal support. "These
two entities -- Fannie Mae and Freddie Mac -- are not facing any
kind of financial crisis," Rep. Barney Frank, now head of the House
Banking Committee, said in 2003. "The more people exaggerate these
problems, the more pressure there is on these companies, the less
we will see in terms of affordable housing."
Clearly, these gentlemen cannot credibly lead an investigation
into the collapse of the very companies they championed.
No, to determine what really caused our financial difficulties,
we'll need an independent commission. Such a "Financial Crisis
Commission" would collect evidence and issue a report explaining
what caused the financial meltdown and recommending gutsy reforms
to stop them from happening ever again.
Independence is crucial. To succeed, the commission should
include members who have experience in the financial markets, and
have the power to compel testimony. Its members should be appointed
by the president and the leaders in Congress, with no more than
half selected by any one party. This will help ensure that the
final recommendations aren't partisan.
The commission must have subpoena power, so it can figure out
who did what and when, and whether those actions made a
deteriorating situation worse.
It should be formed immediately, and should release its
conclusions within six months. There's precedent for this. Back in
1986, a blue-ribbon commission of experts investigated the
explosion of the space shuttle Challenger, and released its report
just a few months after the disaster. Similar quick work could help
put our economy back on the right path.
A recent Rasmussen poll found that 59 percent of Americans agree
with Ronald Reagan's statement that "Government is not the solution
to our problem; government is the problem." A fair and complete
investigation seems likely to confirm that wisdom by revealing that
many of today's problems were triggered by our elected officials --
not by a failure of the free market.
It's time for some real oversight of our congressional
overseers.
Ed Feulner,
is president of The Heritage Foundation.