Is it weird that the recession is causing me to fawn over public figures?
I just got finished gushing over Fareed Zakaria and now I’m swooning over the chair of the Congressional Oversight Panel overseeing the U.S. Troubled Assets Relief Program. There’s a sentence I never expected to write.
Stewart asked Warren why some financial institutions are thought to be “too big to fail.” Her answer was crisp, compelling and started in 1792.
“Okay, young country. George Washington’s in his first term and we have a credit freeze. There’s a financial panic. Every 10 to 15 years, there’s a financial panic in our history – you can just look at it. There’s a big collapse, big trouble and people lose their farms – wiped out. Until we get to The Great Depression. We come out of The Great Depression and we say ‘you know, we can do better than this. We don’t have to go back to this kind of boom and bust cycle.’ We come out of The Great Depression with three regulations: [the Federal Deposit Insurance Corporation], it’s safe to put your money into banks. [The Glass-Steagall Act], banks won’t do crazy things. And some SEC regulations. We go 50 years without a financial panic, without a crisis.”
“Then what happens is we say ‘regulation, ah that’s a pain, it’s expensive. We don’t need it.’ So we start pulling the threads out of the regulatory fabric. And what’s the first thing we get? We get the [savings and loan] crisis. Seven hundred financial institutions fail. Ten years later, what do we get? Long Term Capital Management, where we learn that when something collapses one place in the world it collapses everywhere else. Early 2000s we get Enron, which tells us the books are dirty. And what is our repeated response? We just keep pulling the threads out of the regulatory fabric.
“So we have two choices. We’re going to make a big decision; probably over about the next six months … We’re going to decide basically ‘we don’t need regulation. You know, it’s fine. Boom and bust, boom and bust, boom and bust. And good luck with your 401(k).’ Or, alternatively, we’re going to say ‘you know, we’re going to put in some smart regulation that’s going to adapt to the fact that we have new products, and what we’re going to have going forward is … stability and some real prosperity for ordinary folks.’”
Warren’s page on Wikipedia credits her with six academic books and more than 100 articles. She’s the Leo Gottlieb Professor of Law at Harvard Law School and she has been listed numerous times as one of the Fifty Most Influential Women Attorneys in America by the National Law Journal.
Her ability to express complex economic history in such compelling plain language is equally impressive.
This all matters to Canadians for a couple of obvious reasons. First, U.S. regulators are influential. While we managed to avoid the really exaggerated thread-pulling, it is important to keep an eye on international regulatory trends and how they influence Canadian decision-makers. Second, the boom-and-bust cycle that Warren describes has had a profound impact on U.S. consumers in recent decades. If she’s right, and a new approach results in smoother, broad-based economic growth, then any country that provides goods and services to U.S. consumers and businesses will benefit significantly.