What Happened to Financial Deregulation under Wallison's Historical Rewrite?

Peter Wallison directed the American Enterprise Institute's project on financial deregulation for many years. He is the leading apologist for financial deregulation in the world. He makes a remarkable assertion in his dissent as a Commissioner on the Financial Crisis Inquiry Commission. "Explanations that rely on lack of regulation or deregulation as a cause of the financial crisis are also deficient. First, no significant deregulation of financial institutions occurred in the last 30 years [p. 445]." Bummer! Wallison spends most of his adult life with the mission of convincing the world that financial deregulation is essential, yet – in 30 years of effort – “no significant deregulation” occurs in finance. Wallison's claim is facially absurd. Thirty years ago, Ronald Reagan was President. Reagan famously claimed that government was always the problem. He was a zealous supporter of deregulation. He appointed regulatory leaders he believed were strong supporters of desupervision. His Vice President, George Herbert Walker Bush, chaired the administration's financial deregulation task force. President Clinton strongly supported financial deregulation. His principal economic advisors, Robert Rubin and Larry Summers, were eager financial deregulators. His Vice President, Al Gore, lead the “reinventing government” movement that spread the rot of desupervision. Banking regulators were instructed to refer to banks as their “customers.” George W. Bush was an ardent anti-regulator. He appointed the nation's leading anti-regulators to run the regulatory agencies. Bush appointed Harvey Pitt, for example, to run the SEC because he was the leading opponent of vigorous securities regulation and effective accounting. On October 16, 2001, Enron announce massive losses and accounting restatements. On October 22, 2001, SEC Chairman Pitt addressed the AICPA Governing Council (his former client) and bemoaned the fact that the SEC had not always been a “kinder and gentler” place for accountants. He called accountants the SEC's “partners.” (The FBI would later call the Mortgage Bankers Association – the trade association of the mortgage fraud perps – its partner against mortgage fraud.) Pitt blamed the SEC staff for purportedly intimidating accountants and refusing to listen to them. He explained his guiding rule: “I am committed to the principle that government is and must be a service industry.” Alan Greenspan believed that control frauds could not exist – the markets automatically prevented them. OTS' head, “Chainsaw” Gilleran, posed with the nation's three leading bank lobbyists and the FDIC's deputy Chair (and Gilleran's successor as head of OTS). The group held pruning shears and posed over a pile of federal regulations. Gilleran wanted to emphasize his intent to cut through all the rules so he held a chainsaw. The FDIC was so proud of the tableau that they included it in their Annual Report for 2003. OTS and the OCC engaged in a competition in laxity to attract banks/thrifts to switch charters to seek to obtain the weakest regulatory regime. The OTS and the OCC competed in aggression in only one area – preempting state efforts against predatory and fraudulent lenders. The Federal Reserve, in its most important regional office, made Timothy Geithner its lead anti-regulator. Geithner would later testify, in response to a question from Representative Ron Paul, that “I was never a regulator.” Too true. How is it that Wallison, the great specialist in financial deregulation, manages to claim (in writing!) that none of these anti-regulators who dominated financial policy over the last 30 years ever achieved a single significant act of deregulation or desupervision? What does he believe a competent reader will think when reading a claim that preposterous? It is Wallison's willingness to assert blatantly fictional facts that explains his embarrassing inability to convince even one of his Republican colleagues on the Commission to join in his dissent. All four of the Republican Commissioners were active participants in supporting the financial deregulation and desupervision that made this crisis possible (as well as the savings & loan debacle and the Enron-era frauds). Getting each of them to sign on to a combined dissent (even if supplemented by additional views) should have been simple to accomplish. Wallison's colleagues knew, however, that supporting assertions such as Wallison's claim that there was no significant financial deregulation or desupervision would destroy their credibility and discredit their arguments. Wallison's unwillingness to join in his Republican colleagues' dissent indicates disabling personality conflicts. The last three decades reveal recurrent, intensifying financial crises brought on by dramatic deregulation and desupervison followed by efforts at reregulation which are soon undercut by subsequent deregulation and desupervision. The historical pattern is mixed, but it includes radical financial deregulation and desupervision in many Western nations.