Magazine article The American Prospect

Throwing Away the Rules: In Its Zeal to Kowtow to Business, the Bush Administration Is Dismantling a Century of Regulations That Protect Middle Class Consumers from Financial Fraud and Health Hazards

Magazine article The American Prospect

Throwing Away the Rules: In Its Zeal to Kowtow to Business, the Bush Administration Is Dismantling a Century of Regulations That Protect Middle Class Consumers from Financial Fraud and Health Hazards

Article excerpt

CORPORATE AMERICA'S IDEOLOGICAL ASSAULT ON government regulation has undermined middle America's understanding of why these rules exist in the first place. It is true that some regulations have lived past their prime, protecting monopolies and stifling innovation. But the free market ideologues of our era were not content to adjust those regulations to accommodate new economic realities. Instead, they preferred wholesale deregulation. The results are predictable.

The most spectacular market disaster of recent times--the accounting and stock-analyst frauds that robbed large swaths of the middle class of its retirement savings and misallocated trillions of dollars of investment capital--was a direct result of the deregulation of financial markets that began under Ronald Reagan and intensified during the Bill Clinton years. If you weaken the Securities and Exchange Commission (SEC) and limit investors' right to sue accountants and corporate managers for fraud, you get Arthur Andersen and Enron, Bernie Ebbers and WorldCom, Dennis Kozlowski and Tyco. If you repeal the Depression-era Glass-Steagall Act, you get a financial world where stock analysts publicly tout the products of investment banks while whispering to holders of big shares that it's time to sell.

Even after these events led to the most significant re-regulatory legislation in decades, the Sarbanes-Oxley Act of 2002, the SEC failed to uncover the mutual-fund scandal in which fund managers systematically robbed 85 million ordinary customers in order to please their corporate clients. If it weren't for Eliot Spitzer, the crusading attorney general in New York, the public still wouldn't know about the fraud.

Men and women of moderate income who are trying to clamber up the economic ladder are frequently victimized by a Wall Street-financed predatory lending industry that caters to car and home buyers with poor credit ratings. Neighborhood-based payday lenders prey on lower middle-class people who live from paycheck to paycheck. Yet the Bush administration's response--issued earlier this year through the Treasury Department's Office of the Comptroller of the Currency--is to seek rules preempting aggressive state regulators who have taken the lead in policing the industry. "This [is a] blatant attempt to shield banks from legitimate state law enforcement," says Connecticut Attorney General Richard Blumenthal.

While the deregulatory movement has been a bipartisan affair greased by campaign contributions, the assault of the Bush administration has taken it to a new level. Indeed, the headlines about the market failure may even suggest a way to challenge the prevailing orthodoxy in this election year.

Consider the meatpacking industry. Upton Sinclair's The Jungle led to an age of regulation a hundred years ago. Yet today's protectors of the nation's food supply, officials in the Agriculture Department, failed to prevent the first case of mad-cow disease from entering the United States. Within weeks of the incident, scientists on the inside admitted that the agency had ignored warnings that a spot inspection system was flawed--and was an accident waiting to happen. Even today, Ann Veneman, the former meat industry lobbyist who heads the agency, continues to drag her feet on implementing universal testing on animals heading for slaughter.

Meanwhile, officials with the Food and Drug Administration (FDA) have ignored a decade of mounting evidence of the dangers of over-the-counter stimulants. They only overcame industry pressure when a major-league ballplayer died last year after using ephedra. Meanwhile, the agency has pursued policies that could appear on a Big Pharma wish list: working to prevent senior citizens from importing cheaper Canadian drugs, opposing price controls or even price negotiation by Medicare, moving slowly on warning consumers about potentially dangerous drugs, and doing nothing to regulate the vacuous and confusing drug ads aimed directly at consumers. …

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