Sens. John McCain (R-Ariz.) and Byron Dorgan (D-N.D.) want to get to the bottom of our current economic mess. To address our economic problems effectively, they say, lawmakers first need to gain a better understanding of how we got into this fix.
The senators are right, but their prescription — creating a Senate Select Committee on the Financial Crisis — is wrong. Yes, lawmakers need to develop an understanding of many technically complex subjects such as international financial markets and the regulatory structures that control them. But how can a committee composed exclusively of U.S. senators possibly do that? It would be a case of the blind leading the blind.
Congress would do better to charter an independent panel of experts, armed with subpoena power, to look into the roles of the private sector, regulators and Congress itself in causing and solving the financial crisis. It’s an approach that has worked before.
Following the 1987 stock market crash, Congress established an independent panel led by former Senator and Treasury Secretary Nicholas Brady. The Brady Commission developed concepts employed extensively to address the current crisis, including the President’s Working Group on Financial Markets.
An independent commission offers three distinct advantages over a Senate select committee:
–It’s better equipped to understand, explain and address the complex technical features of modern markets.
–It’s less likely to devolve into political or personal scapegoating.
–It’s capable of rendering an objective account of how past government actions, including those of the Congress itself, have contributed to the current crisis.
Modern financial markets are, in fact, a lot like rocket science. They operate according to incredibly complex mathematical calculations, and tiny mistakes can lead to spectacular — and dangerous — explosions.
Obviously, something has gone badly wrong in the world of financial engineering. But most senators, like most Americans, are not trained to assess the calculations of Nobel-prize winning economists that underlie modern financial calculus. Not every member of a markets commission should be an expert in quantitative analysis, but expert membership is needed to ensure a thorough and credible analysis.
Perhaps because they can’t engage in technical analyses, congressional panels are prone to personalize their inquiries. Put another way, they look for a scapegoat, someone to pin the blame on. Sens. McCain and Dorgan last teamed up to investigate sleazy lobbyist Jack Abramoff. That was fine, but no one thinks that investigation got to the bottom of — much less fixed — the problem of political corruption in D.C. And unless you believe Bernie Madoff caused our financial crisis, a Senate panel is unlikely to get to the heart of our economic woes.
While greed among bank and insurance executives likely played a role, putting personalities front and center, as congressional hearings tend to do, obscures rather than illuminates fundamental regulatory and financial issues. Congressional investigations tend to look for scalps. This quasi-prosecutorial process is ill-designed for objective fact finding and analysis.
Finally, many believe that Congress itself, and other arms of government, played a major role in creating the conditions of the current economic mess. This is hotly disputed, to be sure. Observers on the left cite congressional moves to curb regulation as contributory. Their counterparts on the right point to congressional pressure to loosen lending practices at Fannie Mae and Freddie Mac. In the House, the Committees on Agriculture and Financial Services are already squabbling about jurisdiction over financial markets.
An independent commission would be better able than a Senate committee to assess Congress’s own culpability in creating the financial crisis and to provide objective advice about how congressional and regulatory directives should be revised to resolve the problems. Perhaps that’s why Dorgan’s home state colleague, Sen Kent Conrad (D-N.D.), has cosponsored a proposal by Sen. Johnny Isakson (R-Ga.) to create an Independent Commission on Financial Markets.
Congress should understand the causes of the financial crisis before rushing to respond. High-level independent commissions have served useful roles in assessing past market disruptions. While Congress and the president must make the ultimate policy choices, an independent, expert commission can help make those choices better informed.