One has to be very, very obstinate (economists call this problem ‘tunneling’) to not see that regulatory failures played major roles in two recent disasters, one financial, the other environmental.
In the financial meltdown, regulators failed to even enforce the laws on the books. From the Securities and Exchange Commission (SEC) to the Office of Thrift Supervision and the Federal Reserve, which ignored it’s responsibilities to protect consumers, an apparent philosophy that markets would control themselves helped fuel risky investments and raw leverage that exploded economies.
Then a British Petroleum deep water oil rig in the Gulf catches fire and collapses into one mile of ocean, leaving a blownout drill hole on the seafloor spewing out hundreds of thousands of gallons of oil into the Gulf. And no one had a plan in place to manage such a disaster. Here the regulator caught sleeping on the job is the Minerals Management Service (MMS), which simply left everything up to British Petroleum.
James Surowiecki, staff writer for the New Yorker Magazine, wondered about this problem in a recent article entitled “The Regulation Crisis:”
“M.M.S.’s bad behavior was unusually egregious, but it’s hard to think of a recent disaster in the business world that wasn’t abetted by inept regulation. Mining regulators allowed operators like Massey Energy to flout safety rules. Financial regulators let A.I.G. write more than half a trillion dollars of credit-default protection without making a noise. The S.E.C. failed to spot the frauds at Enron and WorldCom, gave Bernie Madoff a clean bill of health, and decided to let Wall Street investment banks take on obscene amounts of leverage, while other regulators ignored myriad signs of fraud and recklessness in the subprime-mortgage market.