WASHINGTON — When Congress voted last week to bail out Wall Street banks and investment houses, members were also indirectly voting to repair damage lawmakers themselves had caused during a decades-long era of deregulation.
As the blame game moves into high gear in Washington, there seem to be few winners. Already under scrutiny are lawmakers from both political parties, Presidents George W. Bush, Bill Clinton and their predecessors, and record amounts of money funneled to Congress from Wall Street and the two government-backed mortgage giants, Fannie Mae and Freddie Mac.
In hindsight, members of Congress and administration officials such as Treasury Secretary Henry M. Paulson agree that a new regulatory framework must be created.
But investigating what went wrong and how to construct a new financial infrastructure confronts politicians and policymakers with an awkward situation. Many of those who will presumably shape new safeguards were advocates of the sweeping deregulation that contributed so much to the problems they now propose to fix.
The problem is particularly acute for members of the committees that oversee banking on Capitol Hill. "Congress deserved more blame than anyone else," said Rep. Christopher Shays (R-Conn.), a member of the House Financial Services Committee who backed some deregulation bills but also called unsuccessfully for increased oversight.
Sen. Tom Coburn (R-Okla.), a conservative gadfly and the ranking GOP member of the Homeland Security and Governmental Affairs subcommittee on federal financial management, said lawmakers failed because they were too preoccupied with pleasing lobbyists, constituents and campaign contributors to fulfill their oversight responsibilities.
"How did we get here?" asked Sen. Byron Dorgan (D-N.D.). "In 1999, Congress was pressured to repeal the financial protections that were put in place following the Great Depression."
Dorgan is one of a relative handful of members of Congress who have spoken out against the surge of deregulation.
Today, Rep. Henry Waxman (D-Los Angeles) is scheduled to hold the first of a series of hearings on what he described as "the regulatory mistakes and financial excesses that led to the market breakdowns on Wall Street."
Among other potential targets of the inquiry: hedge funds and the credit rating agencies, which have been accused of attaching overly positive ratings to questionable mortgage securities.
