What Do Congressmen Really Think
-– Or Do They Really Think?

The chief financial reporter of The New York Times seemed incredulous when he heard what some congressmen were saying about our markets not needing financial regulation: “Representative Jeb Hensarling, the chairman of the committee, proclaimed ‘it is almost inconceivable that an asset manager’s failure could cause systemic risk.’ He also saw no danger to the system from insurance companies, which are ‘heavily regulated at the state level.’

Floyd Norris’s request for an interview with Hensarling was turned down. “I would have asked him about Long-Term Capital Management and the American International Group. The first, a money manager, caused a crisis when it failed in 1998; the other, an insurance company, had to be bailed out in 2008.”

But it was unlikely that it was simply a failure of memory that caused the congressmen to say what he did. It was either outright denial of facts he knew but didn’t want to recall, or it was obfuscation of something he wanted us all to forget. Those events were too important and big to be simply forgotten.

In his account of the matter, Norris went on to quote Sheila Bair, the former chairwoman of the Federal Deposit Insurance Corporation who now heads the Systemic Risk Council.

“It’s just like Brooksley Born and the derivatives industry,” she told me. Ms. Born, as chairwoman of the Commodities Futures Trading Commission in the Clinton administration, had the temerity to suggest that the C.F.T.C. should look into regulating over-the-counter derivatives. The industry went crazy, and she received no support from the White House or from fellow regulators at the Treasury, the Fed or the S.E.C. Congress responded by passing legislation to bar the C.F.T.C. — or any other regulator — from doing anything about derivatives.

“At the time, the argument was that there was no need to regulate the derivatives markets because the main players in them — banks and brokerage firms — were already regulated.

“We don’t know, of course, [what would have happened had derivatives been regulated] but what we do know . . . that Wall Street felt free to invent and exploit any product it wished. If financial engineers called a product a swap, that made it a derivative and exempted it from regulation.”

Floyd Norris concluded: “Ms. Bair says she thinks the attacks on FSOC are intended to intimidate it.” Now, amnesia, or perhaps we should call it, as Ms. Bair does, “revisionist history,” has persuaded some people that there is no threat of anything similar happening.” (See, “Financial Crisis, Over and Already Forgotten.”)

As Edmund Burke, the British statesman, once said: “Those who don’t know history are doomed to repeat it.” The philosopher George Santayana said much the same thing, as did others. But there seems to be no way of preventing us from making the same mistakes again and again, especially when money is involved.