Back in 2002 when the Journal still did this kind of thing, it wrote this leder explaining why the markets collapsed in the tech bust (the story went on to win a Pulitzer as part of a package; there was no parallel effort at the paper after the far bigger Crash of 2008).
Here’s the nut:
From the 1930s to the 1970s, Washington embraced an ever-greater role for the federal government. But the economic stagnation of the 1970s convinced politicians in both parties that the pendulum had swung too far. By the decade’s end, Democrat Jimmy Carter launched the modern deregulation movement by freeing up the airline and trucking industries. His successor, Ronald Reagan, even more enthusiastically embraced the wisdom of markets over bureaucrats.
The reforms, the officials believed, would unleash innovation and raise living standards. Those good things did happen. Deregulation and low interest rates spurred a burst of technological investment that accelerated the growth of the economy and slashed the unemployment rate. But the savviest policy makers knew they were making a choice “between economic growth with associated potential instability, and a more civil … way of life with a lower standard of living,” as current Fed Chairman Alan Greenspan recently put it…
In short, it’s clear in hindsight that the marketplace’s own “checks,” touted by Mr. Theobald 15 years ago, weren’t enough to prevent the upheaval roiling the business world today.
One of the five deregulatory points the Journal zoomed in on was “Starving the SEC”:
In May 1994, SEC Chairman Arthur Levitt told a congressional panel that he “would walk on hot coals” for a larger, more stable source of funds for his agency. Since the early 1980s, he told legislators, the value of public offerings had jumped nearly 1,800%, while the SEC staff had grown just 31%.
But Mr. Levitt’s budget campaign faltered, thanks to a clash between two fiery lawmakers with very different ideas about the role of market regulators.
Phil Gramm, of course, was one of those fiery lawmakers:
A conservative economist with a deep skepticism of government, Mr. Gramm had spent the 1980s on the front lines of the war against federal spending. “Unless the waters are crimson with the blood of investors, I don’t want you embarking on any regulatory flights of fancy,” Mr. Gramm once told Mr. Levitt, according to a new book by Mr. Levitt.
Mr. Gramm thought self-funding would make the SEC too powerful.
And the result:
From fiscal 1995 to 1998, the SEC’s work force and budget stayed about constant, adjusted only for inflation. In 1997, Mr. Levitt sarcastically noted to a House panel that SEC funding was below that of the Sportfish Restoration program, but lawmakers didn’t nibble.
During those years, the number of corporate SEC filings grew 28%. Investor complaints rose 20%. The value of initial public offerings rose by a factor of 12. The agency cut back on reviewing financial filings, examining just 11.9% of the statements filed in 1998, down from 18.5% in 1995. It conducted its last thorough review of Enron’s books in 1997.
Point is, the anti-regulation forces again have a foothold in Congress, and the press’s regulatory coverage responsibilities just got that much more complicated—and important. It’s just about impossible to report, say, Phil Gramm’s threatening phone calls and letters to the SEC chair unless one of them tells you about it.
Let’s hope it can rise to the occasion better than it has in the recent past.