Wall Street’s Congressional Perp Walk

CEOs of the nation’s largest banks and financial institutions faced Congress today, defending how they used almost hundreds of billions in taxpayer bailout money. Members of the House Financial Services Committee wanted to know why the executives paid executive bonuses, bought corporate jets, put on parties, arranged employee junkets, and richly rewarded their shareholders with dividends, rather than lend the money to Main Street. Committee Chairman Barney Frank told the bank executives there was “a great deal of anger” across the country.

Anger, yes. Indeed, the hearing was something of a perp walk. But the pertinent question is what Congress will do to make sure Geithner’s new plan for using more of the bailout money doesn’t allow bank executives to do much the same, through back doors and loopholes.

In recent years, Congress has gotten into a habit of publicly shaming the executives of companies that have acted badly in some way. But little legislation emerges to force the companies to behave any differently in the future.

When oil prices soared in 2005 and early 2006, oil companies reaped extraordinary profits while millions of Americans had to pay more to fuel their cars and heat their homes. This prompted calls for Congress to enact a “windfall profits tax” on the oil companies, but not even a debate took place. Instead, Congress simply scolded oil company executives and publicly berated the companies. As oil prices and profits approached record levels, Senator Charles Grassley, an Iowa Republican, and chairman of the Senate Finance Committee, issued a public letter reprimanding the oil and gas industry and instructing its companies to make charitable donations – 10 percent of that quarter’s profits – to help poor people pay their heating bills that winter. “You have a responsibility to help less fortunate Americans cope with the high cost of heating fuels,” Grassley said.

When BP’s carelessness on the North Slope led to the temporary shutdown of the nation’s largest oil field, in August 2006, Congress demanded BP executives appear in person to be held accountable. At the ensuing hearing, members from both sides of the aisle accused the executives of crass negligence. Representative Joe Barton excoriated them: “If one of the world’s most successful oil companies can’t do simple basic maintenance needed to keep the Prudhoe Bay field operating safely without interruption, maybe it shouldn’t operate the pipeline,” he fumed. “I am even more concerned about BP’s corporate culture of seeming indifference to safety and environmental issues. And this comes from a company that prides itself in their ads on protecting the environment. Shame, shame, shame.” The BP executives solemnly promised to be more careful in the future. That was the end of it.

When in 2005 Yahoo surrendered to Chinese authorities the names of Chinese dissidents who had used Yahoo email, and Google created for the Chinese a censored version of its search engine (removing such incendiary wordsa s “human rights” and “democracy,” many Americans were outraged. Executives of both companies were summoned to appear before the House Subcommittee on Human Rights. Christopher Smith, its chairman, accused Yahoo of entering into a “sickening collaboration.” He ridiculed the firm’s avowed justification for revealing the names of dissenters, saying if Anne Frank had put her diaries on email and Nazi authorities wanted to trace her down, Yahoo might have complied if Yahoo’s email system had exposed Nazi Germany to American culture. The late Tom Lantos, a leading Democrat on the committee and the only Holocaust survivor in Congress, asked the assembled executives “are you ashamed? Yes or no?” He called their behavior a “disgrace” and asked how they could sleep at night. James Leach, a Republican from Iowa, accused Google of serving as “a functionary of the Chinese government,” adding that “if we want to learn how to censor, we’ll go to you.” Smith subsequently introduced a bill to prevent American companies from, among other things, cooperating with censorship, but no one expected it to pass, and neither Smith nor any other member of congress pushed for it.

Perp walks like these may serve a useful public function. Rituals of public shaming are not inconsequential. But they’re no substitute for laws and penalties that prevent the conduct in question from recurring.

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