ACCOUNTABILITY

September 22, 2008 

If there is anything Americans can do to prevent future financial crises as bad as the one we are now experiencing, it’s hold government and financial executives personally accountable. Until we do, we can only hope and pray everything turns out OK and wait for the next crisis.

Too often in America, whether it’s a financial crisis, a natural disaster, or some other catastrophic event, there is little personal accountability for the people in charge. Sure, every four or eight years we elect a new President of the United States, and we replace all the high-level political appointees. And when people break the law we throw them in jail. That’s not what I’m talking about.

Unlike parliamentary systems that elect a political party to run government, our opposition can’t call for a vote of no confidence or an out-of-cycle election and bring down the government. We elect a president who holds office for a maximum of two terms and whose tenure is not dependent on his party holding a majority in Congress. Those he appoints to high-level positions, once in office with the advice and consent of the Senate, serve at the pleasure of the president.

When a crisis is mismanaged, rarely does the cabinet official, agency head, or financial institution executive in charge accept personal responsibility, step down, or get fired. Michael D. Brown’s resignation as head of the Federal Emergency Management Agency (FEMA) in the wake of Hurricane Katrina was a rare exception.

More common is the effort to lay the blame elsewhere, with the President expressing full confidence in the official in question until that person becomes too great a political liability. Then if the official resigns it’s because he wants to “spend more time with his family,” not because he accepted responsibility for the calamity.

Last week, John McCain said if he was president he would fire Christopher Cox, Chairman of the Securities and Exchange Commission. President Bush said Cox had his full confidence. Whether Cox is culpable for what’s happened to the financial markets or not, he oversees Wall Street and he isn’t resigning. And in this case, Democrats aren’t clamoring for him to resign. Both Democrats and Republicans are looking rather sheepish, knowing there’s plenty of blame to go around.

Just as the heads of departments or government and financial institutions are rarely held personally accountable, neither are the leaders and managers under them. No one has an incentive to take personal responsibility and sound the alarm or take the bold steps necessary to prevent a crisis from happening. Often an honorable official with a sense of duty goes against the tide and does the right thing, but not often enough.

Beyond government officials, the chief executive officers of quasi-governmental institutions like Fannie Mae, the lending agency whose bad practices precipitated this crisis, have not been held personally accountable. Former Fannie Mae chairmen and chief executive officers James A. Johnson (1991-1998) and Franklin Raines (1999 -2004) both walked away from their jobs with tens of millions of dollars even though they left Fannie Mae worse off.

This culture of irresponsibility doesn’t begin with government or large financial institutions. It’s rooted in the fabric of contemporary American society, which increasingly tells people they are victims who don’t have to take responsibility for their actions. The dramatic rise of civil litigation in America is a testament to this infectious attitude.

Among the institutions of government, only in the US military can we find a code of personal responsibility, and even it is under pressure from the changing morals of our society. Despite a few examples of generals and admirals behaving badly and getting away with it, every day military leaders at all levels are held personally responsible for their actions. Secretary of Defense Robert Gates recently relieved the secretary and chief of staff of the Air Force, two fine and honorable men, and reprimanded four other generals for their failure to prevent lapses in Air Force nuclear security.

Of course, the US system of government isn’t going to change any time soon, and our political culture isn’t either. They are the ones we have, and despite their flaws they have worked pretty well. Nevertheless, Americans are not immune from the man-made catastrophes that have ruined other nations. In the increasingly complex and interdependent world we live in, all that stands between our security and prosperity and ruin are the institutions of government and the people who run them. If we fail to hold them personally accountable to the highest standards of honor and ethics we are bound to get leaders who will let us down.

To deal with the current crisis, Secretary of the Treasury Henry Paulson has proposed a bailout that will buy up bad debts that could cost the taxpayers nearly $700 billion. Congress intends to take up the proposal this week. No doubt they will put in place new regulations and institutions such as they did in the savings and loan crisis in the 1980s. But when this crisis passes, if we fail to reform the underlying culture of irresponsibility that allowed this to happen in the first place, we will have made little progress.