Facebook
Twitter
Features
Washington's budget hawks want to decimate the federal workforce to shrink the deficit. It will have the opposite effect.
What’s worse, those inspectors were woefully undertrained—they complained of it themselves—and significantly underpaid. As oil companies moved into deeper and deeper water, their drilling technology—including the now-infamous “blowout preventers”—far outpaced the inspectors’ knowledge and the agency’s technical regulations. Some inspectors “noted that they rely on industry representatives to explain the technology at a facility,” the commission report says. And at a time when even the industry struggled to recruit enough qualified engineers to staff its expansion, the regulator stood virtually no chance in the competition for talent. Minerals Management “has difficulty recruiting inspectors,” said the Department of Interior’s inspector general in congressional testimony last year. “Industry tends to offer considerably higher wages and bonuses.”
Is it any mystery, then, why the Minerals Management Service failed to prevent a blowout in the Macondo Well 5,000 feet undersea? Quite apart from other huge problems facing the small agency (the conflicts of interest inherent in its lucrative royalty-collecting program, its place in a Department of Interior largely run by energy lobbyists during the Bush administration, and the much-reported “culture of substance abuse and promiscuity” in certain suboffices), its manpower issues alone would seem fatal enough.
Much the same pattern held in the Securities and Exchange Commission’s oversight of the financial sector in the run-up to the financial crisis. In the early Bush years, SEC Chairman William H. Donaldson understood that his famously understaffed and outmatched agency was having to oversee increasing volumes of ever-more-complex financial activity. “There was a real need to increase the staff,” says Donaldson. “We had to really fight to get that done.” In addition to adding personnel, Donaldson created a central Office of Risk Assessment to monitor warning signals across the SEC’s various divisions. And he set about trying to hire a few brokerage and investment pros familiar with the kinds of “innovative” financial instruments then sweeping Wall Street (an uphill battle in an agency predisposed to hiring lawyers).
While Donaldson was playing catch-up by beefing up his staff, the SEC was also fatefully handed a key new responsibility. The European Union had just told America’s largest financial holding companies—the likes of Bear Stearns, Goldman Sachs, and Lehman Brothers—that, if they wanted to keep doing business on the Continent, they would need to submit to “consolidated supervision” from an American regulatory agency. (Their subsidiaries were regulated by various agencies, but the holding companies as such were not.) And so in 2004 the five biggest investment firms crafted a voluntary arrangement with the SEC that afforded the regulatory agency unprecedented access to their books. But there was also a riskier side to the bargain: the deal significantly eased the limits on how much debt the major firms could take on, freeing up billions of dollars—usually held in reserve as an asset cushion—to be invested in the kinds of exotic financial instruments that would become household names after the crash in 2008.
The SEC might have been able to handle this perilous and demanding set of new responsibilities had it continued down the road Donaldson laid out. But instead, between 2005 and 2007, the agency lost about 10 percent of its total personnel due to a hiring freeze, including 11 percent of its enforcement division. According to the Financial Crisis Inquiry Commission, the new supervisory program over the big-five investment firms, which relied heavily on the firms’ own computer models and self-reporting, was “troubled from the start.” In the summer of 2005, Donaldson resigned and was replaced by the former Republican Congressman Christopher Cox, for whom the supervisory program was “not a priority,” according to the New York Times. “Preoccupied with its own staff reorganization,” the FCIC says, the supervisory program went more than a year without conducting a major examination.
All of this coincided, under Cox’s leadership, with an agency outlook more generally in line with the Bush-era faith in laissez-faireoversight and industry self-policing. In a move that many have highlighted, Cox all but dismantled the Office of Risk Assessment that Donaldson had set up, reducing its staff to four part-time workers, according to Portfolio magazine. “The exact places where you didn’t want to make cuts were in the risk assessment and financial products area,” says James D. Cox, an expert on securities law at Duke University (and no relation to the former chairman). In 2005 alone, enforcement cases fell by 9 percent.
By the time that Bear Stearns collapsed in 2008, by many reports the commission’s staff was already badly demoralized. In an op-ed headlined “Muzzling the Watchdog,” three former heads of the commission wrote that the SEC “lacks the money, manpower, and tools it needs to do its job.” (Pathetically outmoded technology was another major problem.) “You never have enough people, but if you could bump up enforcement levels, say, 20%, it would make a huge difference,” a former senior counsel to the enforcement division named Bruce Carton told Time magazine. “Tweaking policies won’t replace more manpower and training.”
If there were any place where the federal government might have had a fighting chance to fend off or at least ameliorate the worst financial crisis since the Great Depression, it was at the SEC in the mid-2000s. Instead, the SEC divested itself of personnel and initiative. Consider the breathtaking consequences: not just the $700 billion bailout (most of which has been or will be paid back), but $400 billion in lost federal revenue as a result of the recession (that’s in 2009 alone) and the $800 billion stimulus to get us out of it. Suddenly, shaving a few million dollars from the overhead costs of the SEC doesn’t sound like much of a bargain.
The average voter may imagine federal bureaucracies as overstaffed, full of people leaning on their rakes and sharpening their pencils. But the truth is, most agencies are, if anything, understaffed. The government has grown tremendously in its spending and scope since the 1960s, and the population of the nation has grown by a margin of 100 million people, but the size of the federal workforce has remained remarkably static at about 2 million. Since coming into office two years ago, the Obama administration has bumped up staff levels by about 100,000, in part through “in-sourcing”—bringing back into the civil service inherently governmental work that had been farmed out to contractors. If this leads to better management, it could well mean a stanching of some of the cost overruns and regulatory failures that have been causing the government to bleed red ink. Today’s mindless demands for austerity, however, could reverse this trend.
This is not to say that there aren’t big bureaucratic reforms that need to be made that could lead to people losing their jobs. Many agencies, for instance, exhibit excessive layering in their management ranks (think job titles that start with “deputy-” or “under-”). And if Congress and the administration could agree to lift some of the outdated procedural requirements and redundant reporting demands that are the bane of the average civil servant’s life, it might be possible for agencies to fulfill their mission as well or better with fewer people.
Elizabeth Good on August 31, 2011 10:32 AM:
This is one of the most informative articles I have ever read,Explaining why we need good and appropriately educated and trained personnel on the oversight committees.I have past this on to friends and used it as info for debates with some Republican friends.Bravo