Here again was a blatant and deadly conflict of interest. The credit rating agencies were paid by the bond issuers rather than bond buyers—which gave them, like the executive compensation consultants, an overwhelming incentive to please the firms that supplied their handsome revenues, rather than to issue objective assessments of bond quality, as they were supposed to. Hundreds of billions of dollars of risky subprime mortgage bonds were thus passed off as AAA-rated safe investments. And when it turned out otherwise, the disparity brought on a global recession.
Our pivotal hearing came the next day, October 23, when Alan Greenspan, the legendary former head of the Federal Reserve, joined other regulators to explain how the government had failed to prevent the crisis. Since the Reagan years, the prevailing attitude in Washington had been that the market always knew best. The Federal Reserve had the authority to stop the irresponsible lending practices that fueled the subprime market, but Greenspan rejected pleas to intervene. The SEC could have demanded higher credit rating standards, but did not. The Treasury Department could have forced better oversight of financial derivatives, but declined to. The deregulatory philosophy that marked the age became so powerful that it trumped governance. A point was reached when nothing kept the markets honest.
When my turn came to ask questions, I quoted some of Greenspan’s views on regulation, such as the claim that “There’s nothing involved in federal regulation which makes it superior to market regulation.” My question for him was simply “Were you wrong?”
“Partially,” he replied.
When I later pursued the point, I asked directly, “Well, where did you make a mistake, then?”
“I made a mistake in presuming that the self-interest of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms.”
A moment later, he went further.
“What I am saying to you is, yes, I found a flaw, I don’t know how significant or permanent it is, but I have been very distressed by that fact.”
“You found a flaw?”
“I found a flaw in the model that I perceived is the critical functioning structure that defines how the world works, so to speak.”
“In other words, you found that your view of the world, your ideology, was not right, it was not working?”
“Precisely. That’s precisely the reason I was shocked, because I had been going for forty years or more with very considerable evidence that it was working exceptionally well.”
Greenspan’s testimony reverberated around the globe. The man regarded as the high priest of high finance—“The Maestro”—had candidly admitted that unfettered markets and lax regulation had been principal causes of the collapse. It was something that no one had expected, a gravely fitting coda to our hearings, and a bookend of sorts to the Age of Reagan that had now drawn to its end.
THE RECKLESS GREED OF WALL STREET, THE REGULATORY FAILures, and the extraordinary waste, fraud, and abuse uncovered in our hearings share a common origin. They all stem from an ideology that holds that government intervention is inherently harmful and private sector actions inherently good. Ultimately, Greenspan and Bush committed the same error of believing that the private sector, left unregulated, would act in the public interest. Halliburton, Blackwater, Lehman Brothers, AIG, the credit rating agencies, and even high government officials exploited this system to amass vast fortunes before the bottom fell out. The really monstrous injustice is that the CEOs keep their millions, while ordinary citizens bear the brunt of the economic collapse as workers, home owners, and savers foot the bill as taxpayers to clean it all up.
Along with its shocking waste and dangerous inefficiencies, this approach to governing is fundamentally out of step with the American people. Government has a basic obligation to safeguard the money it collects, and Congress plays a vital role in this process. But during the eight years of the Bush presidency and the twelve years that Republicans controlled the House of Representatives, the American public came to see a staggering disregard for government, and especially for government regulation.
But the tenet of Republican faith that insists government oversight and regulation is unwarranted and harmful was put to the ultimate test when the U.S. economy began to collapse in 2008. Suddenly, the drawbacks of allowing industry to regulate itself became apparent to all. The bankruptcy of this philosophy was ratified by the American people on Election Day 2008, when they sent Barack Obama, a Democrat, to the White House.
CHAPTER 9
The Tobacco Wars
PRACTICALLY FROM THE MOMENT I ARRIVED IN CONGRESS, the fight against tobacco has defined my career. For thirty-five years, I’ve used every lever of government at my disposal to wage this battle, and I’ve done so for one simple and compelling reason: Tobacco kills 440,000 people every year, which makes it the single greatest public health threat America has encountered over the last sixty years. And the fact that this deadly product is legal makes it harder to regulate, and all the more dangerous.
For decades, the tobacco industry managed to hide or downplay the devastating societal consequences wrought by the millions of people who smoke. Every day, tobacco kills as many people as would perish if two jumbo jets crashed—and it continues killing at this rate, day after day after day. By any rational standard the cost in lives, dollars, and lost productivity constitutes a national emergency. Yet when I came to Congress, the issue barely registered. I soon discovered why: The tobacco companies’ amazing grip on Washington let them evade the scrutiny that every other industry had to endure. In 1979, as a reform-minded young chairman of the Health and Environment Subcommittee, I set out to stop this from being so. Some epidemics are beyond our control. But this one was entirely avoidable. The single most important step anyone could take to improve the nation’s health would be to cut back tobacco use. But doing so entailed taking on the most powerful interest group in town.
The story of our decades-long effort to curb tobacco’s deadly prevalence and its malign influence over Washington is a saga of struggle between public need and private interest. The particulars of this struggle illuminate the process whereby powerful private interests burrow deep into the heart of our system of government, not just entrenching themselves but acquiring the ability to manipulate that system from within. For years, the tobacco industry’s adroit use of Washington power enabled it to flourish, all but impervious to regulation or oversight. Only the committed efforts of a handful of legislators, who pushed year after year, often grinding out only incremental gains, managed to change this. But the fact that we did so demonstrates that concerned politicians can, and often do, prevail against even the most daunting opposition. Above all, the tobacco fight shows how the government can better our national culture, in this case saving tens of thousands of lives and improving the lives of millions of others.
VIEWED FROM TODAY, TOBACCO’S STATUS IN THE 1970S SEEMS all but unimaginable. People smoked everywhere, and they smoked a lot—in meeting rooms, elevators, restaurants, theaters, and on trains, buses, and airplanes. Few protested this state of affairs, because we were all conditioned to think of smoking as utterly ordinary and acceptable behavior. Those who did protest quickly encountered the industry’s might. No interest group in Washington loomed larger than Big Tobacco, which possessed a sophisticated understanding of the congressional process, as well as the means and ability to influence it.
The tobacco industry has historically been powerful in Congress because its regional representatives zealously protect its interests, and do so with great skill. This is no accident. Since the Energy and Commerce Committee has jurisdiction over tobacco, the industry has long encouraged newly elected members from tobacco-producing states (most of whom it helped to win office) to seek membership. Steering committees for both parties determine where members are assigned, so, mindful of the importance of seniority in Congress, the industry goes to work there, too, carefully tracking the steering committee’
s roster in order to pressure and influence those who actually place the new members. This strategy ensures that a steady stream of allies is always moving up the ladder of the most important committees and subcommittees. For many years, when sympathetic chairmen retired, they were often succeeded by people with identical views on tobacco. It was a measure of the industry’s success on this front that the man I defeated in 1979 to become chairman of the Health and Environment Subcommittee—Richardson Preyer, a North Carolina Democrat—did not believe that tobacco was harmful.
When I got to Congress, the industry made little distinction between the parties. Most of the powerful chairmen in those days were Southern Democrats. But the industry spread money around to both leaderships, and curried additional favor—and gained unparalleled access—by shrewdly alleviating one of the most tedious aspects of a congressman’s life: the constant travel on commercial airliners. The tobacco companies routinely shuttled congressmen around the country in corporate jets. (When I later challenged this practice, my own party’s leadership was as cool to the idea as the Republicans’.) Tobacco companies always ranked among the largest contributors of “soft money” to the party committees, funded lavish inaugural balls, and happily underwrote the annual galas for more charity foundations than you could imagine—all of which bought them unexpected allies, and silenced some who might otherwise have spoken up.
The industry understood its vulnerabilities and carefully purchased protection. Smoking kills minorities at a disproportionate rate. So tobacco companies funneled disproportionately large sums to minority-heavy districts through grants to local schools, charities, arts foundations, and other community projects. These districts were often among the poorest in the country, and desperately needed the money. Consequently, their benefactors enjoyed outsized influence in the very communities that suffered the most harm from their products.
This is how tobacco came to wield such enormous clout, not just in Congress but throughout Washington. The industry effectively stood beyond the reach of the federal government. The Food and Drug Administration lacked the authority to regulate tobacco. The Consumer Product Safety Commission was explicitly forbidden to oversee tobacco and guns. And the Federal Trade Commission’s authority only extended as far as misleading advertising claims, which wasn’t far at all. Needless to say, neither party particularly wanted to change this sorry state of affairs. The tobacco industry was close to impregnable.
But even this protection and influence could not eliminate the mounting evidence of what tobacco was doing to millions of Americans. So the industry devised two very successful methods of staving off attempts at reform. The first was to encourage the idea that it was natural and acceptable to smoke. Cigarette companies hired the best minds on Madison Avenue to portray smokers as attractive, athletic, successful types engaged in a “lifestyle” that others would want to emulate, a notion that they reinforced by sponsoring athletic events (the Virginia Slims women’s tennis tour, the NASCAR Winston Cup) and creating iconic corporate mascots like Joe Camel and the Marlboro Man that were designed to be cultural signifiers of cool. The campaign to transform a destructive habit into seemingly wholesome behavior went beyond advertising. Underwriting philanthropic and charitable activities lent tobacco companies a sheen of civic-mindedness, allowing them to masquerade as stewards of the culture and pillars of the community, rather than merchants whose products caused death and disease. In Washington, their efforts to pass themselves off as a respected part of the establishment were pervasive—and even I was not immune.
Like many politicians, I have a dirty secret: I used to smoke. In high school, I would tool around West Los Angeles in my green-and-white Buick, dragging on a cigarette and imagining myself the epitome of cool. With considerable effort, I quit smoking after college, prompted by the emerging medical consensus that tar and nicotine were dangerous carcinogens. But early in my congressional tenure, I relapsed. It happened on a CODEL, the Washington acronym for “congressional delegation,” or one of the formal trips that congressmen take together on business. Everywhere I turned, cigarettes were being provided gratis to the members of our party—on the plane, in the hotel. It was all part of the industry effort to gull official Washington into feeling comfortable about smoking. To be sociable, I decided to light up, and because I hadn’t smoked in a long time, it packed a punch. Somehow, I convinced myself that I could smoke now and then without falling back into the habit. Before long, I was hooked again—and mortified to be so, since I was already becoming known as a crusader against tobacco.
Driven by a deep sense of embarrassment, I managed to quit for good. I rejoined the ranks of ex-smokers, chastened and with a profound appreciation for the tobacco industry’s wily influence.
The second way the industry staved off reform was by going to any length to create uncertainty about whether smoking was truly harmful. Though respectable doctors and scientists were nearly unanimous in agreeing that it was, the tobacco companies hired their own doctors and scientists to churn out study after study suggesting otherwise. The industry erected pseudoscientific front groups like the Council for Tobacco Research to cast doubts on any connection between smoking and disease, while its armies of lawyers labored to ensure that no court of law would find a tobacco company liable for dying smokers’ health claims. Flimsy though it was, this “scientific evidence” armed tobacco’s allies with sufficient deniability to maintain tobacco’s socially acceptable status. This helped discourage the idea that a culture of pervasive smoking was anything other than ordinary, which in turn made any efforts to curb smoking seem like a faddish cause for slightly nutty do-gooders.
All this elaborate effort was necessary for the companies to escape government oversight. Smoking was framed as a personal choice, a private matter in which the government had no place interfering. For years, the industry pushed the line that if people chose to smoke, well, that was their business. No one had the right to tell them otherwise. This argument long proved effective. But it rested on an assurance that tobacco did no harm to anyone who had not themselves chosen to smoke. The industry insistently raised doubts about every new scientific study linking tobacco to cancer, partly to keep its own customers from quitting, but also because its laissez-faire argument would break down overnight if the public came to realize the dangers of secondhand smoke.
* * *
MAJOR ACHIEVEMENTS IN CONGRESS ARE RARELY REACHED OVER A single session. Tobacco’s clout and benign public image meant that significant reform would be especially difficult to bring about. Realistically, we had no hope of persuading Congress to regulate tobacco in the near term. So instead we turned to the oversight process as a way to begin pushing back against tobacco’s carefully constructed edifice and dramatize the alarming health effects that the industry worked so hard to obscure.
We certainly did not lack for evidence. Scientists had established as long ago as 1953 that tobacco caused cancer in rats. A year later, researchers linked smoking to lung cancer, heart disease, and a general increase in the death rate. In 1964, a landmark surgeon general’s report concluded that cigarette smoking caused cancer, and soon afterward Congress had required that cigarette packages carry warning labels. But little headway had been made against smoking since then, even as the staggering toll on public health continued to mount. In 1979, smoking was killing 400,000 people a year, and yet the industry could still deny that its product killed anyone.
Beginning in the early 1980s, I chaired a series of subcommittee hearings designed to bring these facts to light. Over several years, we brought in celebrities from Miss America to Captain Kangaroo to talk about the dangers of smoking, and to emphasize the rate of death and disease, the loss of productivity, and the family tragedies that invariably befall heavy smokers. While the celebrities did draw media attention, the coverage of the issues they testified about tended to dissipate quickly, making it difficult to sustain our campaign.
One area where we found some traction was in arguing for stron
ger cigarette warning labels. The label Congress had settled on in 1965 asserted vaguely that smoking was “harmful” to one’s health, which rather understated the case. Almost twenty years later, the message had become timeworn and long since lost whatever effectiveness it might have possessed. By hammering away at the dangers of tobacco in our hearings, we persuaded Congress to pass a law in 1984 that mandated new, more sharply worded, and much larger warning labels that rotated over time and linked cigarette smoking to specific ailments like lung cancer, heart disease, and emphysema. The law also extended the labeling requirement to billboards, newspapers, and other modes of advertising. Even so, the industry extracted a concession on what it considered a crucial issue of terminology: The link between smoking and disease could not be presented on the warning labels as an empirical fact, but instead was attributed to the surgeon general—thereby preserving the sliver of deniability the industry relied on.
Smokeless tobacco was another area that had escaped regulation, to tragic effect among the young men who were its core users. Snuff and chewing tobacco were exempt from labeling requirements, leading many kids to conclude erroneously that these products did not cause cancer. Sean Marsee, a high school track and field star from Oklahoma, was one such user who became the focus of a hearing on smokeless tobacco’s deadly effects. Marsee had started dipping Copenhagen snuff as a twelve-year-old. One day he discovered what turned out to be a cancerous red sore on his tongue, the size of a half dollar. His tongue was cut out, but the cancer still spread to his lymph nodes, necessitating several more disfiguring surgeries that could not, in the end, save his life. Soon after he died in 1984, at the age of nineteen, we introduced legislation extending the warning label requirement to smokeless tobacco. Surgeon General C. Everett Koop became an important ally, testifying that tobacco use among children was increasing, evidently in response to the industry’s multimillion-dollar advertising blitz featuring popular athletes and entertainers. In 1986, we succeeded in getting warning labels on smokeless tobacco products and prohibiting broadcast advertising for them.
The Waxman Report Page 17