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In the Public Interest
Helping Consumers Organize to Protect Themselves
By Ralph Nader, Washington, DC
Enron, Enron, Enron—front page and center, top of the network television news and the biggest criminally-derived bankruptcy in U.S. history. A "gargantuan pyramid scheme," says Republican Senator Peter G. Fitzgerald. Proposals of varying sincerity are gushing forth from Congressional minds, calling for tougher regulations to protect investors and pension-holders from crooked self-dealing corporate executives and their compliant outside auditors.
No one is yet speaking of helping investors and pension-holders organize in order to defend themselves and provide the grassroots power to get the laws enforced. Recently Harvey L. Pitt, the new Chairman of the Securities and Exchange Commission and a former big-time attorney for the large accounting firms, told a House of Representatives investigating committee about his concern for ordinary defrauded people who trust their companies: "It is these Americans whose faith fuels our markets, who have no lobby and no trade associations, whose interests are, and must be, paramount. I am appalled at what happened to them as a result of Enron's collapse."
Ergo? Is Chairman Pitt implying that these ordinary people should continue to trust members of Congress to enact strong laws with enough funds for dutiful regulators to strongly enforce them? The lessons of history do not provide assurances for such trust. Does Chairman Pitt have a proposal to see that these faithful Americans have their own lobby? Not to my knowledge. Nor do members of Congress have such a proposal now.
In his small, important book, Here, the People Rule, Harvard constitutional law professor Richard Parker argues that the federal government has an affirmative constitutional duty to facilitate the political and civic energies of the people. His point certainly finds resonance in Lincoln's words, "government of the people, by the people and for the people."
In 1974, I wrote my first article on the necessity of redressing the imbalance between consumers and large companies that were recipients of governmental privileges such as legal monopolies or taxpayer subsidies. One method of redress would be to require that company billing envelopes include mandatory inserts inviting consumers to band together in groups with full-time consumer advocates. The immediate occasion for this proposal was rising electricity rates, weak regulation and powerless residential ratepayers.
But in the ‘80s, the savings and loans scandals started piling up. Corporate looters, mismanagers and their speculators put at risk or devoured tens of billions of dollars of ordinary peoples' savings. In September 1985, Rep. Charles E. Schumer of New York, then perhaps more idealistic than today's Senator Schumer, introduced the Consumer Banking Act of 1985. A key provision of the legislation, Rep. Schumer wrote, is establishing voluntary membership-based, state-level Financial Consumers' Boards.
These self-funded, private conumers’ boards "would act as an institutional watchdog for consumers' interests; representing citizens in financial services matters before regulatory agencies, legislatures and the courts, and informing bank customers of these actions," he declared. These boards, the Congressman added, would also conduct surveys, disseminate information such as shoppers' guides to financial services, and assist citizens in resolving consumer complaints.
Four years later, with an avalanche of collapsing S&Ls demanding a Congressional bailout, Schumer's proposal was turned down in 1989, 1990 and 1991 by a large majority of the House Banking Committee members as they were passing massive taxpayer bailouts of these once-fiduciary institutions. And these consumers’ boards would not have cost the taxpayer a penny, as the projected millions of members would pay modest annual dues. An Illinois board, representing utility ratepayers, attracted over 150,000 members in that state within 18 months of its establishment. In one negotiation, nine years ago, this board persuaded Commonwealth Edison to refund $1.3 billion in overcharges to northern Illinois families.
Now comes Enron, capping a decade of casino capitalism and corporate crime, fraud and abuse that has been chronicled in the Wall Street Journal, Business Week, the New York Times, and other mainstream publications. How will investors and pension-holders be able to protect their savings and retirement funds? By dusting off Rep. Schumer's proposal and extending it across the entire financial industry to start Financial Consumer Associations in every state. Let’s allow those who would be ripped off organize themselves more easily, through mechanisms such as inserts in these companies' statements and bills that go out at least once a month to customers and beneficiaries.
For more information on this proposal, during these momentous Congressional hearings about what to do after Enron, contact Theresa Amato at Citizen Works, PO Box 18478, Washington, D.C. 20036; visit <www.Citizenworks.org>; or call 202-265-6164.
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