This year promises to be fascinating politically. The Republicans, in control of both houses of Congress for the first time in 40 years, have received a clear mandate to reduce the size and intrusiveness of government.
The new majority, particularly in the House of Representatives, appears poised for an aggressive assault. Among their early targets are bloated Congressional staffs and an unwieldy committee system.
There are so many other inviting targets for downsizing or elimination, it's hard to know where to begin. One hopes that the Congressional leadership doesn't lose sight of the General Accounting Office.
The GAO was established by Congress in 1921 to carry out government accounting and auditing functions. It has grown enormously to a staff of nearly 5,000 and an annual budget of nearly $450 million. It has 14 regional offices scattered about the country, two European offices, and a Far East Office in Hawaii.
The GAO has spread its tentacles throughout the government, conducting studies, often upon its own initiative, in areas in which it has little or no expertise. It has become very much a tool of Congress, even going so far as to detail staff to Congressional committees.
My first-hand experience with the GAO stems from my years at the helm of the Federal Deposit Insurance Corp. The GAO repeatedly pestered the FDIC for access to its bank examination files so it could second-guess the FDIC's work and judgments.
The FDIC was, and is, an independent agency accountable to Congress. Its board members were, and are, appointed on a bipartisan basis to serve fixed terms.
The FDIC's staff was, and is, composed of career civil servants whose raison d'etre is to protect the integrity of the deposit insurance fund and system. The agency spends more than $10 million annually to train its staff in the intricacies of bank supervision.
No useful purpose would have been served by allowing the GAO's novices to oversee the FDIC's expert, apolitical supervisory staff. So we refused the GAO access to the FDIC's files. They fussed and fumed, but went away.
The savings and loan crisis provided the GAO a once-in-a-lifetime opportunity to greatly expand its turf. It didn't matter, in the hysteria of the moment, that the S&L crisis was due in no small part to a highly politicized S&L regulatory scheme over which both the executive and legislative branches of government exercised far too much control. The GAO, an instrument of the very politicians who helped create the S&L mess, was given sweeping new powers to interject itself into bank regulation.
The results have ranged from a frivolous waste of money to extremely serious negative consequences for the banking system and the economy. An example of the former was the GAO's recent study telling the banking agencies they ought to develop a mechanical method for establishing loan loss reserves at banks, as if the agencies wouldn't have done that long ago if it were feasible.
An example of the latter was when the GAO forced the FDIC to create roughly $15 billion of excess reserves at the height of the economic downturn in the late 1980s. The GAO grossly overestimated the FDIC's future losses and required the agency to charge off immediately their present value. Even though the FDIC's future income was far more predictable than its potential losses, the GAO allowed no credit in the calculation for the present value of the FDIC's future income stream.
The FDIC fund was rendered artificially insolvent. That led to extremely punitive legislation, triggered an enormous tax increase for banks, exacerbated the economic downturn, prolonged the credit crunch, and nearly panicked the depositing public.
As if to add insult to injury, the GAO charges monopoly prices for its audit services to government agencies. It is estimated that the FDIC, for example, pays perhaps 50% more to the GAO for audits than it would have to pay if it put the job out for competitive bidding in the private sector.
Assuming the GAO's track record in other fields is anywhere near as bad as it is in banking, it's difficult to imagine why the nation would not be well served by the GAO's abolition. At the very least, the GAO's budget should be cut in half to force it to focus its attention on areas where it might add some value.
Mr. Isaac, former chairman of the Federal Deposit Insurance Corp., is chairman and CEO of the Secura Group, a financial institutions consulting firm headquartered in Washington.