Washington Post business columnist Steven Pearlstein was online Wednesday, May 9 at 11 a.m. ET to discuss the growing credibility gap of Washington trade associations who are supposed to oversee and set high standards for student loans, subprime loans and Medicare plans -- all industries that are currently under scrutiny.

Read today's column: Industries Could Take Cues From Hollywood on Self-Control.

A transcript follows.

About Pearlstein: Steven Pearlstein writes about business and the economy for The Washington Post. His journalism career includes editing roles at The Post and Inc. magazine. He was founding publisher and editor of The Boston Observer, a monthly journal of liberal opinion. He got his start in journalism reporting for two New Hampshire newspapers -- the Concord Monitor and the Foster's Daily Democrat. Pearlstein has also worked as a television news reporter and a congressional staffer.

His column archive is online here.

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Danvers, Mass.: Yes. Filed this column under HTWW (How The World Works).

But, the reason why, in the face of inevitable loss, businesses continue to act out your script ... could it have something to do with them taking enough money off the table before the regulatory costs finally arrive? Could it be that the judicial costs rarely amount to much in the cold calculation of rate of return on the corrupt deals?

Steven Pearlstein: It is possible the profits made during the boom periods, when standards are lax, more than offset the "costs" of having to clean things up once the public and government turn against an industry. That would be an interesting calculation. But to do it, you have to consider a lot of intangibles, chief among them the reputation of the industry and its ability to lobby effectively across a range of issues in the future. Those issue can also involve big money, and losing on them because the industry is in bad odor can be expensive. There are also the impact on people's careers, and the ability to attract and retain people to the industry. I guess I have trouble believing at this point, for example, that the mortgage industy thinks it is better off the way things turned out than to have taken action to reign in some of the worst practices that led to the deterioration of underwriting standards. They would have foregone some business, but not enough to justify the cost of the collapse of the subprime market that has resulted, and the effect of that on the housing market, which in turn impacts the vitality of their basic prime mortgage businesses.

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Silver Spring, Md.: Great column Steve. But I have to ask... where were the regulators in all of this? You say trade associations are supposed to protect members from themselves, prevent things from getting to such a bad point, and it would be wonderful if that always worked. But while my tax dollars certainly shouldn't go to protect corporations from themselves, I'd sure be happy if some more of them went to protecting me, the consumer, from them! Where were the regulators that should have kept those student loan lenders from getting in bed with my college, so perhaps I'd have a more competative choice? Where were the regulators to prevent mortgage companies from marketing a half a million dollar mortgage for 1500 /month knowing darn well that many many people are not well versed enough in finance to realize that payment's going to double when the interest only period is over? What in the world happened to protecting consumers from these sorts of practices BEFORE they got out of hand that our only hope is trade assocations?

Steven Pearlstein: That, of course, is a separate issue. The banking regulators were clearly not vigilant enough, and have effectively admitted as such. The regulators at the Department of Education look, at this point, as if they were in the business of protecting the industry rather than borrowers. The health care issue is more complicated. Some of it involves behavior of state-licensed brokers. The health insurance industry has set up best practices that many of them used to screen out business from bad brokers. But the issue there also concerns whether there should be so-called fee-for-service plans under the Medicare Advantage program, since the view of many who have looked at it is that these don't add any value to the traditional medicare program beyond additional benefits that are paid for by additional subsidies (minus, of course, a profit margin and administrative fees that are higher than the traditional Medicare program.) The health insurance industry has been vigorously defending these fast-growing fee for service programs, which as I indicated is very shortsighted, since the subsidies they receive are indefensible and they threaten political support for the larger Medicare Advantage program, which hold out the real promise of bringing the benefits of managed care to the Medicare program.

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Arlington, Va.: President Bush strongly favors industry self-regulation. It never seems to work. A corporation's profit motive isn't tempered ethics. Corporations understand two things when it comes to adhering to the law, jail and fines. While you praise Jack Valenti's ratings system, I don't think you'll find too many parents or filmakers who think it's helpful. Sure, he kept Congress out of an area they didn't want to go, but the ratings system is a joke.

Steven Pearlstein: On the rating system, I think it does work in two ways. One, it has been well enforced and does give everyone -- not just parents by the way -- a sense of what they are getting into. But more important is that it has set a limit on how raunchy films can get, because the studios do anything to avoid an X rating. That sets a self-imposed limit. This has worked better with sex than with violence -- in fact, I wonder if there needs to be a violence equivalent of the X movie.

And don't get me wrong. I'm not for self-regulation as a replacement for regulation in every case. Far from it. I'm only referring to the fact that, in their own self interest, industries should try to prevent the kind of competitive dynamic that sucks everyone into questionable practices or products that, in the long run, wind up costing the industry dearly.

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New York, N.Y.: Since 2003, the GSE's purchase close to 50 percent of all subprime loans annually and bundle them as mortgage-backed securities. At the same time, they refuse to purchase many prime loans to lower income borrowers because these prime loans appear to be less profitable for their quarterly earnings ledger sheets. As tax-exempt "Government Sponsored Enterprises" should Fannie and Freddie do business with predatory subprime lenders and turn a blind eye to affordable prime lenders who desperately need to benefit from the liquidity and excess capital the government subsidy provides the GSE's? - Cal

Steven Pearlstein: First, GSE's aren't fully tax exempt. Fannie and Freddie, anyway, are exempt from state taxation, not federal. And their bonds are not tax exempt.

But to your larger point, you are right. Fan and Fred, to different degrees, participated in packaging and marketing subprime mortgage packages to the bond market, and they weren't as effective in this area as they have been in the prime mortgage area in setting standards. Which, in a way is my point. Because Fan and Fred are the biggest and most powerful members of the MOrtgage Bankers Association, and they could have worked through that organization to set better standards and let the public know about companies that weren't meeting them.

This second point is really crucial. Its not just a matter of having standards. Most associations have them. It is a matter of really making them stick with their members and bringing pressure on those that don't. That's where the opportunity is often missed, because it is very uncomfortable doing that.

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Bowie, Md.: The three industries you mention are all essentially financial middleman -- companies that don't do much except transfer funds, so there isn't a lot of overhead to enter the industry, or sunk-cost loss of getting out (like building a factory).

Unlike the film industry, which owns lots of stuff, and in which unsucessful efforts are very expensive; isn't the problem with loans and health insurance that there just aren't many barriers to discourage unsuccessful particiaption?

Steven Pearlstein: That's an interesting observation. I'm not sure where it goes, exactly, other than we expect financial intermediaries to be gatekeepers of sorts -- that's one of the reasons they deserve to get a fee -- and when they don't do this job, it can cause markets not to work in the way we expect.

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Great Falls, Va.: The question about the regulators is an important one, but the real weakness in the system is the regulatory framework instituted by Congress. The subprime mortgage situation has been a perfect example. Congress has held showy hearing after hearing, trying to show constituents that they care about major issues. And at each of those hearings, the Congressmen and Senators ignore the more well-measured responses and play to the camera by feigning indignation.

Meanwhile, one could point out that Congress is invariably a decade late to investigate these issues, and while they hold hearings, business interests move on to their next ventures (some of which should probably be the subject of regulation, but won't be for years to come). By the time Congress gets around to acting, it will produce a watered-down regulatory framework that half-fixes older problems that may be moot anyway.

You can't really blame Wall Street for holding Congress in disdain. They're not wrong in thinking that the legislators are too slow to respond, a bit too dim to understand the nuance of the issues, and more willing to produce sound bites than helpful regulation.

With assistance like that, how can the regulators be expected to accomplish anything?

Steven Pearlstein: You know, there's no one who can be as dismissive of Congress than I, but I wonder if they are really the major culprits here. Not having any oversight hearings for six years no doubt allowed regulators to fall into the natural trap of getting too cozy with the industries they are supposed to oversee. But Congress isn't the first line of regulatory defense. I think that's asking too much of them.

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An Adam Smith moment: I think what you've defined is the difference between self-interest and -enlightened- self-interest; short-term gains (splitting up the pie) vs. long-term industry health (baking a bigger pie). The movie industry was able to latch onto that longer-term view, probably because their products have a longer useful life, whereas the financial middlemen aren't interested in building a long-term customer base.

Steven Pearlstein: Thanks, Mr. Smith. You said it better than I did.

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Washington, D.C.: Steve - Since we were never contacted for your opinion piece that indicts industry practice in the area of Medicare Advantage, I would like to ask you a simple question: At what point does your bias against a particular type of Medicare Advantage plan become a convenient route to besmirch an industry and its trade association for not doing the right thing - especially given the fact that this industry has led the way in improving the Medicare Part D program through intensive systems changes that have cost millions of dollars and also the Medicare Advantage program, which, in any form, provides better benefits for millions of beneficiaries?

Steven Pearlstein: This is Mohit Ghose, from the American Heath Insurance Plans trade group, who took particular exception to my column today. I guess, Mohit, I would turn the question around: at what point does your bias in favor of fee-for-service Medicare plans, which siphon money away from other Medicare recipients, get in the way of your seeing the political damage they are causing for the more valuable private plans under Medicare Advantage? It is true I am biased against fee for service plans, because I have studied the criticism and your organization's defense of them, and find the defense very unconvincing. so did the Medicare advisory committee in its recent report, by the way. And as a columnist, I thought I was entitled to have and defend my biases.

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Anonymous: Steve - thanks for the response - Your column is about brokers and agent issues and the marketing of products. You can now make the issue the existence of private fee for service plans in Medicare Advantage, but that is not what your column was about. However, you indicted the industry for not remedying the issues in marketing, not for selling a product. And - people are entitled to their opinions about PFFS or MA in general, but that should not form the basis to say that the industry doesn't police itself - especially since the track record of the MA program shows that the satisfaction rates among beneficiaries are more than 80 percent across the board - precisely because of the better benefits that ALL plans provide - not just any one model - in the MA program. In fact, PFFS plans have chronic care management programs that are patient-centric, not physician centric because they have no networks. Additonally, PFFS plans and all other plans in MA are able to provide better benefits like vision, hearing and dental care which is not available in the regular FFS program. So, we believe that people should have the right information to make the most informed choice in their Medicare coverage - what we see is that people are choosing with their feet to join ALL MA products. Moreover, the industry has mechanisms in place to address the issues raised by the inappropriate marketing of all MA products, including services like call-backs to beneficiaries to confirm their choice and understanding, ride-alongs with brokers, monitoring of broker calls, and termination of contracts upon observed patterns of complaints.

Steven Pearlstein: Mohit, The column wasn't just about marketing of products. It was also, in some instances, about the products themselves, such as subprime mortgages with no documentation and no money down. But I'm glad we have the opportunity here to hear/read what you have to say.

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Beaumont, Calif.: I agree with your concern Steve about any fee for service option under Medicare Advantage Programs. These managed care Medicare programs are why the average cost for seniors in California for medical coverage are less than most other States in the Union. They emphasize preventive care, annual physicals, shots and vaccinations, incentives for good behavior that reduce the end of life outrageous expenses, etc. I guess all of this reflects the sad state of affairs for the upcoming baby boomers in our country. The majority are way over weight, have no regular exercise programs, eat all the wrong foods, practice no preventive medicine - but they want a deal on real low cost medical insurance after the sad way in which they take care of themselves. To top it off, 75 percent of them have about $50,000 saved for their retirement. Give me a break! What has happened to personal accountability in this wonderful country of ours?

Steven Pearlstein: Thanks. Didn't know that about California, which as you know, has more of a tradition of welcoming managed care than those of us in the East, where "chosing your own doctor" is considered to belong in the Bill of Rights!

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