Trying their best to allow bankers to do their worst
Like many advocates of financial reform, I was a bit disappointed in the Bill that finally emerged. Dodd-Frank gave regulators the power to rein in many financial excesses, but it was and is less clear that future regulators will use that power.
As history shows, the financial industry’s wealth and influence can all too easily turn those who are supposed to serve as watchdogs into lap dogs instead.
There was, however, one piece of the reform that was a shining example of how to do it right: the creation of a Consumer Financial Protection Bureau, a stand-alone agency with its own funding, charged with protecting consumers against financial fraud and abuse. And sure enough, Senate Republicans are going all out in an attempt to kill that bureau.
Why is consumer financial protection necessary? Because fraud and abuse happen.
Don’t say that educated and informed consumers can take care of themselves. For one thing, not all consumers are educated and informed.
Edward Gramlich, the Federal Reserve official who warned in vain about the dangers of subprime, famously asked: “Why are the most risky loan products sold to the least sophisticated borrowers?” He went on: “The question answers itself; the least sophisticated borrowers are probably duped into taking these products.”
Even well-educated adults can have a hard time understanding the risks and payoffs associated with financial deals – a fact of which shady operators are all too aware.
Credit card contracts
To take an area in which the bureau has already done excellent work, how many of us know what’s actually in our credit card contracts?
Now, you might be tempted to say that while we need protection against financial fraud, there’s no need to create another bureaucracy. Why not leave it up to the regulators we already have? The answer is that existing regulatory agencies are basically concerned with bolstering the banks; as a practical, cultural matter they will always put consumer protection on the back burner – just as they did when they ignored Gramlich’s warnings about subprime.
So the consumer protection bureau serves a vital function but, as I said, Senate Republicans are trying to kill it.
How can they do that when the reform is already law and Democrats hold a Senate majority? Here as elsewhere, they’re turning to extortion – threatening to filibuster the appointment of Richard Cordray, the bureau’s acting head, and thereby leave the bureau unable to function.