The Beginning of the End of Meaningful Regulatory Reform

The erosion of the Obama administration’s regulatory-reform plans has now begun in earnest:

At a hearing before the House Financial Services Committee, Treasury Secretary Timothy F. Geithner announced that the administration had dropped one provision in its plan for a consumer financial protection agency — a requirement for banks and other financial services companies to offer “plain vanilla” products, like 30-year fixed mortgages and low-interest, low-fee credit cards.

There’s no good reason for this capitulation, except for the financial lobby has so effectively captured Congress that no reform would be able to get through with such a common-sense provision in place. This has nothing to do with the government “approving and disapproving a wide array of financial products”, it just says that anybody who wants to call themselves a bank should provide simple, basic banking products which aren’t prone to hidden fees and lucrative opacity. I fear that by the time Congress is done, the Consumer Financial Protection Agency won’t be able to protect consumers at all — and that’s assuming it’ll even exist.

Comments

[Ricard:]

This is the same Geithner that went on an expletive rant while meeting with all of the regulators that would have supposedly had responsibility for future oversight. Sad, but expected.

Sep 23 06:39 PM

[THofler:]

The only function of a CPFA is to dismantle Fed authority and independence and place it in the hands of pay-to-play politicians.

Sep 23 09:31 PM

[Mad Hedge F...:]

wut ) I spent the evening with David Wessel, the Wall Street Journal economics editor, who has just published In Fed We Trust: Ben Bernanke’s War on the Great Panic. I doubted David could tell me anything more about the former Princeton professor I didn’t already know. I couldn’t have been more wrong. Bernanke was the smartest kid in rural Dillon, South Carolina, who, through a series of improbable accidents, ended up at Harvard. He built his career on studying the Great Depression, then the closest thing to paleontology economics had to offer, a field focused so distantly in the past that it was irrelevant. Bernanke took over the Fed when Greenspan was considered a rock star, inhaling his libertarian, free market, Ayn Rand inspired philosophy. Within a year the landscape was suddenly overrun with T-Rex’s and Brontesauri. He tried to stop the panic 150 different ways, 125 of which were terrible ideas, the remaining 25 saving us from the Great Depression II. This is why unemployment is now only 9.8%, instead of 25%. The Fed governor is naturally a very shy and withdrawing person, and would have been quite happy limiting his political career to the local school board. But to rebuild confidence, he took his campaign to the masses, attending town hall meetings and meeting the public like a campaigning first term congressman. The price of his success has been large, with the Fed balance sheet exploding from $800 million to $2 trillion, solely on his signature. The true cost of the financial crisis won’t be known for a decade. The biggest risk now that having pulled back from the brink, we will grow complacent, and let needed reforms of the system slide. How Bernanke unwinds this bubble will define his legacy. Too soon, and we go back into a depression. Too late, and hyperinflation hits. Let’s see how smart Bernanke really is.

Sep 23 09:36 PM

[Mbuna:]

Yes I agree. Obama's downfall is the financial oligarchs that not only own Congress but they effectively own the executive branch as well. Apparently he does not see this and it's too bad because he will not have a second chance. Geithner and Summers need to be replaced. How about Volcker and then maybe putting William K. Black in some position to make heads roll on Wall St. Mr. Black has said that no one in the current administration has contacted him in anyway. That is sad.

Sep 24 03:50 AM

[buyitcheap:]

Just confirmation that GS and BAC pretty much own the relevant branches of our government. House, Senate and White house.

Sep 24 07:59 AM

[Robespierre:]

"This is why unemployment is now only 9.8%, instead of 25%."

By all means prove causation on that statement. The truth of the matter is that particular claim is exactly the same as saying that the administration stimulus plan help save 1M jobs, Neither one can be prove.

BTW having studied the Great Depression does not in any way qualifies you to be able to cure it. An analogy if I may. I may be able to study brain surgery for years and years. Would you allow me to operate on you? Moreover, knowing what happened in the Great Depression is not the same to figuring out what caused. For that you would need to reproduce the same conditions and try different actions to see which one works. In other words the best you can do is not to use what was used before (maybe) because you already know that it does not work. As for what actions to take, instead, you are pretty much flying blind since those actions may (or may not) stop the Great Depression and create something worst.


On Sep 23 09:36 PM Mad Hedge Fund Trader wrote:

> wut ) I spent the evening with David Wessel, the Wall Street Journal
> economics editor, who has just published In Fed We Trust: Ben Bernanke’s
> War on the Great Panic. I doubted David could tell me anything more
> about the former Princeton professor I didn’t already know. I couldn’t
> have been more wrong. Bernanke was the smartest kid in rural Dillon,
> South Carolina, who, through a series of improbable accidents, ended
> up at Harvard. He built his career on studying the Great Depression,
> then the closest thing to paleontology economics had to offer, a
> field focused so distantly in the past that it was irrelevant. Bernanke
> took over the Fed when Greenspan was considered a rock star, inhaling
> his libertarian, free market, Ayn Rand inspired philosophy. Within
> a year the landscape was suddenly overrun with T-Rex’s and Brontesauri.
> He tried to stop the panic 150 different ways, 125 of which were
> terrible ideas, the remaining 25 saving us from the Great Depression
> II. This is why unemployment is now only 9.8%, instead of 25%. The
> Fed governor is naturally a very shy and withdrawing person, and
> would have been quite happy limiting his political career to the
> local school board. But to rebuild confidence, he took his campaign
> to the masses, attending town hall meetings and meeting the public
> like a campaigning first term congressman. The price of his success
> has been large, with the Fed balance sheet exploding from $800 million
> to $2 trillion, solely on his signature. The true cost of the financial
> crisis won’t be known for a decade. The biggest risk now that having
> pulled back from the brink, we will grow complacent, and let needed
> reforms of the system slide. How Bernanke unwinds this bubble will
> define his legacy. Too soon, and we go back into a depression. Too
> late, and hyperinflation hits. Let’s see how smart Bernanke really
> is.

Sep 24 09:06 AM

[carey_jim:]

Thomas Paine was "a voice heard around the world" in 1776. But for British-Americans in 1776 the government Paine was referring to was the hereditary, absolutist monarchy represented by King George.

Paine said, "Society in every state is a blessing, but government even in its best state is but a necessary evil in its worst state an intolerable one; for when we suffer, or are exposed to the same miseries by a government, which we might expect in a country without government, our calamities is heightened by reflecting that we furnish the means by which we suffer!"

For modern Americans, government is the corporate oligarchy which rules through Congress. Regulations are not an attempt to control the people with more big government but an attempt to free the people from the evils of the intolerable rule of the corporate, absolutist oligarchy. Until most Americans understand that distinction we will never have "the necessary evil" which these truly democratic regulations will be for us.

Sep 24 12:09 PM

[bob adamson:]

Since the current economic crisis came to a head last year there has been an important division between the centre left and centre right on how we should respond to the deep downturn and where we should ideally be headed coming out of it. The left wants to protect employment, incomes and employment benefits and rebuild public infrastructure and social and environmental programs to both maintain and rebuild better balance (economic, social and ecological) and social equality; these being the measures of a healthy and sustainable economy and society. The right wants controlled ‘creative destruction’ of wasteful public and private social and economic institutions and accelerated shifting of economic focus to the healthiest sectors of the private sector promoted by deregulation and a lowering tax and public debt burden coupled with a greater embrace of globalization; these being the way to greater growth and individual freedom. This division was temporarily masked in the third quarter of 2008 and the first of 2009 as all embraced the need for short term stabilization of the banking sector and shock stimulus of consumption. Now that (perhaps prematurely) it appears that the crisis phase has past, the right increasingly calls for a return to their core agenda while the left continues to see the need for both short term stimulus and a longer term drive to achieve the balance and equality described above. This debate is now front and centre and the future of US investment banking should be a primary focus of that debate.

This debate should not be viewed as a zero sum game of winner takes all. In particular, the need for a better regulatory framework for the US investment banking industry should be apparent across most of the political spectrum. Neither side in the debate as described above has all the answers to the exclusion of the other when it comes to visualizing the details of that regulatory framework. The future of New York as the world’s leading investment banking centre, the return to health of banking in the US and much else besides depends on making real progress in devising and implementing this better framework without delay. In light of this, should we not worry that the sense of urgency appears to be diminishing and the desire for a quick political compromise to be growing (in place of an urgent, intelligent and principled but not dogmatic or unduly partisan public inquiry)?

Sep 24 01:22 PM

[rpgpa:]

"financial lobby" huh. well ive said all along. We are now the most corrupt nation in the world. Believe this is a Democracy? I feel for ya. What a joke. Capitalism. Yea thats if the playing field is level and not corrupt. Wake up boys and girls. This country is the laughing stock. That is if your not the 10% of Wall street money that pays off congress with bribes,, oops im sorry, i should say lobby and campaign contributions. Short this baby long run. It aint your mother and fathers American anymore. Its in ruin!

Sep 24 05:28 PM

[Buckoux:]

What a money bag load of wordy bullshit!
I surmise this by your conclusion that the "right" is in favor of "globalizatiion". I can assure you that from both an economic and a political point of view that those of us to the right of center, and moderately libertarian, disdain the past and present national results of globalization. It is the corporatist who favors the attributes that you assign to those of us who are NOT on the left. Corporatist's are amoral, apolitical and anational. And, corporatist's are usually on the political left in order to more easily manipulate government. The only notion in your entire epistle that I can agree with is that those not left favor:"..individual freedom".


On Sep 24 01:22 PM bob adamson wrote:

>The right wants controlled ‘creative destruction’ of wasteful
> public and private social and economic institutions and >accelerated shifting of economic focus to the healthiest sectors >of the private sector promoted by deregulation and a lowering tax >and public debt burden coupled with a greater embrace of >globalization; these being the way to greater growth and >individual freedom.

Sep 24 07:42 PM

[Buckoux:]

The best term that I have heard that describes our present economy is: "Parasitic Capitalism". Works for me.


On Sep 24 05:28 PM rpgpa wrote:

> "financial lobby" huh. well ive said all along. We are now the most
> corrupt nation in the world. Believe this is a Democracy? I feel
> for ya. What a joke. Capitalism. Yea thats if the playing field is
> level and not corrupt. Wake up boys and girls. This country is the
> laughing stock. That is if your not the 10% of Wall street money
> that pays off congress with bribes,, oops im sorry, i should say
> lobby and campaign contributions. Short this baby long run. It aint
> your mother and fathers American anymore. Its in ruin!

Sep 24 07:46 PM

[johngonole:]

Instead how about this. Socialism for the poor in return for fascism for the rich. Capitolism for the shrinking middle class. Feudalism here we come

Sep 25 12:14 AM

[Moon Kil Woong:]

Now we know why Geithner wanted this agency under the Fed. So they can gut any sense of consumer protection. The loss of even the semblance of symetric information in the mortgage market is a great blow and will cost the consumer, taxpayer, and market dearly since the socialized Freddie Mac, Fannie Mae, CRA, and FHA will still be the dictators of the market. And banks will retain their assymetric piece of the pie.

However, even if this is lost, we still must press hard to make sure more power doesn't go to the Federal Reserve or Geithner. Vote against the creation and centralization of a too big to fail organization which can be used against industry, not banks. Banks could have been monitored or controlled with existing structures if they wanted to be in the first place. Thus enforcement not more authority is what's needed.

Anyway, back to the topic at hand. Next time you are forced to accept a biased contract filled with junk you don't understand when you buy a house remember this decision. If you don't think it's costing you it is. Big time!

Sep 28 07:02 AM

[Steve in TN:]

Geithner is looking ahead to his next employment after government service with Goldman Sachs or BAC.

Sep 28 11:26 AM