Wednesday, May 20, 2009

Business Needs Consumer Protection

This morning's news, that the president is considering adding consumer protections to financial oversight, is welcome if a bit ironic. In a consumer economy, it is vital to have consumers. Only ideological blindness could ever have persuaded any member of the business community that preventing regulations - that protect their consumer from being flushed down the toilet - are against their own interests.

In her role overseeing the bailout, Dr. Elizabeth Warren has encountered the underlying causes of our economic crisis, and this has produced an excellent concept for protecting our future. Without protections for the public, we have recreated the Great Depression, and will take some time to recover from those damages.

Dr. Warren has provided insight to a public-oriented president, who has seen that we need a body to oversee, not promote, the financial segment. The lack of real vision has turned present regulatory bodies into part of the industry it was supposed to preside over. The concern of profit for financial companies became its object, rather than the interests of the economy as a whole.

The Obama administration is actively discussing the creation of a regulatory commission that would have broad authority to protect consumers who use financial products as varied as mortgages, credit cards and mutual funds, according to several sources familiar with the matter.

The proposed commission would be one of the administration's most significant steps yet to overhaul the financial regulatory system. It would also be one of its first proposals to address causes of the financial crisis such as predatory mortgage lending.

Plans for a new body remain fluid, but it could be granted broad powers to make sure the terms and marketing of a wide range of loans and other financial products are in the interests of ordinary consumers, sources said.

Sources, who spoke on condition of anonymity because discussions are ongoing, said talks have begun with industry officials, lawmakers and other financial experts about the proposal, which would require legislation. Last night, senior policymakers, including Treasury Secretary Timothy F. Geithner and National Economic Council Director Lawrence H. Summers, were to discuss the idea at a dinner held at the Treasury Department.

Responsibility for regulation of consumer financial products is currently distributed among a patchwork of federal agencies. Some of these regulators regard consumer protection as a low priority.
The leading proponent of such a commission is Elizabeth Warren, a Harvard University law professor who now chairs the Congressional Oversight Panel for the government's financial rescue initiative. Her plan is the kernel of the idea the White House is now considering, sources said.

Warren wrote in a 2007 article in the journal Democracy that the government had failed to protect American consumers in their relationships with financial companies.

"It is impossible to buy a toaster that has a one-in-five chance of bursting into flames and burning down your house. But it is possible to refinance an existing home with a mortgage that has the same one-in-five chance of putting the family out on the street," Warren wrote. "Why are consumers safe when they purchase tangible consumer products with cash, but when they sign up for routine financial products like mortgages and credit cards they are left at the mercy of their creditors?"

Warren proposed creating a new commission modeled on the Consumer Product Safety Commission, which protects buyers of products such as bicycles and baby cribs...."The Federal Reserve was supposed to do this, but they were asleep at the switch," Schumer said. (Emphasis added.)

While the new regulatory body would no doubt challenge the primacy of the financial insustry in regulating itself, legislators will have no excuse for further protecting the very interests that have led to financial disaster. The expected resistance has already been allowed to overrule common sense once. The results are the present disaster the world's economy is experiencing. There is no longer any reason for believing in former Fed Chief Alan Greenspan's now rejected dogma: it is in their own interests, so the financial community could be expected to regulate itself.

Protection of individual rights from rapacity is a pretty obvious basic function of our government. Only years of unrealistic insistence on the business segment's role of creating employment, something that it definitively has failed to do, ever has obscured the government's role in protecting its citizens. Employment has gone offshore, wages have been reduced, and the whole economy has sunken into impoverishment as a result.

The business leaders who have swallowed and parroted the failed credos are responsible for a great deal of damage. Those that have seen their businesses fail or suffer huge economic blows are learning; the consumer is part and parcel of their plan, and their greatest necessity. Business managers unable to grasp the basic concept of supply and demand, that without demand they can fold their tents and slink away, deserve to fail.

A body of consumer protection advocates would revitalize what is now a failing economy. By keeping the public from being defrauded, it would go a long way to save the distressed consumer economy that we all rely on. A new reality-based regulatory commission would protect an entire economy from the greed of sheer monopolists, those who have destroyed it.

Lawlessness, a.k.a. deregulation, profits the criminals, but it undermines the protection society needs from its government. The administration is on the right track.

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Anonymous PeasantParty said...

Thanks for highlighting this issue. It is past time for regulation. "Buyer Beware" has morphed into more of a Loan Shark type situation. The Lending/Banking industry has cut their own throat and placed cinder blocks on their feet. The only thing left is the populace to throw them off the bridge.

If they don't agree to oversight and regulation, they might as well say their arivederci.(sp)

9:12 AM  
Blogger Ruth said...

Isn't arivederci spelled 'mea culpa' in this case? Destroying the economy is not just a passing weakness for outlandish salaries, it's a basic irresponsible attitude. Which is what regulation is all about.

Thanks, too.

3:10 PM  
Anonymous PeasantParty said...

"destroying the economy"

Yes, that is what the neocons had planned all along. The serfs, or peasants in our case will be easier to lead. If there is no work to be done other than what they say then they own us all.

We must have our own unique manufacturing or industry in the US. The monopolized corporations have to be cut down to size. Otherwise, we will all be working for the biggest/strongest. Regulation is for all entities. Not just the banking arena.

Thank You! You two have timely and very enlightening posts.

5:09 PM  
Anonymous pilgrim said...

Stopping the predatory behavior going forward would be nice.

Meanwhile, how long will it take to pay off the excess many of us paid for homes we bought? If I overpaid $30, $50 or $100K for my place, how many decades does it take to pay that off? Every year my money is tied up by mortgage payments is another year when I do not spend that $10K, $30K, $50K etc. on anything else. It doesn't get spent on household stuff, doesn't get parked in an IRA adding to some lender's cash reserves.

I'd like to see a special tax refund for payments on any portion of a mortgage in excess of the real value of the property. That would at least get some of that criminally misdirected income stream back into the wider economy and out of the pockets of the financial weenies.

A tax like that would line up incentives the right way AND get maximum economic pump-priming bang for the buck. People would get rewarded for paying mortgages in good faith even after discovering they have been royally fleeced. The pump priming result would come because these would be the first people to spend the money on their houses, providing lovely lovely income to an array of stores and contractors.

6:41 AM  
Anonymous Anonymous said...

A CPSC for financial products is not a bad idea but, as always, much depends on the execution. The 'Publicans have been able to corrupt the SEC and gravely weaken the FTC. The CPSC under Bush was a shadow of its former self and, even under Clinton, was timid and slow.

There's a fundamental problem with who gets to appoint people to the commission. It should be someone like the Consumer Union or university professors: people with no agenda other than protecting the public. Once the power to appoint is handed off to politicians, it is prone to corruption. Until we have public financing of campaigns, I am pessimistic.

--Charles of Mercury Rising

6:48 AM  
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