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.
(snip)
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.