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Financial Autopsies
Mike Konczal writes today about the Grayson/Clay/Miller amendment, aka the "Financial Autopsy" amendment. Basically, it would require the new Consumer Financial Protection Agency to take an annual look at the consumer products that have caused the highest rates of bankruptcy and foreclosure and report back on what ought to be done about them. Here's Mike:
The CDC has a response team for when it finds cancer clusters. I like the idea of the CFPA having a similar response team, that can be called in for expert opinion in the case of foreclosure and bankruptcy clusters. A team of forensic accountants and financial experts who can be called in by members of Congress, or as a result of their own statistical samplings, to give opinions on what is going on on the ground in a member’s district when it comes to the end result of financial innovations. Financial detectives, if you will, who can shift through all the noise one finds with dealing with consumer finances to see if there’s any signal that is the result of changing products and options available to consumers.
And maybe the producers of House could create a spinoff series called Plank that solves financial mysteries. Ripped right out of the headlines!
Anyway. My first reaction is the same cynical one that Felix Salmon has: this might actually be mildly effective, so it will never see the light of day. At least, not in any way that runs the risk of keeping it effective.
My second reaction, however, is that this is exactly the kind of thing I was talking about a while back when I objected to the Fed trying to do stuff like this. As Mike points out in his post (and as Alan Greenspan acknowledged a few days ago), the Fed is institutionally incapable of this kind of regulation. The only way it will ever happen is if it comes from an agency in which this is part of its cultural DNA. An agency like the CFPA.
So how can it survive the usual gauntlet of opposition from bankers who don't want this kind of troublesome attention? I'm not sure, but divide and conquer seems like the best bet. There must be some corner of the financial industry (credit unions? community banks?) that mostly prospers from being careful and prudent, and would therefore benefit from having their least scupulous competitors put under an occasional microscope. Bankers in general are so allergic to regulations of any kind that it's not clear you could get their support even for one that clearly benefits them, but you never know. It's worth a try.
Kevin Drum: "Bankers in
Kevin Drum: "Bankers in general are so allergic to regulations of any kind that it's not clear you could get their support even for one that clearly benefits them"
First, it's not clear that it would benefit the bankers. Second, I have this nostalgic, albeit naive, fondness for the phrase "promote the general welfare" in the Constitution.
What you suggest isn't a political compromise. It's so little so late that it's window dressing at best - exactly the sort of nonsense that Obama and congress hope will make people feel better about the fact that the US government is a wholly owned subsidiary of the banks. Better, I think, that people should just get good and pissed.
No torches and pitchforks yet, but completely peaceful and a Constitutional right guaranteed by the First Amendment (if they're still serious about enforcing "the right of the people peaceably to assemble, and to petition the Government for a redress of grievances" part):
If you live in the Chicago area, please attendShowdown In Chicago. Dangerous radicals like economist Dean Baker (known to promote the people's welfare using the arcane art of arithmetic) will be there.
Showdown in Chicago sounds sweet
I wish the timing was a little different, because given the right timing I could be there, but I'd have to miss this one. Still, thanks for telling me about this.
Tripp
" Basically, it would
" Basically, it would require the new Consumer Financial Protection Agency to take an annual look at the consumer products that have caused the highest rates of bankruptcy and foreclosure and report back on what ought to be done about them."
You don't need to hire a "financial detective" to figure that out. Consumer products don't cause bankruptcy. People cause their own bankruptcy. I know, it sounds wild, but when a person sits down and pens their John Handcock to a mortgage they know they can't afford, it's their fault. Not the mortgage company's fault. If the user of a credit card company can no longer pay their bill, it's not because the credit card company raised rates, it's because the user charged more than they could afford in the first place.
Many people are stupid with their money. There's a reason why "a fool and his money are soon parted" is a meme. It's true. No amount of big government programs can stop this. Unless, of course, you want the government to bail out these people who can't manage their money. This will lead to futher financial failures. Why bother learning to manage your own money when the feds will rescue you?
That's a fair assessment in
That's a fair assessment in many ways, and I certainly like the points about taking responsibility for your own actions. So when are they going to apply those principles to the banks that gave people bigger mortgages than they could afford?
Embroidered on the Goldman-Sachs corporate napkins:
"Why bother learning to manage your own money when the feds will rescue you?"
Also, I love the ability to look at a relationship between two people - one an amateur taking place in a process for one time only and the other a "professional" who handles a number of such transactions a day and think "these people are entirely equal in their responsibility."
That's the point - an
That's the point - an individual only has to look at the one mortgage that he's taking out. Those poor overworked pro's need to look at lots of mortgages. Obviously the pro deserves more of a break.
Actually, US banks that want
Actually, US banks that want to retain an international competitive advantage for being on the "up and up" might support this.
Given recent history, I find
Given recent history, I find it a little hard to believe that many large US banks have been willing to give much weight to appearing "up and up".
Bankers
I know several local, community bankers quite well. They believe without question that the whole financial mess is the fault of the federal government, specifically federal "forcing" of banks to loan to minorities and anti-red-lining legislation. And they think that now federal capital requirements are way too high for a healthy lending environment. "Just leave us alone to do banking" is their mantra.
EL, That is not what I hear
EL,
That is not what I hear from bankers in MN. Would you care to say where you are hearing this, in general terms?
Tripp
"Bankers in general are so
"Bankers in general are so allergic to regulations of any kind..."
Well, not when it comes to bankruptcy laws and what consumers can get discharged! They lurves those.
I'm starting to like the idea of just killing off the FDIC entirely and removing all the regulations. Nobody gets any protection and they can choose their risk accordingly.
Art Eclectic you are
Art Eclectic you are completely wrong. We need the FDIC so we can extend it to our money market funds to prevent a collapse when we make very unsound investments.
If Barney Frank would not
If Barney Frank would not even consider the plain vanilla legislation I doubt there is much hope for financial autopsies.
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Payday Loans beat FDIC?
So many banks took risks when the economy was blooming, but now that it’s failing, they still taking risks. The FDIC, though it has a benevolent purpose, could be seen by some as yet another governmental branch dedicated to bank and finance cronies. The FDIC has certainly acted that part. Right now, the FDIC is launching an exploration into small dollar loans, or the FDIC Small Loan Pilot Program. What this means is that the FDIC has been complained to by banks who think that payday lenders are cutting into their business with their competitiveness. If consumers weren't going to banks, chances are there's a reason for it. If customers didn't have the demand, they wouldn't go there – so way to go FDIC, give the banks a monopoly on payday loans along with everything else.