Tell Us How You Really Feel, Elizabeth Warren

Fight disinformation. Get a daily recap of the facts that matter. Sign up for the free Mother Jones newsletter.


Elizabeth Warren, the chair of the Congressional Oversight Panel (the group keeping an eye on the bank bailouts), has a long post on the Baseline Scenario about President Barack Obama’s proposal for a Consumer Financial Protection Agency that would regulate financial products. It’s worth reading in full, but I noticed that Warren was incredibly explicit about the problems with the current regulatory system:

For decades, the Federal Reserve and the bank regulators (the OCC and the OTS) have had the legal authority to protect consumers.  They have brought us to this crisis by consistently refusing to exercise that authority.

Stephanie Mencimer wrote about this very phenonomon back in January. It’s an argument I’ve heard from economists like Dean Baker: the regulators had the authority to take steps to stave off the crisis—they just didn’t use that authority. It’s certainly interesting to hear that same argument coming from Warren. She thinks the regulators didn’t do their jobs because of “two structural flaws” in the system:

The first is that financial institutions can now choose their own regulators.  By changing from a bank charter to a thrift charter, for example, a financial institution can change from one regulator to another.  The regulators’ budget comes in large part from the institutions they regulate.  If a big financial institution leaves one regulator, the agency will face a budget shortfall and the agency will likely shrink.  Knowing this, financial institutions can shop around for the regulator that provides the most lax oversight, and regulators can compete by offering to regulate less.  Regulatory arbitrage triggered a race to the bottom among prudential regulators and blocked any hope of real consumer protection.

The second structural reason that prudential regulators failed to exercise their authority to protect consumers is a cultural one: consumer protection staff at existing agencies find themselves at the bottom of the pecking order because these agencies are designed to focus on other matters.  At the Federal Reserve, senior officers and staff wake up every morning thinking about monetary policy.  At the OCC and OTS, agency heads wake up thinking about capital adequacy requirements and safety and soundness.  Consumer protection issues are—at best—an afterthought.

Warren thinks that an independent consumer financial protection agency would go a long way towards addressing those flaws. If it somehow gets past industry lobbyists and actually becomes law, we’ll get a chance to see if she’s right.

UPDATE: There’s also a YouTube video, apparently:

HERE ARE THE FACTS:

Our fall fundraising drive is off to a rough start, and we very much need to raise $250,000 in the next couple of weeks. If you value the journalism you get from Mother Jones, please help us do it with a donation today.

As we wrote over the summer, traffic has been down at Mother Jones and a lot of sites with many people thinking news is less important now that Donald Trump is no longer president. But if you're reading this, you're not one of those people, and we're hoping we can rally support from folks like you who really get why our reporting matters right now. And that's how it's always worked: For 45 years now, a relatively small group of readers (compared to everyone we reach) who pitch in from time to time has allowed Mother Jones to do the type of journalism the moment demands and keep it free for everyone else.

Please pitch in with a donation during our fall fundraising drive if you can. We can't afford to come up short, and there's still a long way to go by November 5.

payment methods

ONE MORE QUICK THING:

Our fall fundraising drive is off to a rough start, and we very much need to raise $250,000 in the next couple of weeks. If you value the journalism you get from Mother Jones, please help us do it with a donation today.

As we wrote over the summer, traffic has been down at Mother Jones and a lot of sites with many people thinking news is less important now that Donald Trump is no longer president. But if you're reading this, you're not one of those people, and we're hoping we can rally support from folks like you who really get why our reporting matters right now. And that's how it's always worked: For 45 years now, a relatively small group of readers (compared to everyone we reach) who pitch in from time to time has allowed Mother Jones to do the type of journalism the moment demands and keep it free for everyone else.

Please pitch in with a donation during our fall fundraising drive if you can. We can't afford to come up short, and there's still a long way to go by November 5.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate