The crash of the financial and housing markets in 2007-08 brought cries for reform from many quarters. Still, there was bitter debate throughout 2009-10 on the approach and substance of any prospective reform. Ultimately, Congress passed – on a party-line vote – the Wall Street Reform and Consumer Protection Act, whose authors were Christopher Dodd and Barney Frank, two of the most questionable characters in recent Congressional history.
Many Americans are concerned that whenever Congress launches a crusade for “consumer protection,” somehow that’s not what we end up with. When the Dodd-Frank bill contained a Trojan Horse – the Consumer Financial Protection Bureau (CFPB) – a lot of people became alarmed. When President Obama wanted to nominate Elizabeth Warren to run the CFPB, flashing lights and sirens started going off.
Ms. Warren had never worked in financial services – in fact, she had never held a job in any financial industry – but as a Harvard law professor, she had written a variety of articles and books. To the Obama crowd, this made her the perfect candidate to set new rules to control our lives. While Ms. Warren’s particular expertise is the struggle of middle-class families in which both parents must work just to stay even, she hasn’t yet figured out that it’s the massive growth of regulation and taxes at all levels of government – principally promulgated by her elitist comrades – that is the core of the problem.
Ms. Warren is the embodiment of the Totalitarian Liberal. Her “we know better” viewpoint endeared her to Obama, who gleefully appointed her to an extra-governmental position after it became clear that there was no hope she would obtain Congressional approval to be Chair of CFPB. Obama give her a fancy title and she has been running the CFPB – without oversight – ever since. When she appeared before Congressional committees, she exercised her best lawyer skills, repeatedly making grossly misleading statements. When asked pointed questions by committee members, she sounded like a parakeet, squawking “We need a cop on the beat!” over and over again. And, of course, what better cop could exist than Ms. Warren?
What Ms. Warren does not want is a cop on her beat, which is why she designed the structure of the bureau as it was laid out in the Dodd-Frank bill – with virtually no oversight. Funding for the CFPB is taken from the earnings of the Federal Reserve System, which means that Congress has no voice in its operation. In fact, other than approving the director, Congress has essentially no control over the bureau. This is utterly unlike any other federal agency and will probably be tested in court. After all, if Congress doesn’t manage the purse strings, what effective control do they have over Ms. Warren?
This new entity has been assigned broad oversight of financial entities, much of which overlaps responsibilities of the existing agencies. It oversees all banks and credit unions with more than S10 billion in assets, and can write regulations for all payday lenders, debt collectors, and mortgage brokers. It also reviews all entities making mortgage loans, which means virtually every bank in the country. This is the reason for her recent charm offensive with community banks: to gain their support for her nomination as Director.
She has shrewdly been placing allies into key positions in the bureau. Though some appear to have industry background, you can rest assured that they’ve been hired either because of political leanings or as window dressing to enhance her continuing effort to be appointed Director.
Under Ms. Warren’s direction, the CFPB will be requiring “greater levels of disclosure” by all parties in its purview. But financial professionals point out that extensive disclosure has been required for years for mortgages and car loans, and none of it is worth a Confederate dollar if people don’t read or understand the documents. And if there’s one thing that all the professionals agree on, it’s that most American consumers have at best a minimal understanding of even the simplest financial matters.
As a totalitarian liberal, Ms. Warren won’t try to make the consumers more knowledgeable, but instead will employ her infinite wisdom and compassion to protect them from themselves. This is confirmed by her first real venture – joining some left-wing Attorneys General to threaten lenders over their foreclosure practices. In the best tradition of Tony Soprano, they are using extortion and other threats to extract $20 billon from the lenders, despite the fact that even with some improperly-processed paperwork, there have been virtually no homeowners evicted prematurely or improperly. Almost every one of these people has been living rent-free for nine to eighteen months, with the American people picking up the tab. Now Ms. Warren wants us to fork over even more money for these follies – in higher fees and fewer services at our banks – to compensate for the $20 billion. In addition, further delays in the foreclosure process just forestall the ability of the market to cleanse itself and recover.
Because Ms. Warren has virtually no experience or true understanding of the financial markets, she will do untold harm to the people she is trying to protect. In a previous column, I described how the Dodd-Frank bill set new rules for credit cards in order to “protect consumers,” only to find that the credit that they previously had access to is now unavailable. The regulations that Ms. Warren and her cronies will create will have exactly the same effect on mortgage loans, payday loans, and whatever else they touch.
Disclosure is a very good thing when it comes to financial matters, but if consumers don’t have the education or training to understand how they’re being protected, they will ultimately be penalized by fewer products, less competition, and higher government-mandated costs. The only winners will be people like Elizabeth Warren, who know better than we do and are on a crusade to protect us from ourselves. The loser is our freedom.