Thursday, June 18, 2009
The New and Reluctantly Proposed Federal Regulatory Reforms
The Administration released its proposed new financial regulations yesterday and today they begin the hard sell for it on Capitol Hill. This is about hundred pages of why we need more federal government in our everyday lives. I’ve done a quick read of it and am quickly unimpressed. My initial focus is on their proposed new Consumer Federal Protection Agency (CFPA) because in this Administration, it’s all about helping the little guy (Indiana pensioners not included). Reluctantly they inform us:
“We do not propose a new regulatory agency because we seek more regulation, but because we seek better regulation.” (p.58)
Among the reasons they give for such a pressing need for more FEDERAL regulatory oversight is this:
“State and federal bank supervisory agencies’ primary mission is to ensure that financial institutions act prudently, a mission that, in appearance if not always in practice, often conflicts with their consumer protection responsibilities.” (p.57)
Of course, a big part of our current day problems was the prior LACK of prudence among financial institutions – lending too much money to too many people to buy too many homes that proved too unaffordable. The Feds know this:
“For example, under the current fragmented structure, the federal banking agencies took until December 2005 to propose, and then until June 2007 to finalize, supervisory guidance on consumer protection concerns about subprime and nontraditional mortgages; the worst of these mortgages were originated in 2005 and 2006. A single agency, such as the CFPA, could have acted much more quickly and potentially saved many more consumers, communities, and institutions from significant losses.” (p.58)
I’m sure we all remember those dark days when the streets were lined with consumers complaining about the lack of regulations that would allow them to turn down a loan they had requested.
Well, I don’t…but I do remember banks being pressured to make loans under that quintessential piece of Leftist legislation: the Community Reinvestment Act:
“The CFPA should have sole authority to promulgate and interpret regulations under existing consumer financial services and fair lending statutes, such as the …Community Reinvestment Act (CRA)…The Community Reinvestment Act (CRA) is unique among the panoply of consumer protection and fair lending laws. The CFPA should maintain a group of examiners specially trained and certified in community development to conduct CRA examinations of larger institutions.” (p.59-60)
It goes on to discount - by mere assertion - any impact of the CRA on the meltdown. I would discount their discounting and simply ask if anyone can make a straight-faced argument that an even more rigorous application of CRA would have been beneficial to the afflicted banks?
There was obviously a lot of thought put into this proposal. I can easily picture this brain trust of an Administration sitting around a conference table with the implicit threat of a presidential smackdown should there be any conceivable financial transaction not proposed to be covered by federal oversight. But even these wunderkinds couldn’t do it all at this time:
“Treasury and the Department of Housing and Urban Development, together with other government agencies, will engage in a wide-ranging process and seek public input to explore options regarding the future of the GSEs, and will report to the Congress and the American public at the time of the President’s 2011 budget.” (p.42)
The GSEs referenced are Fannie Mae and Freddie Mac (and I’m pretty sure “public input” is Federal-Governmentspeak for “Barney Frank”). These are two fairly prominent entities that have to be on anyone’s list of Top 5 Organizations-To-Blame for the ongoing mess. And if we can only hurry and implement this “New Foundation” of Federal Regulatory Reform, we can all enjoy the benefits of the kind of Federal oversight these two Governmental Sponsored Entities were subject to.
“We do not propose a new regulatory agency because we seek more regulation, but because we seek better regulation.” (p.58)
Among the reasons they give for such a pressing need for more FEDERAL regulatory oversight is this:
“State and federal bank supervisory agencies’ primary mission is to ensure that financial institutions act prudently, a mission that, in appearance if not always in practice, often conflicts with their consumer protection responsibilities.” (p.57)
Of course, a big part of our current day problems was the prior LACK of prudence among financial institutions – lending too much money to too many people to buy too many homes that proved too unaffordable. The Feds know this:
“For example, under the current fragmented structure, the federal banking agencies took until December 2005 to propose, and then until June 2007 to finalize, supervisory guidance on consumer protection concerns about subprime and nontraditional mortgages; the worst of these mortgages were originated in 2005 and 2006. A single agency, such as the CFPA, could have acted much more quickly and potentially saved many more consumers, communities, and institutions from significant losses.” (p.58)
I’m sure we all remember those dark days when the streets were lined with consumers complaining about the lack of regulations that would allow them to turn down a loan they had requested.
Well, I don’t…but I do remember banks being pressured to make loans under that quintessential piece of Leftist legislation: the Community Reinvestment Act:
“The CFPA should have sole authority to promulgate and interpret regulations under existing consumer financial services and fair lending statutes, such as the …Community Reinvestment Act (CRA)…The Community Reinvestment Act (CRA) is unique among the panoply of consumer protection and fair lending laws. The CFPA should maintain a group of examiners specially trained and certified in community development to conduct CRA examinations of larger institutions.” (p.59-60)
It goes on to discount - by mere assertion - any impact of the CRA on the meltdown. I would discount their discounting and simply ask if anyone can make a straight-faced argument that an even more rigorous application of CRA would have been beneficial to the afflicted banks?
There was obviously a lot of thought put into this proposal. I can easily picture this brain trust of an Administration sitting around a conference table with the implicit threat of a presidential smackdown should there be any conceivable financial transaction not proposed to be covered by federal oversight. But even these wunderkinds couldn’t do it all at this time:
“Treasury and the Department of Housing and Urban Development, together with other government agencies, will engage in a wide-ranging process and seek public input to explore options regarding the future of the GSEs, and will report to the Congress and the American public at the time of the President’s 2011 budget.” (p.42)
The GSEs referenced are Fannie Mae and Freddie Mac (and I’m pretty sure “public input” is Federal-Governmentspeak for “Barney Frank”). These are two fairly prominent entities that have to be on anyone’s list of Top 5 Organizations-To-Blame for the ongoing mess. And if we can only hurry and implement this “New Foundation” of Federal Regulatory Reform, we can all enjoy the benefits of the kind of Federal oversight these two Governmental Sponsored Entities were subject to.
