Why We Need the Consumer Financial Protection Bureau

“My view is that Washington and the regulators are there to serve the banks.” – Republican Rep. Spencer Bachus, Chairman of the House Financial Services Committee

In 1972, the Nixon Administration created the Consumer Product Safety Commission (CPSC). Its purpose was relatively straightforward: to enforce uniform standards, minimum levels of safety, on consumer products sold in the United States.

Forty years later, we can say that the CPSC has been a magnificent success. Product-related death and injury rates have declined significantly since its creation. Its safety standards for cigarette lighters, cribs, and baby walkers save more than $2 billion annually — more than its entire cumulative budget since 1972.

So it makes sense that Harvard law professor Elizabeth Warren drew on the CPSC as inspiration for the Consumer Financial Protection Bureau (CFPB), which Congress created in the Dodd-Frank Act of 2010.

“It is impossible to buy a toaster that has a one-in-five chance of bursting into flames and burning down your house,” wrote Warren back in 2007. “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 — and the mortgage won’t even carry a disclosure of that fact to the homeowner.”   Continue reading “Why We Need the Consumer Financial Protection Bureau”

The Art of Distraction

Prof. Mishra has a knack for changing the subject.

When asked about income taxes, he talked about corporate taxes. When asked about the Federal Reserve, he brought the conversation around to Glass-Steagall. When asked about the Community Reinvestment Act (CRA), his focus turned to the “government-sponsored enterprises” (GSEs): Fannie Mae and Freddie Mac.

Here’s how he did it:   Continue reading “The Art of Distraction”

Don’t Repeal the CRA. Expand It.

In 1977, Congress passed (and President Jimmy Carter signed) the Community Reinvestment Act to reduce discrimination in lending.

Specifically, many banks were ignoring creditworthy, qualified borrowers in low-income, mostly-minority neighborhoods — a practice known as “redlining.” If banks were going to accept federal deposit insurance and access to the Federal Reserve’s discount window, the least they could do was make credit available to everyone who deserved it, regardless of where they lived or what color their skin was.

The CRA empowered regulators to “encourage” banks to lend to these borrowers — if they were just as likely to repay as borrowers receiving loans in other communities. The law didn’t specify how to encourage this behavior, so it took awhile for regulators to figure out how to enforce it.   Continue reading “Don’t Repeal the CRA. Expand It.”

Don’t Ask a Journalist to Explain Real Estate Economics to You, Part II

No offense to Robert Samuelson, but I’m won’t be asking him to run the Treasury Department anytime soon.

Samuelson, a Washington Post columnist, calls Fannie Mae and Freddie Mac “economic mongrels” whose “losses stemmed from unrealistic ‘housing affordability goals’ [and] lax lending in pursuit of higher profits.” Not only is this statement factually incorrect, but nowhere in the entire op-ed does he explain why Fannie and Freddie exist in the first place. If you’re trying to criticize their policies and resolve the “question of what to do about” them, that’s kind of important.

In June 2009, I wrote one final op-ed for my most loyal readers. This one didn’t make it into the Hazleton Standard-Speaker, for which I had stopped writing a couple weeks earlier. Since there seems to be a lot of ignorance about the issues I discussed, let’s make it public:   Continue reading “Don’t Ask a Journalist to Explain Real Estate Economics to You, Part II”