A Return to Regulation

The Obama administration has asked Congress to create a Consumer Financial Protection Agency that would increase access to financial services markets while protecting consumers from unfair and deceptive practices. It would also consolidate consumer protection responsibilities that are presently scattered among different financial industry regulators. Barney Frank introduced the legislation yesterday "with 12 Democratic co-sponsors but no Republicans."

Republicans who oppose the bill adhere to the conservative philosophy that government is the problem and that regulation is the root cause of all evil. At a hearing before a congressional committee yesterday: [more ...]

most of the Republicans on the committee [felt] compelled to work Fannie Mae and Freddie Mac into their opening statements at some point. Because, you know, this whole thing is really their fault. (It's not, but I guess that once you've picked a talking point, it is important to stick to it.)

Democrats are also working on a spending bill that will increase the FDA's budget by 11 percent. The FDA's regulatory role was sabotaged by the Bush administration.

Democrats blame George W. Bush’s administration for neglecting the agency and say budget cuts led to a decline in the FDA’s oversight role. Specifically, critics say funding cuts led to a 47 percent reduction in FDA inspectors and a 75 percent drop in safety testing between 2003 and 2006.

Despite widespread concerns about food-borne illnesses, some Republicans continue to argue that food safety should be left to the private sector. They might feel differently after consuming eggs or spinach contaminated with salmonella. The real question is whether an 11 percent increase will be sufficient, given the FDA's new charge to regulate tobacco products.

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    Great post (5.00 / 1) (#1)
    by Slado on Thu Jul 09, 2009 at 07:15:20 AM EST
    This gets to the root of what one feels the role of government should be.

    As for the FDA I have no problem with more regulation if lack of regulation was the reason for missed food issues.   I get the sense that too much being piled ont the plate of the FDA and other agencies led to these issues but that's just me (great show on NPR - Diane Rehm recently about this exact issue.  Check it out online).  If the FDA needs more regulation and funding to protect the public then by all means.  We're not talking about a lot of money compared to what we're wasting in other areas but lets really fix the problem, not poor money and rules that will only hurt buisness.

    As for financial regulation I think this is government doing something to make us feel better and nothing good will come of it.  We had plenty of regulation in place to prevent this.  The government simply didn't do it's job.  The SEC knew about Madoff, the government knew about and encouraged risky loans etc... etc...   For one side to blame this completely on the other is partisan silliness.   Bush, Clinton, Dems and republicans all participated in the financial fiasco with the only common theme being government intervention both ways.   More regulation is just an over reaction to gov't encouragement and laxed enforcement.  

    You cannot regulate greed out of the system unless you don't allow profits and that's called socialism.   None of us want that.  

    The real lesson of this crisis is yet to be learned.  What will the effect on the economy be when gov't steps in and starts declaring winners and losers?   What will happen to the big three now that the gov't supports two of them?   What will happen to the banks that stay on the gov't dole compared to the ones that don't?

    It is not arguable that this crisis has resulted in the gov't being more involved in our financial matters.  Some think it bad but necessary, some just stupid and some think this is exactly what the gov't should have done.

    I'm in the stupid camp and the next 10 years will tell us who is right.   (snarky comments welcome)

    actually, no, we didn't. (5.00 / 4) (#10)
    by cpinva on Thu Jul 09, 2009 at 10:18:46 AM EST
    We had plenty of regulation in place to prevent this.

    most of the entities involved in the mortgage-backed securitization activity are not subject to much in the way of regulatory oversight. if they're privately held (the madoff "fund", for example), they aren't subject to any SEC oversight or annual reporting requirements. the entity that was investigated by the SEC wasn't where the money was (or should have been).

    as well, there's virtually no oversight whatever of the rating agencies (those that decide how risky a debt/security is), so a goldman sachs can take the same crappy debt, put lipstick and a bikini on it, and call it a AAA SI swimsuit model.

    the FDA, before bush and his cronies got ahold of it, was pretty darn efficient. regulatory efficiency tends to reduce opportunities for gonifs-in-silk-suits to make money, so it had to be weakened. it will take some time to buff it back up.


    And even when the FDA is/was doing their jobs (5.00 / 3) (#19)
    by nycstray on Thu Jul 09, 2009 at 11:07:42 AM EST
    inspection results were ignored etc by the money makers. Iirc, several of the massive recalls had unsatisfactory factory inspections etc. It's not just regulation that is needed, but enforcement. And the regulations and enforcement need to carry over to the partner agencies that work along side the FDA. USDA has many of the same problems, imo.

    One of the reasons I backed Hillary was her food and product safety stance compared to the others. It certainly wasn't week kneed. I was following food safety and recalls pretty closely the past few years. A very head exploding experience.


    The government decided (none / 0) (#12)
    by Slado on Thu Jul 09, 2009 at 10:27:13 AM EST
    which rating agencies could be used.

    You can regulate away but greed will always find away and government intervention only makes it easier.   Once government sets the rules a certain way the greedy use those rules against it.  See ratings industries.  

    If banks had been forced to do their own homework and not been able to use the governments agencies as an excuse some of these loans might not have been made.

    It's a endless pandora's box of government intervention and the thinkign that more government is going to prevent the next bubble when it's intervention caused it is fools gold.


    Madoff and Credit Agencies (none / 0) (#17)
    by Samuel on Thu Jul 09, 2009 at 10:51:19 AM EST
    Maybe so - something needs to change.  I'm hesitant to trust anything coming from banking criminal scum like Barney Frank.  My point...

    Quickly - Madoff was a function of larger fraudulant environment.  One should ask what created the situation that allowed such fraud rather than what additional law could have existed to prevent it.  The same goes for the credit agencies - why just a handful with state granted oligopoly powers?  

    Naked short-selling and outright bond counterfeiting have been illegal since the 1800's.  It just was not enforced by the legal system - which would suggest the legal system is incapable of "regulating" the financial sector as the latter is clearly more powerful.  The bond counterfeiting of the 90s represents the shaky ladder the US dollar has climbed to the top of.  The cataclysmic dollar crash that awaits is heavily a function of this counterfeit operation.

    Allowing banks to expose themselves on derivatives and shift to a negative-reserve from the already unstable fractional-reserve system provided the expanding monetary environment that hid/enabled fraud during the boom years.  While it is true that regulatory laws removed by the Clinton Administration added to the magnitude of contraction later - and yes, the Clinton Administration should be considered at fault for deregulating the behavior of traditional banks in the late 90s - there is something to be said about the persistent problem that arises from the fundamental over-regulation of our economy, specifically the banking sector.  

    If the Federal Reserve were itself not able to set and enforce banking standards across the board, if it did not provide a "lender of last resort" role and in essence export all risk in the mind of a savings account holder - individual banks would compete with each other for depositors by appealing to the security and return of their investments.  Unfortuneately, the fundamentally regulated banking environment has resulted in limiting the availability of choice to depositors.  In essence, the government has created a banking cartel.  We, the consumer, have no choice but to place our money in institutions forced into homogeneity.  


    Here's the arguement against (none / 0) (#2)
    by Slado on Thu Jul 09, 2009 at 07:20:12 AM EST
    we're a nation with, basically, no laws... (5.00 / 4) (#4)
    by Dadler on Thu Jul 09, 2009 at 08:24:06 AM EST
    ...against usary.  that is the root of our problems.  and what regulation we have means nothing without the funds and manpower to enforce it.  we have neither.

    "Infinite Debt: how unlimited interest rates destroyed the economy."


    Amen on the fed (none / 0) (#8)
    by Slado on Thu Jul 09, 2009 at 10:05:07 AM EST
    The more I read about it the less I like.

    Great article (none / 0) (#34)
    by ricosuave on Thu Jul 09, 2009 at 01:44:17 PM EST
    I read it in the magazine when it came out and I recommend everyone read it.

    Can anyone explain why usury laws are not a cornerstone issue for fundamentalist Christian conservatives?  Jesus didn't throw the food safety regulators out of the Temple.  If these fundies were worth their salt, they would make us liberals beg for looser credit laws.  Instead, they are with mammon all the way...


    Self Regulate (5.00 / 1) (#23)
    by blogtopus on Thu Jul 09, 2009 at 11:38:37 AM EST
    It would mean something if the government allowed companies that wouldn't survive without government intervention to die off, because the market didn't favor them.

    So, no more government support for any for-profit industry. And quadruple the fines / punishments for any law breaking or endangerment of society.

    First, you'll see prices of everyday items skyrocket as the companies try to recoup their loss by loading it onto the public. Next, you'll see these industries perish, sending the nation and perhaps neighboring countries into deep depressions. Then, anarchy and coup.

    Government needs to be involved from both sides; you can't have support from the Gov without regulations, too. No picking and choosing the Government involvement. Them's the breaks.

    The financial services consumer (none / 0) (#3)
    by kdog on Thu Jul 09, 2009 at 08:20:51 AM EST
    protection agency sounds like a waste...we the people are more than capable, or should be more than capable, at sniffing out when the money-changers are getting shady and walking away from sour deals.  Much more difficult to look at an egg and sniff out if its gonna make you sick.

    Brings us back to the question "are we broke or not?"...we simply can't afford to live out a central planner's wet dream, we must prioritize...I say food inspection & safety trumps the likely losing battle of getting the shady out of an inherently shady business.

    food is a real thing (5.00 / 3) (#5)
    by Dadler on Thu Jul 09, 2009 at 08:31:34 AM EST
    money is a collective illusion.  but, in our society, you are required to participate in the collective illusion in order to get your food.  So you must have some oversight and regulation of the illusion, or the real stuff, tainted or not, isn't even going to matter.  why even have deposit insurance, say, if we're so capapble of knowing when financial shenanigans have endangered our savings?  as long as government is the one who prints money, as long as our collective belief in it is the only thing that gives it value, then we must have some kind of public agency that acts in the consumer's best interest all the time.  If not, you are handing the financial industry yet another do-whatever-you-want-to-whatever-poor-sucker-you-want-it's-not-our-problem.

    however, i do agree it will be a waste if it is peopled with the same kind of crowd obama has chosen to "fix" the economy.  that is, the same phucking idiots who brought it down in the first place.


    When I think "regulation"... (none / 0) (#6)
    by kdog on Thu Jul 09, 2009 at 08:49:03 AM EST
    I think of the Bush/Cheney energy regulations...where the energy companies wrote their own regulations.  I fear the formation of this proposed agency will simply legalize and normalize the big rip-off...like that sham credit card bill they recently passed.  Seriously, what is the point with the government we have?

    For this thing to be worth anyhting more than a hill of beans ya would need a congress full of Ralph Naders...otherwise ya end up with a death warrant, only they call it a pardon.

    We the people could be infinitely more succesful at leveling the playing field simply by sacrficing a little of our mindless convenience and using the power of our wallets....All the person at the bank does is sit and think about what he/she is gonna do with the money we earn.  Withold it even just for a little while and they'll start giving out free toasters again and a real interest rates on checking & savings.  They need us as much, if not more, than we need them.  We just need to use that imagination you are always on about man...and stop being mindless creatures of bad habits.


    The economy is too complicated to (none / 0) (#9)
    by Slado on Thu Jul 09, 2009 at 10:09:08 AM EST
    be regulated by the government.   The government can't see every crisis or bubble before it's too late so the regulation attempting to prevent it only bogs down those who aren't breaking the rules or taking stupid risks.

    It can be enforced however through capitalism and through laws.  Break the law go to jail.  Make a bad investment, loose your money.

    When the government steps in as it is doing now to prevent losses and make the system more "fair" (hellow mortgages) it slows down the system and keeps the honest investors out.

    See this economy now for your example as well as the current economy in Japan.


    This flies in the face of actual history (5.00 / 2) (#37)
    by cenobite on Thu Jul 09, 2009 at 02:38:49 PM EST
    The great economic failures of the past 30 years are exclusively due to the government looking the other way while the financial elites rob the country blind.

    Back when my dad was a banker, they had strong regulation -- for instance, interstate banking was forbidden, and so were bank holding companies. And government bank examiners had little compunction about closing a failing bank. Banking was boring and safe: as the saying went, "borrow at 2%, lend at 3%, on the golf course by 4."

    Then Reagan came along and signed the Garn-St. Germain Act deregulating the Savings and Loans. Result: massive fraud, financial train wreck, massive taxpayer intervention needed and it's been off to the races ever since.

    Deregulation causes fraud. Period. Strong regulation causes sane growth and safety for investors.


    Incorrect. (none / 0) (#39)
    by Samuel on Fri Jul 10, 2009 at 08:59:44 AM EST
    hardly. (5.00 / 3) (#11)
    by cpinva on Thu Jul 09, 2009 at 10:25:54 AM EST
    we the people are more than capable, or should be more than capable, at sniffing out when the money-changers are getting shady and walking away from sour deals.

    most people have a difficult enough time balancing their own checkbooks, the idea that they should be financially sophisiticated enough to catch a whiff of "euo de rotten mutual fund" is laughable on its face.

    this isn't meant to slander the average joe, he just isn't educated enough to recognize the barracuda, when they're looking for easy prey. apparently, he's in good company, since many of the victims of the recent crash were very well educated, but financially ignorant, people.


    Correct, absolutely correct (none / 0) (#14)
    by Slado on Thu Jul 09, 2009 at 10:33:02 AM EST
    And this isn't meant to slander them (myself included) either.

    If you don't know what you're doing stay out of the game!

    By making the system "fairer" through regulation and government intervention we make it less profitable and less fair to the ones who do know what they're doing.

    If you want to invest in a company, land or the stock market, do your homeowrk and hire somebody you trust.

    There will be losers and winners and if we try and keep that from happenign we simply bog the system down.

    More regulation to make the system "fairer" is not the answer unless you want a different type of system where nobody really makes any money.


    "and hire somebody you trust" (5.00 / 2) (#20)
    by nycstray on Thu Jul 09, 2009 at 11:09:23 AM EST
    Like Madoff?

    How about yourself... (none / 0) (#24)
    by kdog on Thu Jul 09, 2009 at 11:39:01 AM EST
    there are other ways to make money than gambling.  

    Instead of giving a Madoff 50 large, how about starting a business that provides actual goods or services?  Or loaning the money directly to an up and comer with an idea and cut out the leecherous middle-men.  Oh yeah, that requires more than sitting on your arse...never mind, Americans won't go for that. Lets just keep doing what we're doing and the new and improved Uncle Sam Brand D edition will protect and provide:)


    Excellent points..... (none / 0) (#25)
    by Inspector Gadget on Thu Jul 09, 2009 at 12:16:42 PM EST
    invest in yourself, or others around you who have the courage to start a business. Those businesses would probably end up quite successful...having the trust of others is a real solid confidence booster.

    historically, (none / 0) (#27)
    by cpinva on Thu Jul 09, 2009 at 12:42:36 PM EST
    there are other ways to make money than gambling.

    staid mutual funds are considered the antithesis of gambling, hence the encouragement to invest in them; they provide a diversity of investment and professional management, that the average person can't provide for themselves.

    check out the average 401(k), it's made up almost exclusively of mutual funds, some riskier than others, but all considered relatively safe, with regards to principal. as a rule, you stand a better chance with a mutual fund, then you do at vegas, where the odds are stacked against you.

    while there's always risk involved, in any investment, these funds were marketed, by everyone, as being the least riskiest, especially for people nearing retirement. this assumed everyone was playing by the rules. as it turned out, they weren't.

    how i, or you, or the average joe was supposed to know that, absent inside information, is a mystery to me, when even the "insiders" didn't know it.

    what the recent events on wall street prove is that even the smartest, best educated, best informed people can be taken for a ride, if absolutely no one is riding herd on these entities.

    the herd riding starts at the top, with the president and congress. when they abrogate their responsibility, for whatever reason (usually for money, from their corporate sponsors), the rest of us are laid wide open to the wolves.


    Or we could just... (none / 0) (#29)
    by kdog on Thu Jul 09, 2009 at 01:10:56 PM EST
    let said entities fail when the market exposes them as the frauds they are...instead, Uncle Sam props 'em up, then proposes a new agency to protect us from the bastards who should be by all rights liquidating their corporate furniture.

    Ummm . . . I do work for myself (none / 0) (#32)
    by nycstray on Thu Jul 09, 2009 at 01:35:31 PM EST
    and provide services. I also do more than sit on my arse, so to speak  ;) I thought you knew I wasn't a gambler?

    Not you stray... (none / 0) (#33)
    by kdog on Thu Jul 09, 2009 at 01:41:54 PM EST
    Poorly worded on my part...I meant look in the mirror for someone you can trust with an investment in your future....I know I don't have to worry about you, you've got your sh*t together girl:)

    {whew} (none / 0) (#38)
    by nycstray on Thu Jul 09, 2009 at 09:44:58 PM EST
    I read it a couple times before I responded, and I just couldn't get the "universal you" out of it. :)

    Here's hoping I get to the cabin and get to say "F*** you all"  ;) And, oh yes, that I have a few spotty dogs at my side!!!


    Financial sophistication is not necessary... (none / 0) (#21)
    by kdog on Thu Jul 09, 2009 at 11:24:12 AM EST
    all ya need to is work off the assumption every conglomerate of suit-wearers is out to get over on ya and act accordingly...more effective than any crooked regulatory agency Uncle Sam is gonna come up with.

    Like Slado said, if ya don't know what your doing, don't take a seat in the game.  Thats why I don't play.  Then maybe we can attempt to tackle the root problems...that the vast majority of Americans cannot retire without gambling with shady bookies in a shady game, and too many Americans can't get from check to check without a Visa.

    The call for a new benevolent agency to work for the people is just another snowjob to cover up the root problem(s).


    Really? (none / 0) (#35)
    by ColumbiaDuck on Thu Jul 09, 2009 at 02:01:06 PM EST
    the average consumer is supposed to know if their mortgage broker is being paid under the table to steer them into bad loans?

    it's bizarre to me that we recognize that not everyone can be an expert in every area when it comes to something like health care, but when it comes to financial products, we pretend that the brokerage firms and banks didn't hire legions of lawyers to come up with the most convoluted money-making schemes imaginable.


    Yes... (none / 0) (#36)
    by kdog on Thu Jul 09, 2009 at 02:15:21 PM EST
    even a simpleton should know that their mortgage broker is not to be trusted any further than they can be thrown, they should now their mortgage broker is looking to make as much money as possible on the deal, they should know their broker ain't working for Habitat for Humanity...and if they don't, they will learn...the hard way, as many already have.

    Give me a break. (none / 0) (#7)
    by Samuel on Thu Jul 09, 2009 at 09:11:49 AM EST
    Really?  No...really?

    Not many people like Republicans, I sure don't, but Fannie and Freddie are two real examples of regulation created to help consumers ultimately hurting consumers.  

    At Last (none / 0) (#13)
    by squeaky on Thu Jul 09, 2009 at 10:32:09 AM EST
    Time to redo the damage that BushCo foisted upon us with all his deregulation. No more foxes guarding the chicken coop.

    If anyone here thinks that the any corporate industry is going to self regulate, or that market forces are going to keep these greedy f*ckers in check, I have a bridge to sell you, and it is going for cheap.

    I assume that bridge (none / 0) (#15)
    by Slado on Thu Jul 09, 2009 at 10:34:41 AM EST
    leads to fantasy "regulation" island?

    It's equally as fanciful to believe that something as complicated as our economy can be regulated by the fools in Washington.


    Been Asleep All These Years (5.00 / 1) (#16)
    by squeaky on Thu Jul 09, 2009 at 10:44:06 AM EST
    Dreaming that the oil industry, drug industry, mining industry, chemical industry, banking industry, logging industry, meat industry, agricultural industry, real estate industry, wall street industry, construction industry, auto industry, etc.. will do the right thing on their own because if they don't the free market will punish them?

    I am sure that part of the dream is that consumers will save big $$$ because the corps will no longer having to spend money on all that lobbying and unnecessary expense meeting government regulation.


    You mean Clinton right? (none / 0) (#18)
    by Samuel on Thu Jul 09, 2009 at 10:55:41 AM EST
    Bush did a lot too but allowing commercial banks to trade in derivatives is a big deal.  

    "If anyone here thinks that the any corporate industry is going to self regulate, or that market forces are going to keep these greedy f*ckers in check, I have a bridge to sell you, and it is going for cheap. "  How would you know?  The entire sector has been heavily regulated since before the New Deal.  

    "Greedy f*ckers" would rather use regulation that they can control then be subject to self-interested and intelligent competition in the markets.  


    I think... (none / 0) (#22)
    by kdog on Thu Jul 09, 2009 at 11:30:52 AM EST
    it is only us, Joe and Jane Blow, who can keep the money-changers in check...no easy task, to be sure, but you play the cards your dealt.  Call it market forces, people power, personal responsibility...whatever.  But thats all we got when push comes to shove.

    To think the US Congress can/will do it is just as laughable as thinking Citibank can/will do it.  All congress will give is legal swindling, like they've given us legal pollution, legal indefinite detention, legal theft, etc.


    Sure kdog (5.00 / 1) (#26)
    by squeaky on Thu Jul 09, 2009 at 12:32:23 PM EST
    If everyone was just like you we would not need any regulation, trouble is that we are hardly a homogeneous society. Many have ideas on how things should run that are both as valid as yours and as crazy as the greediest mFer in the world.

    What do you say to someone who pays 30% more for groceries because he or she lives in a poor neighborhood. Move to a rich neighborhood? So why do the rich neighborhoods have cheaper stores. Well for one they pay off legislators to give incentives to corporations who also pay off legislators to give tax breaks for building super stores in rich neighborhoods.

    Don't regulate corporations that profit by poisoning us? The market will punish them because in twenty years all their customers will be dead and so choose, by default, to stop purchasing the assumedly safe product?

    In homogeneous societies, where everyone shares the same values, ideals etc. regulation is hardly needed because if someone does dirty dealing they are shunned and usually are accepted back when they correct the dirty dealing.

    Unfortunately our world, or should I say my world is not so simple. Without any regulation by honest brokers, things would spin out of control due to greed and exploitation of the weak.

    And no I do not think natural selection is a good way of governing.


    I hear where you're coming from... (none / 0) (#28)
    by kdog on Thu Jul 09, 2009 at 12:56:45 PM EST
    like I said, it ain't easy at best, nearly impossible at worst...just lookin' at it from a realist perspective.  Do you really think a new agency will help anybody except congressional cronies getting a fancy title and a cushy job?  

    I'd tell residents in a poor community getting ripped on groceries to picket that grocery store.  Look to the bodegas and local grocers.  The clerks working the registers at the rip-off chain are likely from the community, they could strike in support of their community.  File a class-action discrimination lawsuit.  Push comes to shove, shoplift the place blind.  Again nothing easy...but more effective than expecting Congress to do something about it.

    I can see it now man...they'll spend (err, borrow or print) a bunch of money to form this new agency, some campaign staffers will get kick-back jobs, the consumer will have their arse exposed same as ever, and ten years later another crooked legislator will propose yet another agency because this new one failed as badly as the SEC has.  


    Not Perfect (none / 0) (#30)
    by squeaky on Thu Jul 09, 2009 at 01:13:09 PM EST
    But regulation is better than letting the wolves run the place. And usually the poor are too busy working, raising their family to have time to picket especially in suburban working class neighborhoods.

    Chemical company needs to get rid of toxic waste. Donates the sludge, in oil barrels to a poor african village. The villagers are thrilled that they got these wonderful metal barrels for free. The villagers dump the sludge in their lakes, clean out the barrels and store their grain and water in them. Several years later everyone starts getting sick, eventually everyone is dead.

    Natural selection would work better if the game were not fixed, and we were all on the same page.


    The game is fixed allright... (none / 0) (#31)
    by kdog on Thu Jul 09, 2009 at 01:17:20 PM EST
    I don't expect the fixers to unfix it...it's the schlubs under threat or nobody bro.