Obama’s speech: The good news
A couple of bits jumped out at me from Barack Obama’s prepared speech today. First is his explanation of why the Consumer Financial Protection Agency is so necessary:
Consumers shouldn’t have to worry about loan contracts designed to be unintelligible, hidden fees attached to their mortgages, and financial penalties – whether through a credit card or debit card – that appear without warning on their statements. And responsible lenders, including community banks, doing the right thing shouldn’t have to worry about ruinous competition from unregulated competitors.
Now there are those who are suggesting that somehow this will restrict the choices available to consumers. Nothing could be further from the truth. The lack of clear rules in the past meant we had innovation of the wrong kind: the firm that could make its products look best by doing the best job of hiding the real costs won. For example, we had “teaser” rates on credit cards and mortgages that lured people in and then surprised them with big rate increases. By setting ground rules, we’ll increase the kind of competition that actually provides people better and greater choices, as companies compete to offer the best product, not the one that’s most complex or confusing.
This is very well put. All too often, what the financial-services industry likes to think of as “innovation” is in fact just deliberate predatory obfuscation. (For example: Ben Stein’s “free” credit score which ends up costing $30 a month.) If banks put half as much effort into competing on actual product quality as they put into trying constructing thousands of pages of agate type for a single credit card, consumers will undoubtedly benefit.
And then there’s Obama’s promise that any future bailouts will have to be repaid — if not by the company being bailed out, then by its competitors:
If taxpayers ever have to step in again to prevent a second Great Depression, the financial industry will have to pay the taxpayer back – every cent.
The financial industry. This is big, and important. Because what it does is it turns the whole industry — every bank, every banker, every hedge fund manager — into a mini-regulator, the eyes and ears of the systemic-risk regulator. All too often, those with eyes to see try to monetize their insights, rather than sounding a more general alarm. But if they ultimately end up paying for the cost of any bailout, they might stop just quietly putting on short positions, and start taking their analysis to the Fed instead. Which, under Obama’s plan, will have the ability and authority to put an end to activities which pose major systemic risk.
I’m still pessimistic that any of this is going to actually happen, and I stand by my original criticisms of the plan. But at the margin, at least, Barack Obama is (mostly) fighting on the side of the angels, even if he does feel the need to pay occasional lip service to the benefits of financial innovation.