James Pethokoukis

Politics and policy from inside Washington

About that Consumer Financial Protection Agency …

Jun 17, 2009 18:00 UTC

Andy Busch of BMO Capital Markets doesn’t like the look of it one bit:

Lastly, the plan wants to create an new regulatory body to oversee consumer financial products. The Consumer Financial Protection Agency or CFPA would have broad powers to regulate all aspects of the sector from mortgages to credit cards to bank accounts. While President Obama has expressed his desire that this new agency not regulate interest rates on credit cards, I would imagine it would be difficult to control once it gets into operation. Mortgages, home equity loans, debit cards, and credit cards would all come under some committee in Congress and have sweeping authority to set rules.

Given the massive disruptions that have occurred in the financial markets, the urge is to create an entirely new structure instead of fixing/reforming what is already in place. With every new agency that is created, Congress reaches deeper and deeper in the functioning of the private sector. The CFPA will be a massive new agency that will impact everyone in the United States in some form. Providing this much power to one agency is truly frightening as they will get to set the rules and pick the winners/losers for the financial sector.


putting Clinton in as Fed Chairman is completely r*tarded because we can REALLY trust Bill “I did not have s*x with that woman” Clinton to stay independent of partisan politics and keep the federal reserve a politically neutral entity. It would be like handing the Green’s Bob Brown control of the Reserve Bank…. Seriously Clinton was a major failure in international affairs (he could have whacked Os*ma in 1996 but didn’t; his intervention in Kosovo was probably a mistake; leaving Saddam for Bush was a mistake when there was a legal case for war in 1998 when they kicked out the inspectors in contravention of a 1991 agreement which had an automatic military clause, and he trusted Yassir Arafat, who he now admits lied to him – when he could have pushed the P*lestinians into peace with Isr*el) – I don’t know why anyone would think he is in any position to navigate the worlds biggest economy.

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Hey, what about taxes and housing policy?

Jun 17, 2009 14:07 UTC

Arnold Kling makes some good points about what is missing in the White House financial reform plan:

Two gaping holes in the white paper are housing policy and tax policy. On housing policy, a wide range of interest groups promotes leveraged purchases of houses. The net effects of this are the opposite of good public policy–private benefits for people in the real estate and mortgage industries with social costs in the form of paying for subsidies and cleaning up the mess.

Both the President and the white paper blame this excess leverage on greed and faulty compensation structures. What about taxes and subsidies? Our high corporate tax rate, along with the deductibility of interest for corporations, encourages corporations to look for ways to minimize equity financing. For individuals, government-subsidized mortgages and the tax deductibility of mortgage interest help to encourage over-leveraging.

Overall, the white paper offers a highly skewed narrative of the financial crisis. All of the misbehavior took place in the private sector. No mention is made of government policies that contributed. Instead, the story is one of government that needed a better regulatory structure and more powers.

Intellectually, this is a very disappointing piece of work. But given political considerations, I cannot say that I am surprised.

My quick spin on Obama’s financial reform plan

Jun 17, 2009 13:56 UTC

After perusing the 85-page draft,  a few brief thoughts come to mind, though more later:

1) This plan has got to be a great disappointment for those who want to “break up the banks” or put in place limits on their size and scope.

2) Following on my first point, the plan really does nothing about the supposed “too big too fail” problem. In fact, it enshrines the concept by making the Fed the watchdog over these firms. Rather, the reforms try and make sure that TBTF firms don’t get in trouble to begin with. But there is a huge moral hazard issue in place that has not gone away.

3) I think it is unlikely that these reforms get passed this year, what with the SC nomination and healthcare and climate change to deal with — all of which are more important to Obama and his legacy than financial reform.

4) Also enshrined: the Community Reinvestment Act. Great.

5) It is interesting that the Bernanke and Bair are talking about financial literacy today since this plan assumes financial literacy is an impossibility, thus it advocates the creation of a consumer safety commission for financial products.

6) And as I have written before, giving the Fed more regulatory influence inherently makes it a more political institution. Better to have it focus on monetary policy. This is going to be  BIG issue for Congress.


HVCC—new legislation for appraisals. hopefully it will be repealed. i have a qualified buyer wanting to buy dream home on the lake and the property was appraised incorrectly. The appraiser used values of homes not on the lake, under devaluating the property by $90K. With this new legislation the appraiser cannot have any communication with anyone but the lender.
Meanwhile my couple have sold their home and there are no other properties that are comparable in the area.

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