I have been incredibly critical of Geithner in the past, and reserve the right to do so: however, he's done nailed this topic.
Regarding the Consumer Financial Protection Agency the White House proposed to oversee a vast range of financial products: Geithner has backed and strongly advocated on behalf of taking the power away from the Fed whose primary interest is the financial health of the Banks providing these products and giving it to the proposed Commission.
"I think it's very hard to look at that system and say that it did anything close to an adequate job of what it was designed to do," Geithner told the House Financial Services Committee. He cited the collapse of the housing and credit markets because of high-risk subprime mortgages made to borrowers who didn't understand and couldn't afford them.
When addressing Fed Chairman Bernake's point that the Fed should hold the powers -
"With great respect to the chairman and other supervisors who are reluctant to do this, they are doing what they should, which is defend the traditional prerogatives of their agencies," Geithner said. "I think frankly all arguments should be viewed through that prism."
When Sheila Bair duly attempted to make the case for tasking current agencies with the powers Geithner made this point at Maloney's(NY) prodding-
When asked by Rep. Carolyn Maloney, D-N.Y. whether such an arrangement would work, Geithner said no, because enforcement would remain uncoordinated across the government.
And uncoordinated and disjointed is what helped this last mess to occur. This isn't going to take any power from the FDIC, Fed or OCC to regulate banks: just their end products, which the Fed had the power to regulate but failed, and which the OCC blocked the states from even investigating.
The idea of the Commission is based on the model of the Consumer Product Safety Commission, which doesn't care about a company's campaign donations when it considers lead paint in toys. They don't care about a Fed Chair's legacy, a company's books, or it's pension plan, or it's OSHA infractions, or it's HR filings: all they care about is the end product and its danger to the consumer. If an item's dangerous, they recall it.
...The agency has the authority to develop uniform safety standards, order the recall of unsafe products, and ban products that pose unreasonable risks. In establishing the Commission, Congress recognized that "the complexities of consumer products and the diverse nature and abilities of consumers using them frequently result in an inability of users to anticipate risks and to safeguard themselves adequately."
As a matter of act, if you insert
"the complexities of financial products and the perverse nature of institutions providing them"
you begin to see why such a commission is needed. And it isn't just the infinitely insane inventions and evolutions of the industry that give pause. It's also the various physical and legal jurisdictions. For example, products aren't regulated based on what they are, so much as who provides them.
The subprime mortgage market provides a stunning example of the resulting fractured oversight. In 2005, for example, 23 percent of subprime mortgages were issued by regulated thrifts and banks. Another 25 percent were issued by bank holding companies, which were subject to different regulatory oversight through the federal system. But more than half–52 percent, to be exact–of all subprime mortgages originated with companies with no federal supervision at all,
As Elizabeth Warren points out, this results in 1. greater loopholes and 2. regulatory arbitrage - because an agency will be loathe to crack down when an entity can simply morph or move from its jurisdiction; reducing the potency; and therefore, the necessity of that agency.
Rep. Brad Miller D-NC quoted
the late Federal Reserve governor Ned Gramlich to make the case: "Why are the most risky products sold to the least sophisticated borrowers? The question answers itself, Gramlich said. The least sophisticated borrowers are probably duped into taking these products."
Credit card contracts that were 1 page long in 1980 are now over 30 pages.
In a recent memo aimed at bank executives, the vice president of the business consulting firm Booz Allen Hamilton observed that most bank products are "too complex for the average consumer to understand."
It's not going to interfere with any state laws, so long as the state laws are as strict or stricter than the commission's. This will help people like those in California, who have an Attorney General whose sister is an executive for Goldman Sachs and sat on the Board of Countrywide.
The bill's merit, the New York Democrat said, is that it regulates the actual financial product rather than the company producing it.
"Disclosure is no longer enough," said Schumer. "Just as you wouldn't just have disclosure on drugs, you can't simply have disclosure on financial products. Consumers have been trapped in a business model that's designed to induce mistakes and jack up fees."
Now if these folks will walk the walk, we may be back in business. Sound business.