As Jane Bryant Quinn Points out in an article advocating for a Financial Products Safety Commission, there are a smattering of laws on the books that could have prevented many of the abuses we are now confronting. Unfortunately, the entities tasked with enforcing and/or applying those laws did not do so. Why? There's an inherent conflict of interest.
For example, the NY Fed's board of directors is headed by CEO's of transnational banks that invented, marketed and reaped billions in fees and sales from the instruments a Financial Products Safety Commission might recall.
Also,Greenspan and the Fed were more concerned with the appearance of a healthy economy than the actual health of it. The Fed preferred wheat stalk wealth over something more deeply rooted and evenly distributed.
The Fed, the OTS and OCC all share the same main mission: "to protect the financial stability of banks and other financial institutions, not to protect consumers..."
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."
Insert "the complexities of financial products and the perverse nature of institutions providing them" and 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,
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.
People may complain about the costs of such a commisssion:
The evidence clearly shows that CPSC is a cost-effective agency. Since it was established, product-related death and injury rates in the United States have decreased substantially. The CPSC estimates that just three safety standards for three products alone–cigarette lighters, cribs, and baby walkers–save more than $2 billion annually. The annual estimated savings is more than CPSC’s total cumulative budget since its inception.
Imagine what a FPSC would have saved us.
Obama's interested in the idea.
The administration is increasingly interested in consumer-oriented approaches to rewriting the rules for banks and the markets, said a senior House of Representatives aide.
Two other congressional aides said the idea of a so-called Financial Product Safety Commission is on the table at the Treasury Department, center of the administration's fast-moving and fluid strategizing on financial regulation reform.
There are some Capitol Hill heavyweights pushing for the commission.
Dick Durbin. Ted Kennedy. Barney Frank. Chuck Schumer.
Schumer has this to say -
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."
In the case of a dangerous drug, he said, no one would consider it sufficient to simply require companies to disclose what chemicals are in it with no oversight as to the drug's safety. "What happened with drugs in the early 1900s is happening with financial products in the beginning of the 21st century," he said.
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."