Backer of CRA Myth Appointed to Investigate the Mortgage Crisis

Mary Kane — Fri, 17 Jul 2009 13:33:27 +0000

On Monday, Peter Wallison of the American Enterprise Institute slams the proposal for a Financial Products Safety Commission, using a Washington Post op-ed to call it elitist and contend it would limit financial choices to sophisticated consumers.

Are consumers “protected” when they are denied the opportunity to buy products and services that are available to others? Is that what consumers want? Does it matter what they want?

Well, yes it does, actually. I’d say, as a consumer, that I don’t want to go to my loan closing and find out the terms I thought I agreed on for my loan had been altered. I don’t want to pay my mortgage broker for bringing my loan in at a higher rate than what I qualified for — and if I do have that pay that broker, I want it disclosed at settlement. Generally, I don’t want to be steered into a higher rate loan simply because I’m a minority borrower. And when it comes to my credit card, I don’t want my interest rate arbitrarily hiked because I took out another loan somewhere else. If there’s an agency created to make the lending industry stop those practices and offer clearer and more detailed disclosures, I would think it’s a good idea, and there’s nothing elitist about that.

I’ll defer here to James Kwak at Baseline Scenario, who offered a more detailed critique:

Wallison’s op-ed reads like a caricature of conservative ideology – all supposed moral principle and no real-world implications. His argument is basically that by imposing restrictions on complex products (Option ARM mortgages) that are not imposed on plain vanilla products (30-year fixed-rate mortgages), the CFPA is limiting choice for the poor and unsophisticated and preserving choice for the rich and sophisticated; since according to conservative ideology choice is always good in principle, the CFPA is discriminatory.

Here’s one of the problems with that argument, Kwak explains:

(T)his is exactly the way consumer protection is supposed to work. If you go to a convenience store, or wherever you can still buy cigarettes, you can buy lots of things that don’t have warning labels. The cigarettes have warning labels.

Beyond all this, however, there’s something even more disturbing about Wallison. As Mike at Rortybomb points out, Wallison has just been appointed to the Financial Crisis Inquiry Commission, a congressional panel being created to investigate the causes of our current mess. His views on the Financial Products Safety Commission should be the least of the concerns about this appointment, Mike says. Wallison’s bigger issue is that he backs the belief that the Community Reinvestment Act helped cause the housing crisis, Mike notes.

The writer of that editorial, Peter Wallison, is going to be on the Financial Crisis Inquiry Commission. The commission that we get instead of a Pecora Commission; the people who will investigate the cause of the financial crisis. For the Iraq Study Group, which I assume the new commission is modeled on, the Republicans pulled together James Baker, Sandra Day O’Connor, and Lawrence Eagleburger for their appointees. For this Commission, the new post-Obama Republicans are appointing for us someone who believes the financial crisis is the result of the CRA. Brilliant. The Republicans do understand this isn’t grandstanding a stimulus bill that is going to pass anyway, but instead a real inquiry that needs to find real answers for people, say, working real jobs in finance who need objective answers as to what happened and how to prevent it from happening again?

Um, I’m thinking they probably don’t understand, if they’re going to appoint people who have blamed poor and minority borrowers for the housing crisis. As TWI noted recently, progressives were concerned early on that any investigative commission might be packed with conservative partisans.

Any commission has big shoes to fill; the Pecora Commission, created in the wake of the Great Depression, nailed Wall Street for its excesses, made them clear to the public, and created banking regulations that lasted for decades. Although just about everyone was pleased that Congress was stepping up to create an investigative body to look into the current economic mess, some feared that putting people on who might cling to ideology rather than probing the true causes of the crisis would only undermine its goal.

Now someone who has pointed the finger at the CRA for the housing crisis will join the commission. I guess those fears had a basis in reality.

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Questions to Ask as Obama Unveils Financial Regulatory Overhaul Plan

Mary Kane — Wed, 17 Jun 2009 14:25:33 +0000

Here’s something to keep in mind as President Obama unveils his financial regulatory overhaul plan today. Baseline Scenario helpfully offers a list of questions that the administration will either address or avoid as it rolls out its proposals. How Obama frames the debate will play a big part in how successfully the plan goes forward, as Baseline Scenario points out, so it’s worth looking for issues that the administration will tackle — or not — as it makes its pitch.

Among them:

Can the President bring himself to state in public the obvious: The extent of political influence in the hands of our financial system – large banks in particular, but small banks also in some instances – is out of control and dangerous? Where is the administration’s reform agenda on this crucial point? To those of us who frequent Capitol Hill, it looks very much like business as usual, albeit with higher political market share for the big banks that remain in business.

That’s an excellent point. As TWI noted, Congress has already stalled on overhauling mortgage lending, despite the predatory practices that led to the crisis. What assurances do we have that Obama’s agenda has a chance of passage, without being totally watered down?

Here’s more:

Does he state plainly and unequivocally that the way the financial system has been run – and continues to be run – has damaged the national interest of the United States and pushed millions of people, both here and around the world, closer to poverty?

That’s a point few in Congress or the administration have addressed — the global effect of the U.S. meltdown. I doubt they’ll pick up on it at this point, however. The global poverty argument often doesn’t play all that well at home. People are more wrapped up in their own financial crises. Still, it’s worth thinking about, if only to understand the reach of this crisis and the need for reform.

And finally, there’s this concern, which I just raised:

Most important, does the President stress the need to protect consumers from the financial industry going forward, specifically with a strong Financial Products Safety Commission. Messrs. Geithner and Summers seem, at best, lukewarm to this idea – in fact, we have no clear indication that they buy into the idea of consumer protection at all. The President’s position on this issue will be decisive.

It’s not just making the announcement of the overhaul that’s important — it’s how, exactly, the announcement is made. Look to see whether Obama addresses these kinds of concerns, to decide how serious the administration will be about regulatory reform.

The Washington Independent » Baseline Scenario

Backer of CRA Myth Appointed to Investigate the Mortgage Crisis

Questions to Ask as Obama Unveils Financial Regulatory Overhaul Plan