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Backer of CRA Myth Appointed to Investigate the Mortgage Crisis

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.

*You can follow TWI on Twitter and Facebook. *

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