BANKS ARE CONSISTENT ONLY ABOUT ONE THING ... MAKING MONEY

Leave it up to Elizabeth Warren, Harvard Law Professor and chairwoman of the TARP Congressional Oversight Panel, to point out the flaws in the American Banker's Association (ABA) strategy for derailing financial reform. In a few words, the ABA is arguing that if Congress wants to protect consumers and regulate their industry they might as well as kiss the banks good-bye because the industry won't be able to make money. Here's the hypocrisy in the ABA's position according to Elizabeth Warren.

The banks fought lending regulations in 2006 because proposed reforms "overstated the risks" of what was happening in the market at the time. In a few words, the ABA said in 2006 "we know what we're doing, so don't put restrictions on us and don't tell us how to lend our money." More specifically, and according to their 2006 memo, they argued that:

(1) People with no income might still be good credit risks.
(2) Subprime and other toxic mortgage products were good bets according to their models.
(3) Combining consumer protections into industry regulations might confuse the issue.

Of these three, the last one is one for the record books. Imagine the police chief coming out and saying, "Police activities and the law have nothing to do with public safety, so let's not confuse us by trying to get us to understand the law too." You might hear something like that from Chief Wiggum, but not from people who are serious about a functioning society (and a functioning economy).

At the end of the day, Banks were arguing in 2006 that they knew what they were doing and didn't need regulations to be clarified, streamlined, or new ones imposed. Moreover, according to the ABA, consumers would be "confused" with consumer protections that might spill over into regulations. So let's keep consumer protection and industry regulations unclarified and distinct from one another.

Or as Chief Wiggum might say, "Let's not let the law interfere with my real job ... eating a good donut."

Fast forward to today and what do we have? The exact opposite. The ABA is arguing that if lending regulations and consumer protections are separated it will hinder the bank's ability to make money. So we need to put them under one roof, or we need to hide a consumer protection agency in the Federal Reserve, where new administrative hurdles will hinder consumer protection laws. Wonderful.

According to Elizabeth Warren, the 2008 market collapse showed us two things. First, the ABA and their member banks can't be trusted when it comes to assessing what makes their industry risky or profitable. Second, "bank lobbyists will say anything to block meaningful reform." Translated? Let's not listen to the ABA, or their individual members.

I agree. I say that we put some teeth into meaningful legislation, and put a stop to the banks continued extraction of wealth from the American economy.

- Mark

UPDATE: Here's Elizabeth Warren explaining why we need regulatory/consumer protection reform, with all the duties under one agency. It's the clearest explanation I've heard. Using football as an analogy she explains that when the other team is ready to punt you don't send five guys back to return the punt. If you do you'll get into trouble because punt returners run into one another, there's not enough blockers, etc.

  
As someone who returned punts in high school (my freshman year; I stunk up the place), I concur. You need one person who has the responsibility to get the blocking set up, someone to take responsibility for the direction of the return, etc. The same can be said for financial regulation. You can't have five (we actually have seven) financial regulatory agencies running around barking orders, and getting in each others way. It allows the industry to "agency shop" and pit one group against another.