By George Washington of Washington’s Blog.
Congressmen Grayson, Clay and Miller are introducing an amendment to the Consumer Financial Protection Agency bill:
Today we will offer the “Financial Autopsy” amendment. The Grayson/Clay/Miller amendment is essential to attacking the root problem of consumer bankruptcy and foreclosure because it requires the CFPA to do a financial audit of products that have caused the highest rates of bankruptcy and foreclosure annually. Not later than March 31st of each calendar year, the CFPA will list these anti-consumer products, submit their conclusions on why these products “fail” consumers, the companies and employees that underwrote these products, and authorizes the CFPA to take action to restrict these products.
Financial Autopsy Amendment:
– Requires the CFPA conduct a “Financial Autopsy” of each state’s bankruptcies and foreclosures (a scientific sampling), and identify financial products that systematically led to a large number of bankruptcies and foreclosures.
– Requires the CFPA report to Congress annually on the top financial products (the companies and individuals that originated the products) that caused consumer bankruptcies and foreclosures.
– Requires the CFPA take corrective action to eliminate or restrict those deceptive products to prevent future bankruptcies and corrections
– The bottom line is to highlight destructive products based on if they are making people “broke”. Thank you for your consideration, we hope you will join us in supporting this amendment.
Sincerely,
Alan Grayson Wm. Lacy Clay Brad Miller
Is this a good amendment or a bad amendment?
It is a great amendment.
Why?
Instead of trying to pass a one-size-fits-all bill prohibiting certain specified conduct, it will force an annual analysis of what financial products are sticking it to the consumer.
Remember, credit default swaps didn’t bring down the economy because they are toxic while all other financial vehicles are pure as the driven snow. CDS brought down the economy because they were the choice du jour of the looters.
If we outlaw CDS (which I have argued for in the past), then the looters would create some other instrument for looting.
The Grayson/Clay/Miller amendment would help to force an annual review of the tool-of-trade of the rip-off artists.
Note: Given the huge incentives for financial “innovation”, the armies of lawyers, mathematicians and other footsoldiers employed by the financial giants, the pressure that the “too big to fails” to earn their way out of the hole, and the rapidity with which imbalances in the modern financial system can build up when alot of people are making the same kind of trade, an annual review is probably not enough.
So my only suggestion for Congressmen Grayson, Clay and Miller is that the amendment require:
(1) Annual reviews generating formal written reports
Plus …
(2) Monthly informal reviews. If a review reveals a large number of bankruptcies or foreclosures caused by a specific type of financial product, this would trigger a formal report
Trust me . . . the boys can still cause the economy to thoroughly crash if their actions are not examined for a year at a time.
Call your congressional representatives and demand that they support the Grayson/Clay/ Miller amendment.
Update: Karl Denninger has some additional suggestions here.
5 comments
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This seems like a great idea at first glance.. as do the many ideas for regulatory reform… on the drawing board, that is. But who will be staffing this CFPA? What kind of enforcement power will they have? And why is there any reason to believe these folks won’t get caught up in the same sort of REGULATORY CAPTURE that already dominates the scene. Always today this question… Quis custodiet ipsos custodes?
Why does anyone think there will be some noble hero types staffing the CFPA to protect us citizens. The money in-crowd that runs the financial sector will never let CFPA have any teeth.
Have you read Superclass by David Rothkopf? A very good description of who the US & international elites are currently running the world and how they operate. Helping the “little guy” is not one of their priorities.
All very valid and crucial questions. I just read the proposal and I’ll send a couple of suggestions to Rep. Grayson. (This guy is stirring the pot…Love it!)
1) Staffing must be with career professionals only. That, or course, includes the head of his Agency. NO, I repeat, NO political appointees there, period. A clear and potentially rewarding career path must be outlined, exactly like the Israelis do with their own TSA. That is why they’re so much better at it than the US, BTW.
2) Enforcement powers should be
a) FDA model based: Industry must submit a novel product for review BEFORE being authorized to go to market. We do it for drugs, for airplane parts…same here.
b) In case of abuse, no referral to the DOJ, unless it is a criminal case. They ought to have their own prosecutors, with powers to sue, impose fines etc.
3) Budget for the Agency must be voted by Congress, no industry fees whatsoever. In other words, Congress MUST be on the hook if they try to defang the Agency. Furthermore,does Consumer Reports accept industry sponsorship? No, right? Same principle must apply here.Total independence from the market.
It is imperative to force the industry to hate this proposed Agency with all their guts. By suggesting a very drastic proposal, Grayson/Clay/Miller could force the lobbyists and their allies in Congress to be very exposed if they try too hard to kill a great bill.
Would make for quite a show…bring the popcorn!
It’s as much, if not more vital how these financial products are SERVICED. Mortgage servicers had their way with unsuspecting homeowners fabricating mortgage defaults by piling on bogus fees, not crediting timely payments, force placed insurance and numerous other malfeasance. In the wrong hands even the most common every day household products can become a lethal weapon. CFPA needs to be looking at how financial products are used as weapons against consumers. They would do well by starting with extensive case law and FTC settlements on mortgage servicing fraud.
b) In case of abuse, no referral to the DOJ, unless it is a criminal case. They ought to have their own prosecutors, with powers to sue, impose fines etc.
I think there must be jail time for violators. Fines do nothing to perpetrators. Did we levee fines against organize crime or did we jail them?
This is the foundation for something good but may need more work.
The “prior approval / FDA model” is the best modification so far because the weakness to the plan as stated is that measuring foreclosures is like counting deaths from a drug – except that foreclosures are “contagious” in that having one near you drives down the market price of your house. Also, rather than focusing on the “teeth” and enforcement value of the agency, there should be a rating scale and clear, plain-English (if that’s possible from a government agency) explanation of the risks.
One of the reasons the previous, market-based controls failed was the industry’s ability to “innovate” so fast that friends’ and family’s advice meant nothing. The FDA model would slow the innovation. This innovation has not shown any advantage to the society or country, however.