Posts Tagged CFPA
Recently, on a plane trip across the country, I was seated next to a guy who bought the conservative “nanny state” line. You know, the one that goes “Democrats want to set up a nanny state to protect you from yourself.” Although he bought this and other conservative talking points, he was not an unreasonable guy. When I told him that it wasn’t other citizens that I was worried about, but rather voracious corporations, he seemed to get it. The laws that protect us are there as ways to protect us against corporations, who in their lust for profits, will look the other way on all kinds of consumer and worker safety issues. I told the guy, I’m happy that there are people who inspect restaurants to make sure the food is safe and I’m glad that there’s an organization that regulates airlines to make sure they operate safely. This seemed to turn him a bit.
This conservative talking point is one of the strongest they’ve got. Those who espouse it have built up a mythos around it that creates the feeling that the government is overreaching, over-regulating and generally ‘up in my business’. We need to counter this with the fact that regulation protects us from those who would do us harm for the sake of their bottom line. Lets take a deeper look.
Conservatives use fear as their main motivator to move their base and convince the electorate to vote for Republicans. When countered with facts and examples, these fear based arguments don’t stand up. The “nanny state” argument is powerful because it plays on the fear that many Americans have of government intrusiveness into their lives. However, when we look at it, laws that conservatives say are there to protect us from ourselves, are generally there to protect us from corporations and irresponsible citizens. Nobody is going to care if you do something that endangers you and nobody else, it’s a free country and you can walk on your hands down the street of New York City if you want, I wouldn’t recommend it as you may get hurt, but you’re free to do it, and therefore there is no law against it. However, if you walk on your hands across a busy street against a light, there is a law against that (not the walking on your hands part, just the crossing against the light part) because you’re endangering others. If someone hits you because of this, it puts you in the hospital or morgue and them in the mechanic’s shop, hospital or morgue. We have these laws not to make your life more difficult, but to make order from chaos.
Conservatives and Republicans use this argument to rail against regulation on everything from your right to breathe smoke-free air to the Consumer Financial Protection Agency. In his 2009 article, Professor Paul Schultz argues:
Part of the mission of the CFPA, according to Schultz, will be to ensure that “traditionally underserved consumers and communities have access to lending, investment and financial services,” and that the CFPA should maintain a group of examiners specially trained and certified in community development to conduct CRA (Community Reinvestment Act) examinations of larger institutions.
“In other words, the CFPA will pressure banks to make loans to borrowers that they would not otherwise make,” Schultz says. “Isn’t that one of the reasons we got into so much trouble in the first place?”
Really? This guy thinks it was too much regulation that caused the financial collapse?
Au contrare, it was the corporate greedheads who pushed for and achieved the repeal of the Glass-Steagall Act in 1999, effectively eliminating much of the regulation of the financial industry and thus allowing them to make riskier loans then bundling them and selling them as mortgaged backed securities. These securities became known as the “toxic assets” that, when individuals started to default on their loans, brought about the global financial crisis.
If the reason that we “got into so much trouble in the first place” was that banks were making “loans to borrowers that they would not otherwise make”, where is the self interest of the banks? Was it in making sure the loans they made were going to be paid back? While that would make sense from a business point of view, it doesn’t seem that they followed their best interests here. Why? And if the CFPA didn’t exist yet, how was the government responsible for “pressur[ing] banks” to make these loans?
The reason that the banks were not following what would appear to be their self interest in making loans that would be paid back is because the lack of regulation realigned their self interest. They could make a loan to anyone and then sell it on the secondary market and not bear the responsibility if the loan went bad. Under the Glass-Steagall Act, banks couldn’t do this because the Act separated commercial and investment banking. Therefore if a bank made a loan, they couldn’t sell securities and vice-versa, thus they couldn’t securitize these bad loans (ie create the “toxic assets”) in the first place. Repealing this legislation allowed the banks to do so and they did it because they would make more profit by reselling these bundles of high risk debts to the unknowing market. What used to be the in the self interest of banks (profiting off of creating loans that would be paid back) was changed by the lack of regulation into generating greater profits from duping some poor suckers into buying packages of loans that were likely to default. In other words, the profit motive undermined the entire global economic system casting us all into the abyss of a recession.
While some regulation could rightly be seen as government overstepping its bounds, intruding on our civil liberties and infringing on our rights, most regulations are to prevent the people from becoming victims of corporate greed. When it comes down to it, almost everyone understands the basic concept here and the need for the government to regulate, so when we hear the term “nanny state” being thrown around, we need to be able to have a civil conversation bringing our friend, neighbor, acquaintance or loved one back to the reality that government regulation serves the purpose of justice in defending us from those who would do us harm just to make a buck.
Cross Posted on Daily Kos