[lbo-talk] Warren: Banking on hypocrisy

Michael Pollak mpollak at panix.com
Tue Mar 30 16:12:33 PDT 2010


[Speaking of bald-faced hypocrisy]

[Boy she's great. Boy it would be unbelievably great if she could run this agency.]

http://dyn.politico.com/printstory.cfm?uuid=ACA33BE0-18FE-70B2-A8778278A4F4B4EF

March 30, 2010

Politico.com

Banking on hypocrisy

By Elizabeth Warren

Banks or families?

For almost a year, the big banks and the American Bankers

Association have presented that choice to Congress. Lobbyists argue

that meaningful consumer protection will jeopardize the safety and

soundness of banks, telling lawmakers that they must decide between

the two.

While American families have made clear that they overwhelmingly

support the reforms that a new consumer financial protection agency

will produce -- like clear, understandable terms and conditions for

consumer credit products and accountability for the big banks -- the

lobbyists have made equally clear their plan to kill the agency.

ABA lobbyists now aggressively insist that separating consumer

protection and safety and soundness functions would unravel bank

stability. Yet just a few years ago, they heatedly argued the

opposite -- that the functions should be distinct.

In 2006, the ABA claimed to act on principle as it railed against an

interagency guidance designed to exercise some modest control over

subprime mortgages. It criticized the proposal for "combin[ing]

safety and soundness guidance with consumer protection guidance,

creating confusion that is best addressed by separating them."

The ABA went on to argue that the "marriage of inconvenience between

supervision and consumer protection appears to blur long-established

jurisdictional lines." And then: "ABA recommends that the safety and

soundness provisions relating to underwriting and portfolio

management be separated from the consumer protection provisions."

Read that again: The ABA in 2006 said that policymakers should

separate safety-and-soundness and consumer protection -- exactly the

opposite of its position today.

This 2006 memo illustrates the ABA's real consistency -- consistent

opposition to meaningful reform.

If there is a smoking gun in the battle over financial regulatory

reform, the 2006 ABA memo is it.

<snip>

The lobbyists' consistent theme is unmistakable: They oppose

meaningful rules in the consumer credit market.

The ABA's reversal reveals that its safety-and-soundness argument is

-- and always was -- a diversion.

The ABA's premise that the country can't have both meaningful

consumer protection and safety and soundness is wrong. In fact, its

defense against an independent consumer agency boils down to this:

If banks can't trick and trap people with fine print and legalese,

they won't be able to turn a profit.

When other industries have argued that tricking their customers is

an essential part of their profit model, they haven't gotten far.

For example, it might be profitable in the short run to substitute

baking soda for antibiotics, but basic safety regulations prevent

such moves -- and the pharmaceutical industry still manages to do

just fine. In fact, the industry flourishes, bringing better,

cheaper products to customers.

Similarly, the consumer agency now before the Senate is designed to

cut out tricks and traps pricing, fine print that no one can read

and sharp practices that strip billions of dollars from consumers.

The ABA's position is particularly galling because it was the lack

of meaningful, independent consumer protection that helped bring

down the entire banking system and cause the current crisis. Without

billions pumped into subprime mortgage lending, the housing bubble

could not have inflated; Lehman and other MBS traders would have

lacked the raw material that fueled their excessive risk taking, and

the destabilization of millions of families and neighborhoods would

not have occurred.

In the weeks ahead, the Senate does not need to decide between

safety and soundness and consumer protection.

But the ABA is right about one thing: The Senate does need to decide

between banks and families.

Elizabeth Warren is the Leo Gottlieb Professor of Law at Harvard

University and is the chairwoman of the Troubled Asset Relief

Program's Congressional Oversight Panel.

© 2010 Capitol News Company, LLC



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