JC Watts column

Stephens Media Group

09/09 – TOO MUCH, TOO LATE

      Why the CFPA idea is an overreaction which would do more harm than good 

      A common complaint about ineffective treatments is that they offer “too little too late.” Not with this Administration. On the contrary, in every context their inclination is to offer too much too late, massively increasing the Federal Government’s role in our lives, at an unprecedented cost and unprecedented rate. It’s not a case of shutting the stable door after the horse has bolted but it is more like burying the stable under several tons of expensive bio-friendly manure so that nobody can keep horses there any more. Why? Presumably because the surest way to make sure nobody would ever have to suffer the pain of default is to ensure that nobody gets to borrow money in the first place. You certainly can’t lose what you no longer have. 

      People sometimes say the military is trained to fight the last war, not the next one. Secretary Geithner’s Treasury is no different. Stung by the last administration’s failure to prevent the mortgage and financial crisis of last year, and this administration’s failure to understand how to curtail it, they want to regulate anything and everything, regardless of whether it was regulated already and regardless of whether it may have contributed to the financial crisis. If it moves, create a Czar for it! Or, as Rahm Emanuel put it, the crisis provides a historic “opportunity” to accomplish things they’ve been dreaming of over their mochas and lattes during their years in Administrative exile, regardless of how tenuous their connection might be to the crisis itself. 

      The last few months have seen a terrible collapse of small business and consumer credit in this country, which has throttled economic activity. Without a market for securitizations, much indirect lending, through dealers and manufacturers has simply evaporated. Without auto loans, nobody could sell cars and GM and Chrysler crashed into bankruptcy. Congress then made matters worse by enacting a series of credit card provisions the impact of which have been to sharply reduce the availability and increase the cost of cards.  I heard a 30 year investment banker say 3 weeks ago that in 2008 there was 5 trillion dollars available in the credit market. Due to the new credit card Bill there will be 1 trillion available in 2010. 

      Now they are targeting whatever options borrowers have left with this Consumer Finance Protection Agency proposal, the intent of which may have been harmless enough, but the effect, as with the card provisions, can easily be predicted. The range of products will be reduced and the number of people who have access to much-needed credit will dwindle and Washington will be able to take the credit (some irony intended) for saving us from ourselves. 

      Products which are today well-regulated by accountable and elected state legislatures will be at the mercy of unelected Federal bureaucrats, whose most important qualification, according to the draft issued by the Administration, is that they will have never worked in the industry they are to regulate. Imagine if we were to say that the only people fit to decide the future of healthcare are people who have never seen a patient but have a fine record in the related field of Republican or Democrat Party politics. Oh yes, we’ve done that too. 

      The companies still making loans to consumers are pretty much by definition NOT those who made bad loans which proved unpayable. Those companies all went under or were bought up by big banks with our money. The Consumer Finance Protection Agency would be set up to punish the innocent because the guilty have all rather inconveniently slunk away to die. Even so, few would mind too much about punishing any business (however innocent) if it weren’t for the fact we might actually need the products they provide at their own risk to those in need of credit. 

      That, of course, is where this Administration and this Congress has belatedly realized the rubber meets the road. Consumers are tired of having their options dwindle as Congress fiddles. Even fiddling wouldn’t be so bad compared with a proposal like this which would deliberately and intentionally reduce those options, making a bad situation worse.