Wednesday, July 29, 2009

Representative Jeb Hensarling Underestimates the Popularity of Vanilla

Representative Hensarling (R-TX) is a a member of Congress and a member of the Congressional Oversight Panel (the body set up to oversee the TARP program). He recently had and OpEd in the Washington Times denouncing the proposed Consumer Financial Protection Agency (CFPA). To some extent this is an act of airing the panel's internal squabbles since the panel chairperson, Elizabeth Warren, is an outspoken proponent of the CFPA.

Hensarling argues:

The CFPA will further harm consumers by stifling innovation. It is doubtful how many financial firms will choose to invest in research, development and consumer testing on new products, only to discover later the CFPA deems them to be "unfair" and thus unlawful. Had the CFPA existed 25 years ago, we would probably have no ATMs, frequent-flyer miles or debit cards. Functionally, a new federal bureaucracy will now be in charge of research, development and product approval for almost all new consumer-financial products.

No frequent ATMs, flyer miles, or debit cards would be bad, but on the other had we probably wouldn't have credit default swaps or liar loans either.

Seriously, with the CFPA no ATMs? And I thought all of the hyperbolic alarmists were Democrats. This sounds like one of those global warming screeds where Jamaica is going to be underwater and Kansas will be the Sahara in ten years if don't all stop mowing our lawns and exhaling. Now!

Here is Elizabeth Warren writing at The Baseline Scenario describing the CFPA and its goal:

The CFPA will not limit consumer choice. Instead, it will focus on putting consumers in a position to make choices for themselves by streamlining regulations, making disclosures smarter, and making financial products easier to understand and compare. The Agency will promote plain vanilla contracts—short, easy to read mortgages and credit card agreements. The key principle behind the new agency is that disclosure that runs on for pages is not real disclosure—it’s just a way to hide more tricks.

Memo to Hensarling: I like vanilla. A lot of people like vanilla.

Responsible people who spend the majority of their time working hard to provide for their families and have 2 or 3 or maybe even 5 mortgages over the course of their lifetime could greatly benefit from simple straightforward financial products that allow them to make good decisions. Good decisions which will, in turn, benefit society as a whole. While I believe the Republicans have abandoned much of free market philosophy to pursue a slavish devotion to corporations, they haven't given up this bedrock principle, have they?

But wait! Warren is for simplification, so is Hensarling. The Congressmen includes this in his piece:

Proponents claim disclosures for some financial products are too complicated for people to understand and that bad apples in the credit markets try to confuse consumers to make a quick buck. They are right.

That's why House Republicans have developed a regulatory reform plan that will simplify consumer disclosures and bolster the anti-fraud protection efforts of existing federal agencies. For too long, government mandates or lawsuit fears have encouraged companies to provide voluminous disclosure, often written in legalese.

So its agreed. Simplification and honest dealing are a good thing. It remains to be seen what version, if any, of financial reform on the consumer level is enacted: Warren's, the House Republican's, or some other version.

Given her history of advocacy on behalf of consumers and her forthright description of how the CFPA might work, I am hopeful that the end result will be closer to Warren's idea than any other.

I am willing to give the Republican plan a chance, but as of now the plan heralded by Hensarling is almost a complete unknown. If it turns out they are just serving up another of the 31 flavors of protecting wealthy and connected special interests rather than the American people, I'll have to pass.

I always liked vanilla.

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