On January 29, the Congressional Oversight Panel (COP) released its Special Report on Regulatory Reform (PDF link). The COP, established by Congress to oversee the Treasury’s bailout plan, is chaired by Harvard law professor and consumer advocate Elizabeth Warren. The report argues that the roots of the current crisis lie in twenty-five years of financial deregulation, and its recommendations embody many of the principles AFFIL posted yesterday.
The report identifies eight central problems, and offers smart recommendations to deal with each—including “Create a New System for Federal and State Regulation of Mortgages and other Consumer Credit Products.” We should have expected no less from a panel chaired by Professor Warren. Her video (above) introducing and summarizing the report is the best brief explanation of how we got into the current mess, and how we can prevent another financial crisis, that I’m aware of.
The main report of the COP (you’ve gotta love the acronym) takes up only about half of the hundred page document; the other half provides a powerful illustration of what consumer advocates are up against.
First, the two Republicans on the five-member panel take thirty-five pages to explain why they disagree with the majority report. It turns out, they explain, that the problem wasn’t deregulation. Instead, it was misguided government regulation (which they say actually increased in recent decades) this is primarily responsible for the financial meltdown: “the failure of government policy and the market distortions that it caused stand at the center of the crisis.”
You almost have to admire an ideology powerful enough to lead intelligent men to believe in such utter nonsense.
When it comes to consumer protection, all that the Republicans offer is “empowering consumers with effective disclosure to make rational decisions.” By contrast, the COP report itself reflects understanding and agreement with AFFIL’s principle #3: “Disclosure is not enough; substantive protections are essential.”
The second sobering feature of the report is the summaries that it provides of twenty-three other reports on financial regulatory reform. Judging from the report titles and summaries, only one of these twenty-three reports gives significant attention to issues of consumer protection.
The one that does, however, is worth checking out if you’re interested in the emerging battle over reregulation of the industry: U.S. Government Accountability Office (an independent agency that works for Congress), Financial Regulation: A Framework for Crafting and Assessing Proposals to Modernize the Outdated U.S. Financial Regulatory System (PDF link). I recommend starting with the 24-page version (PDF link) that GAO head Gene Dodaro presented as testimony to the COP on January 14.
Jim Campen is the executive director of Americans for Fairness in Lending, and will be posting at Caveat Emptor until 2.13.2009.