Why consumers need financial reform
- May 19, 2010
- 3 comments
- Posted in Consumer Rights, Government, Latest Posts
What angers me most about Wall Street’s shady dealing and greed is that that they like to blame the national meltdown on their customers. You’ve heard their sniffy defense: People took mortgages they couldn’t afford, lied to lenders about their incomes and deserve whatever they got. The poor li’l ole mortgage bankers and investors were the innocent victims of shocking consumer misbehavior. The banks had no idea—absolutely none—that when the scheduled interest rate ratcheted up on subprime loans, borrowers might not be able to pay.
Now they’re claiming to champion consumers’ open access to subprime credit by standing foursquare against financial regulation. The li’l ole borrowing and investing public will suffer, they say, if the banks aren’t left alone to lend at whatever terms they please.
There’s a word for that which I’ll abbreviate to “bull.” Consumers have suffered plenty under the corrupt, anything-goes financial system that pushed America to the brink. Without stronger regulation, which is currently up for debate in the Senate, Wall Street and the big banks will take taxpayers and consumers to the cleaners all over again.
During the credit bubble, exploitation of consumers made the money machine run. Lenders created mortgages that required no down payment, no proof of income or assets, and no monthly principal repayments. They built big increases in future interest rates into the loans and then sold them to global investors eager for high yields.
The beauty of the system was that the lenders could make money whether the borrowers repaid or not. When the system imploded, thousands of banks went down but their executives generally did fine. It’s their trusting subprime borrowers who are defaulting and going broke. Only tighter regulation will stop the financial system from running over their customers again.
Regulation wasn’t always the dirty word it is today. From 1940 to 1980, strong financial regulations kept the markets sound. But as memories of the Depression faded, so did the attitude toward controls. Gradually, the post-Depression regulatory structure was stripped away. The resulting deregulated and unregulated institutions have brought us one financial crises after another—the savings and loan scandal, the bubble and bust in Real Estate Investment Trusts, the collapse of the hedge fund, Long Term Capital Management, which threatened to set off a daisy chain of bond defaults, and more. To right the economy, the government—and often, the taxpayers–had to get involved.
What works, to keep America stable and prosperous, isn’t shoot-‘em-out capitalism but regulated capitalism that prevents the plutocrats from seizing the spoils and running the rest of the country into the ground. If you’re serious about “no more taxpayer bailouts,” you’ll support strong financial reform, including a new Consumer Financial Protection Agency. If “no-government-intervention” remains your default response, you’re supporting big bankers and future bailouts when the money machine runs wild again.
Don’t expect to be thanked by Wall Street or the banks, if you let your Senator water down reform. Consumers are a prey species in the financial world. The mouse might admire the prowess of the vulture but the vulture will eat it just the same.
Tags: consumer financial protection agency, financial reform, financial regulation
Thank you for this!
Don’t forget the mortgage brokers who sold exotic lucrative sub-prime mortgages to people who also would have qualified for normal straight-forward financing.
Reason: front-end commissions.
Maybe commissions should be paid out over the life of the mortgage, so if the borrowers default, the commisson evaporates as well.
And to think the mood of the country is to lean to the far right again. Pity us when the party of; “NO” takes over again. Sweeping tax cuts for the wealthy, borrow and spend running up the deficit, protecting these unethical fat cats who are beyond reproach anymore, etc. God help us all. The American People picked the wrong movement to be involved in. The Tea Party movement whith their hypocrites are the wrong bunch. Most of them are collecting social security and medicare while rallying at public parks; (Paid for by our taxes) and spreading their hate the government message. People forget so easily the man behind the curtain. Dick Cheney all over again.
And to think the mood of the country is to lean to the far right again. Pity us when the party of; “NO” takes over again. Sweeping tax cuts for the wealthy, borrow and spend running up the deficit, protecting these unethical fat cats who are beyond reproach anymore, etc. God help us all. The American People picked the wrong movement to be involved in. The Tea Party movement whith their hypocrites are the wrong bunch. Most of them are collecting social security and medicare while rallying at public parks; (Paid for by our taxes) and spreading their hate the government message. People forget so easily the man behind the curtain. Dick Cheney all over again.