Realist, not conformist analysis of the latest financial, business and political news

Consumers Are Not Protected

The U.S. Treasury regulates banks. There are also agencies to regulate all those non-bank things — savings-and-loans (building societies) and depositor-owned credit unions — which sprang up not just to market to niches but to escape bank regulation, until the regulators caught up. Separate agencies guarantee pensions and insure deposits. Mishaps are rendered physically impossible.

Damned if the mother of all mishaps didn’t happen anyway. Political regulators of loans naturally demanded that loans be issued politically, notably adding to ability-to-repay the criterion of disadvantaged skin color. In 1998, Bill Clinton famously warned financial institutions that any expansion requiring licensing would trigger an evaluation of equality of results in lending to minorities.

The change might have counteracted a tiny bit of that epidemic white racism, but it also unleashed a slew of lending to persons with minuscule down payments who had not proven their ability to repay the mortgage. Agencies known as Fannie Mae and Freddie Mac repackaged the loans, rendering it impossible to assess the quality of individual loans. When borrowers began to default and bank runs began, Bernanke and Geithner (Democrats appointed by George W. Bush to appease the suddenly Democrat Congress) began bailing out banks — or not — essentially on a whim, until no one knew what the rules were. This was on the eve of the 2008 Presidential election, which chose a man with no past and no career other than “community organizer,” for whom the solution was obviously more bureaucracy.

The crowning achievement of a leftie gadfly is not to create a new agency, but to create a new agency that cannot be dismantled — even if the public should someday reject the false choice between government provision of services and no services at all. Your local council no longer just creates a Conservation Committee, which in the case of high unemployment might be re-styled the Economic Development Board; it takes usable pasture and gifts it to a Quango where it will be kept in disuse by self-selecting conservation gadflies even after they fall into the minority.

The Consumer Financial Protection Bureau was the brainchild of socialist Elizabeth Warren (before she became a U.S. Senator; and the Congress that saw fit to create the Bureau did not accept her as its head). Its ostensible job is to, well, protect consumers of financial services. Its real job is to live forever. Toward this goal, it has two innovations:

  • In view the bit that “No money shall be drawn from the treasury, but in consequence of appropriations made by law” (Art. I, Sec. 9), the CFPB does not draw from the Treasury at all, but is financed by assessments on the firms it regulates, in such amounts as it sees fit, paid directly to it.
  • The CFPB is an Executive Branch agency whose director cannot be fired by the Chief Executive.

This last is especially interesting as it was Trump’s first Constitutional crisis. Richard Cordray timed his retirement to slide Leandra English into his post and claim there was no vacancy at all. Trump barely prevailed in court and succeeded in giving top budgeteer Mick Mulvaney a second job running the agency. (English’s lawsuit to acquire the post continues, and a fun Washington parlor game is to guess who is funding the lawsuit.)

So what has the agency done?

  • 1,600 employees codify standards for financial institutions — for which, as always, it is not sufficient to just be honorable; the institution must learn, convey, and document compliance with the regulations, and take time to welcome auditors and inspectors.
  • It addresses the “too big to fail” problem, another false choice, this time created by George W. Bush, that if a sufficiently large institution failed, its people, management, and physical plant would disappear from earth, and pedestrians might fall into the resulting craters. Frequent simulations involving economic panics are foisted on large and medium-sized banks, which must prove they would survive them. (The UK has similar tests, which Tim W. has shown often test the wrong things, wrongly.) (The Republican Congress may succeed in exempting medium-sized banks from this sexless masturbation, leading to more name-calling from Democrats, but reassuring the Tea Party that Republicans remain expert at making Democrat tyranny a bit gentler and easier to comply with.)
  • It addresses a variety of non-problems, such as the bee in Obama’s bonnet, paycheck lending, loans to poor people who need the money a few days before pay day. There are hefty fees for this service which, if extended to a full-year basis (as the loans never are), seem shocking. Snuffing out paycheck lending, like snuffing out jobs paying less than a minimum, yank away one more option from poor people, while letting everyone at the Cheese Shoppe admire themselves a bit more. (Mulvaney is trying to undo this regulation.)

And the agency does many other things, too, befitting its total lack of accountability. As Congress debates the way Facebook delivers services at the price of the user’s privacy — spending a few minutes pondering the privacy given up by non-users of Facebook — the CFPB

admitted to Congress in 2014 they were in the process of collecting 991 million American credit card accounts and accumulate 95 percent of the 53 million residential mortgages taken out since 1998.

It justified this to Congress as necessary to resolve constituent complaints, but the personally identifiable information is not limited to people who have contacted the CFPB. It can be used to identify the next crisis requiring government solution, or to identify citizens who need the management of their personal finances improved, and in more muscular ways than just putting paycheck lenders out of reach.

The CFPB, being a political organization, can of course use the information politically, as private court records on the divorces of Obama’s opponents for Illinois Senate were suddenly leaked to the press, or 800 FBI records on the Clintons’ adversaries turned up in the White House. (Republican Richard Nixon had his own “Enemies List,” but long before computers.) When Obama succeeded in converting student lending to a Single Payer basis, independent of the alleged better deals for students by cutting out banks as the middle man — and also acquiring power over students — Obama got the power to close entire for-profit universities, by denying all student loans, on allegations of deceptive employability claims that he never had to disprove. (The displaced students are now at state universities in Grievance Studies, where future employability is never doubted.)

And the CFPB has proven as incompetent at managing its information on borrowers as in the fiasco. The data collection program was disclosed to Congress in 2014, and its data security provisions have been faulted ever since then. Large bits are outsourced to contractors (which, if is a model, were chosen on the basis of pull rather than competence). This week, Mulvaney testified before Congress:

The Consumer Financial Protection Bureau (CFPB) suffered at least 240 data breaches and another 800 suspected hacks, according to Mick Mulvaney, the acting director of the bureau in congressional testimony.

The Consumer Financial Protection Board claims to protect the financial consumer. But it is not protecting his choices, and it is not protecting his data. It is driving up his costs. Like any other socialism whose fans claim merely suffered from “the wrong people” doing it, the CFPB’s problems are not implementation problems; they are design problems. And, by design, neither the President nor Congress with less than a 3/5 majority can do a thing about it.

Thanks to reader “Southerner” for suggesting this article.


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