Efforts in the U.S. House of Representatives to eliminate or cut funding for federal programs and agencies designed to protect homeowners, consumers, and investors reflect the same flawed thinking that former Federal Reserve Chairman Alan Greenspan admitted was wrong when he testified before Congress in October 2008. Greenspan, a longtime champion of deregulation, said that he had been mistaken to put so much faith in the self-correcting power of free markets and that he had failed to anticipate the foreclosure and economic crisis that such deregulation ultimately generated.
Among the many programs and agencies targeted for elimination and cuts are the Home Affordable Modification Program or HAMP, the Consumer Financial Protection Bureau (which doesn’t even launch until July 21, 2011), and funding for the Securities & Exchange Commission or SEC. HAMP helps eligible homeowners obtain mortgage loan modifications so they can stay in their homes and stabilize neighborhoods. The Bureau was created under the 2010 Dodd Frank Wall Street Reform law to protect consumers of financial products. The SEC enforces public disclosure requirements and investigates Wall Street players for improprieties and conflicts of interest that harm investors and the investment system.
Members of the House of Representatives who are advocating for such deregulation and funding cuts appear to have very short memories. Their arguments are often couched in term terms of budget cuts needed to rein in the deficit, but fundamentally these proponents argue that government regulation is bad for business and the economy.
In remarks to the American Bankers Association Government Relations Summit on March 16, FDIC Chairman Sheila Bair debunked those arguments and posited what she described as a “radical-sounding notion.” Bair said, “[I]ncreasing the size and profitability of the financial services industry is not – and should not be – the main goal of our national economic policy.” Rather, Bair said, “the success of the financial sector is not an end in itself, but a means to an end—which is to support the vitality of the real economy and the livelihood of the American people.” Rather than water down regulations, Bair continued, “We need to stand together on the principle that prudential standards are essential to protect the competitive position of responsible players from the excesses of the high-fliers.”
Meanwhile, Professor Elizabeth Warren defended herself and the CFPB before a House Financial Services subcommittee hearing on March 16. “If there had been a cop on the beat with the authority to hold mortgage servicers accountable a half dozen years ago, if there had been a consumer agency in place, the problems in mortgage servicing would have been exposed early and fixed while they were still small, long before they became a national scandal,” Warren said. President Obama appointed her to stand up the Bureau. “For too long, regulation has been described as undermining the free market. This is wrong,” Warren said in her written remarks. “Good regulation is not about impeding market forces; it is about channeling those forces to make the market work better. Good regulation is not about retribution designed to make an industry suffer; it is about rooting out deception and promoting transparency so that honest competition actually works.”
Some House members and Wall Street Journal editors have also challenged the propriety of Warren’s involvement in the discussions among mortgage loan servicers, Attorneys General, and banking regulators attempting to reach a settlement of issues uncovered by investigations into the servicer robo-signing scandal. In testimony on Capitol Hill earlier in the week, Treasury Secretary Tim Geithner defended Warren’s participation in the discussions and said she would not be a party to any settlement.
The 27-page proposed settlement contains many provisions that would resolve a lot of the longstanding problems with servicers that are resulting in unnecessary foreclosures, displacement of families, and neighborhood blight. These issues were a topic again at the Federal Reserve Board’s Consumer Advisory Council meeting on March 10. There was a ruckus because a Fed official had described the results of its robo-signing investigation in terms of finding “no wrongful foreclosures.” As a member of the Council, I was privy to the Fed presentation and subsequent discussion at the public meeting. Once we got past that misleading “headline,” it became clear that the Fed actually found many troubling issues as a result of its investigation and that it had narrowly defined “wrongful foreclosures “ to mean only that all of the homeowners were in default by the time the foreclosure occurred. As Council members who are foreclosure prevention housing counselors and attorneys noted, however, there are often situations in which the servicers’ mistakes and delays actually cause the defaults that then result in foreclosures.
I hope that our elected officials and policymakers are listening to their constituents and the housing counselors who are witnessing the devastating effects of deregulation daily. I hope our representatives in Congress will act not out of partisanship or ideology to eliminate and cut funding for needed programs and agencies, but rather out of common sense, to restore safety, stability, and trust in our financial system. Please contact your representatives to let them know you support common-sense regulations for the financial industry.