Must Read from Paul Krugman: Financial Reform Endgame

[flpoljunkie]

(Krugman's concluding paragraphs...)

March 1, 2010
Financial Reform Endgame

By PAUL KRUGMAN

There are times when even a highly imperfect reform is much better than nothing; this is very much the case for health care. But financial reform is different. An imperfect health care bill can be revised in the light of experience, and if Democrats pass the current plan there will be steady pressure to make it better. A weak financial reform, by contrast, wouldn’t be tested until the next big crisis. All it would do is create a false sense of security and a fig leaf for politicians opposed to any serious action — then fail in the clinch.

Better, then, to take a stand, and put the enemies of reform on the spot. And by all means let’s highlight the dispute over a proposed Consumer Financial Protection Agency.

There’s no question that consumers need much better protection. The late Edward Gramlich — a Federal Reserve official who tried in vain to get Alan Greenspan to act against predatory lending — summarized the case perfectly back in 2007: “Why are the most risky loan products sold to the least sophisticated borrowers? The question answers itself — the least sophisticated borrowers are probably duped into taking these products.”

Is it important that this protection be provided by an independent agency? It must be, or lobbyists wouldn’t be campaigning so hard to prevent that agency’s creation.

And it’s not hard to see why. Some have argued that the job of protecting consumers can and should be done either by the Fed or — as in one compromise that at this point seems unlikely — by a unit within the Treasury Department. But remember, not that long ago Mr. Greenspan was Fed chairman and John Snow was Treasury secretary. Case closed. The only way consumers will be protected under future antiregulation administrations — and believe me, given the power of the financial lobby, there will be such administrations — is if there’s an agency whose whole reason for being is to police bank abuses.

In summary, then, it’s time to draw a line in the sand. No reform, coupled with a campaign to name and shame the people responsible, is better than a cosmetic reform that just covers up failure to act.

http://www.nytimes.com/2010/03/01/opinion/01krugman.html?hp

[Zenlitened]

1. "...take a stand, and put the enemies of reform on the spot."

They there's a first time for everything.

It'd be nice to see it.

[bertman]

2. This is Greatest Page material and needs to be read by many DU'ers. Rec #5. nt

[saracat]

3. Watch out.Krugman will be back under the bus . Helen will save him a seat.

[inna]

4. Reminds me of the HCR:

"The question now seems to be whether we’ll get a watered-down bill or no bill at all. And I hate to say this, but the second option is starting to look preferable."

[snot]

5. Better: restore some LAWS, like Glass-Steagall. Agencies (e.g., the SEC) can be underfunded,

or packed with Brownies.

I don't mind an agency; but laws are as impt. or moreso.

[ProgressiveEconomist]

6. Krugman mentions Ed Gramlich, a Fed Governor worth remembering.

Gramlich foresaw the ARM option rate-increase crisis at least seven years ahead of time. He brought it to Fed Chairman Greenspan's attention in 2000, but was rebuffed.

Quietly, he wrote a meticulous book-length treatment of the problem that the Urban Insititute finally published just weeks before his death in Sptember 2007.

See http://underbelly-buce.blogspot.com/2009/01/remebering-ed-gramlich.html and Book TV's memorable discussion of the Gramlich book, archived at http://www.booktv.org/Program/8539/Subprime+Mortgages+Americas+Latest+Boom+and+Bust.aspx .

[depakid]

7. +1

For geting it right.

Would that there were more appreciation of sensibility and foresight in America these days.