The Business of Consumer Protection
Why, we begin today, are the editors of Time obsessed with troikas of bureaucratic saviors?
You’d think after The Committee became the butt of cocktail jokes during the Panic of ’08… they’d have shied away from anointing the “New Sheriffs.” Alas, there it was, this spring, in feminine form.
This time around, the joke is becoming apparent much faster: The “new sheriffs” are bought and paid for.
First, if you don’t mind, we’ll introduce them, left to right…
- Elizabeth Warren, who’s organizing the new Consumer Financial Protection Bureau
- Mary Schapiro, chairman of the SEC
- Sheila Bair, chairman of the FDIC
Now… Let’s take a peek at how effective these new sheriffs are at laying down the law. In reverse order:
Bair’s FDIC is now so confident about the health of the banks that it’s canceling their scheduled increase in deposit insurance payments – you know, the money the banks pay to the fund that “insures” your deposits.
The fund is already $20.7 billion in the red.
“We are not even close to a point where our financial institutions are truly sound,” says Bruce Krasting, a former hedge fund manager who’s taken to the blogosphere. “[Bair] folded to the big banks on this one.”
And when Bank of America took over a failing Merrill Lynch in 2008? It didn’t bother informing its shareholders about the scope of Merrill’s considerable losses…or bonuses. Schapiro’s SEC sued BoA in August 2009…and settled the case the same day for the whopping sum of $33 million.
The judge overseeing the case took the extraordinary step of rejecting this sweetheart deal, saying it “does not comport with the most elementary notions of justice and morality.”
In the end, he reluctantly agreed to a $150 million fine several months later. Chock another up for the tamers of the Wild West!
What of Elizabeth Warren and her brainchild, the Consumer Financial Protection Bureau?
“The CFPB,” explains our stock market vigilante Dan Amoss, “is a new federal bureaucracy created when the president signed the Dodd/Frank bill into law three months ago.”
As a Harvard law professor, Warren pushed Congress hard to create the agency – much to the chagrin of the bankers. But since joining the administration six weeks ago, she’s met with the heads of the 14 biggest banks.
No more talk about “blood and teeth left on the floor” – her words to The Huffington Post last March. Now it’s all about the government and the banks working together for the common good.
“The thing that probably has surprised me most is how surprised they were by the conversation,” Warren said last week, reflecting on her recent meetings. “They were very glad to be invited, and they had some very thoughtful insights.”
Still, knowing what we know about the new sheriffs, should we be surprised? The CFPB’s funding comes from the Federal Reserve.
Still, a crusading Ivy League academic has to do something to create the illusion of looking out for the little guy. So where to hunt for crooks?
“Consumer finance companies,” Mr. Amoss says, will be the first target of Warren’s wrath, “including payday lenders and other lenders whose complex loans get their customers into a dangerous cycle of debt accumulation.”
Of course, consumer finance companies don’t fund the Fed, and they’re only slightly more popular than the operators of puppy mills. So they make an easy target.
“A business model,” intuits Dan, “that involves rolling customers from one loan to the next is going to be at the top of the CFPB’s target list.”