A keystone of Obama’s Wall Street reform agenda is getting support from the unlikeliest of corners. Alan Greenspan, an acolyte of Ayn Rand and extreme free-marketeer, is backing one of the most far-reaching elements of the financial overhaul: the Consumer Financial Protection Agency. Greenspan told the Washington Post that pushing for the CFPA was “probably the right decision.” Given the former Fed chairman’s penchant for obliquity, the straight-forward endorsement takes on greater weight.
Wall Street and community bankers argue that the proposed agency will restrict financial innovation and otherwise inhibit economic growth. Those are the types of arguments that Greenspan was prone to make during his tenure as chairman, but the financial crisis has persuaded Greenspan that the “intellectual edifice” buttressing radical free-market ideology has, in his words, “collapsed.”
Rep. Brad Miller (D-N.C.), the lead backer of the CFPA in the House Financial Services Committee, recalled the Greenspan opposed consumer protections while he was chairman. “It’s a dramatic turnaround from his public position and even more so, apparently, from what he was privately pushing within the deliberations at the Fed,” he told HuffPost. Greenspan has acknowledged that the collapse has led to a crisis of faith. “I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms,” Greenspan said at a House hearing last October under questioning from Rep. Henry Waxman (D-CA). “In other words,” said Waxman, moving in for the kill, “you found that your view of the world, your ideology, was not right, it was not working.”
“Absolutely, precisely,” said Greenspan. “You know, that’s precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well.”
It’s one thing to reject a failed ideology, but another altogether to embrace the kind of regulation represented by the CFPA. “He has already said that he erred in assuming that the market would take care of things–the Ayn Rand point of view–but this seems to go farther than he’s gone before in calling for a new agency to protect consumers from financial products,” said Miller. Greenspan told the Post that the Fed has enough responsibilities to manage and that consumer protection would be too much. Miller noted that Greenspan’s position is “diametrically opposite of what leadership at the Fed are saying now.”
Top Fed officials are pushing to make consumer protection a core Fed responsibility. But Democrats passed a law in 1994 requiring the Fed to adopt rules protecting financial consumers. When the GOP took over Congress in 1995, the Fed decided not to act. It didn’t write the rules until Democrats retook Congress in 2007 and began work on a new set of laws. “The damage was already done,” noted Miller.
The CFPA would gauge the safety of financial products and be given broad powers to require understandable explanations of the terms of financial instruments and otherwise restrict behavior that now goes on unmolested. It was first proposed by Harvard Prof. Elizabeth Warren, the head of the congressional panel overseeing the financial bailout. It is fiercely opposed by the banking lobby. Financial Services Committee Chairman Barney Frank (D-Mass.) earlier postponed a vote on the agency until after the August recess. The banking lobby’s stiff resistance made it difficult for the chairman to be sure he had enough votes to pass it. The vote is now expected in October.
Last week, Frank issued a memo to committee members outlining proposed changes to the original package, which had been blasted by the Chamber of Commerce for over-reaching and going so far as to regulate butchers who give meat on credit. The original bill would have required financial institutions to offer standard, “plain vanilla” financial products meeting certain basic guidelines for transparency and safety. That requirement has been dropped, according to the memo, which was obtained by HuffPost. Some consumer advocates expressed alarm at the proposed changes, but others following it closely say that the changes are largely technical and that the real fight is yet to come.
The Memo: …Read more here.
