At least once a week a new report comes out detailing inadequacies or improprieties by one or more of the companies involved in the housing bubble and financial crisis… While we read the reports and follow the news, the foreclosures continue, along with the unregulated credit ratings, robo-signings, and predatory lending. Nothing material about our current practices has changed.
If you listen to candidates for President, regulation is the greatest threat to our democracy. (Actually it’s never just regulation it’s overregulation.) The Chinese owning our debt and growing at five times our rate… nahhh; Al Qaeda gaining nuclear weapons? Nope. Okay… steadily declining scores in math and science for high school students? No, sorry. It’s regulation. We need less regulation, more democracy, and more prosperity. Or maybe just no regulation, absolute democracy, and absolute prosperity. Hmmmmm… Can it be that easy?
No. It’s time to look at the facts. At least once a week a new report comes out detailing inadequacies or improprieties by one or more of the companies involved in the housing bubble and financial crisis. On Monday we learn Standard and Poor’s refused to downgrade AAA-rated companies despite damning evidence. By Friday, we’ve forgotten S&P because news surfaces that banks had robo-signers executing their foreclosure agreements. And early the following week, the focus shifts back to S&P as U.S. credit is downgraded and the DOJ brings suit against the credit rating agency. Yesterday, as TCO hero Gretchen Morgenson reports, the FHFA released a report detailing the timeline of Fannie Mae’s discovery of abuses by the teams of law firms assigned to oversee foreclosures.
The takeaway: Fannie was aware early of its lawyers improprieties. Shocking.
While we read the reports and follow the news, the foreclosures continue, along with the unregulated credit ratings, robo-signings, and predatory lending. Nothing material about our current practices has changed. Dodd-Frank hit an impenetrable political wall and credit rating agencies have indemnified themselves by declaring their ratings “mere opinions”. The Boston Globe reporting that “Alex Rodriguez is an overrated ball player” is afforded the same protection as credit agencies saying “U.S. credit is no longer the safest investment you can make.”
So while it is important to assess our past failures, at this point we must take the next step. We need substantially more oversight.
Here are a few modest proposals:
- Call the CRAs what they are—oligopolistic pseudo-government agencies—and establish straightforward accountability standards for the ratings they produce.
- Separate investment banking and “plain old banking”, as the venerable Paul Volcker has called for. This limits the risk to which regular banks are exposed and allows them to engage in simple money storage and loans.
- Limit corporate compensation at institutions that have required infusions of taxpayer money, and require better disclosures to the public as to the risks taken and compensation awarded.
- Most importantly: Actually empower the agencies charged with regulating the industries with the authority and resources to do so.
Now that would truly be news.
Assisted by David Martin