Why We Need an Independent Consumer Financial Protection Agency, and Why Elizabeth Warren Should Run It

I know it is too late now, but I want to make the point anyway.

I remember the first time I heard Elizabeth Warren speak. It was at a conference on consumer credit hosted by Georgetown and the estimable Mike Staten–I think it was in 2002. Elizabeth Warren spoke about consumers getting steered into mortgages–and in particular high balance mortgages and long-term mortgages. She argued that this was bad for consumers; she argued low balance, short maturity mortgages would mean consumers would pay less interest, and that this would leave consumers better off.

My reaction was that she was nuts. After all, my economist’s brain told me, present value is present value. She was ignoring the opportunity cost of equity. She was, I thought, offering consumers horrible advice.

Now her advice looks pretty good. Lower leverage means lower risk, and households–particularly those without financial assets–are not in a good position to manage risk. Moreover, low balance short amortization mortgages nudge people into saving, and may explain why people of my parents’ generation (who paid off their mortgages by the time they were in their 50s) are in better shape financially than people of my generation (who kept taking equity out of their houses).

The problem with the Fed is not that people there aren’t smart and well-intentioned–they are. The problem is that most people there were trained to think like me. I hate to say it, but there may be times when a smart, caring lawyer understands how the world really works better than a smart, caring economist.

About Richard K. Green 102 Articles

Affiliation: University of Southern California

Richard K. Green, Ph.D., is the Director of the USC Lusk Center for Real Estate. He holds the Lusk Chair in Real Estate and is Professor in the School of Policy, Planning, and Development and the Marshall School of Business at the University of Southern California.

Prior to joining the USC faculty, Dr. Green spent four years as the Oliver T. Carr, Jr., Chair of Real Estate Finance at The George Washington University School of Business. He was Director of the Center for Washington Area Studies and the Center for Real Estate and Urban Studies at that institution. Dr. Green also taught real estate finance and economics courses for 12 years at the University of Wisconsin-Madison, where he was Wangard Faculty Scholar and Chair of Real Estate and Urban Land Economics. He also has been principal economist and director of financial strategy and policy analysis at Freddie Mac.

His research addresses housing markets, housing policy, tax policy, transportation, mortgage finance and urban growth. He is a member of two academic journal editorial boards, and a reviewer for several others.

His work is published in a number of journals including the American Economic Review, Journal of Economic Perspectives, Journal of Real Estate Finance and Economics, Journal of Urban Economics, Land Economics, Regional Science and Urban Economics, Real Estate Economics, Housing Policy Debate, Journal of Housing Economics, and Urban Studies.

His book with Stephen Malpezzi, A Primer on U.S. Housing Markets and Housing Policy, is used at universities throughout the country. His work has been cited or he has been quoted in the New York Times, The Wall Street Journal, The Washington Post, the Christian Science Monitor, the Los Angeles Times, Newsweek and the Economist, as well as other outlets.

Dr. Green earned his Ph.D. and M.S. in economics from the University of Wisconsin-Madison. He earned his A.B. in economics from Harvard University.

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