Ben Bernanke is opposed to the creation of a new Consumer Financial Protection Agency. Disregarding his organization’s disappointing track record in this regard, he claims that the Fed can handle this issue perfectly well going forward.
He thus adds his voice to the cacophony of financial sector lobbyists favoring the status quo.
At the same time, Bernanke and the lobbyists talk about the importance of consumer confidence for the recovery. But how can you expect anyone to have confidence enough to spend and borrow when so many people have been so badly treated by the financial sector in recent years?
What happens when there is a scare regarding food contamination in the US or globally? People buy less of that kind of food until the government assures them that (1) we know understand the cause of the problem, and (2) it will not happen again.
Word has got around that many financial products are not safe – as well as the idea that the debt levels encouraged by the finance industry are not always healthy. Consumers are going to be more careful and, if there is no way to reassure them fully, they may be excessively careful.
In addition, we have learned that allowing financial firms to abuse consumers is very bad for our overall financial system health – leading directly to the current crisis, loss of jobs, and still rising unemployment; all of this further undermines confidence of all kinds. If the financial system can turn nasty or even nastier, we should all carry more “precautionary” savings.
There’s no question that some financial firms would like to return to abusive practices, figuring they can once again make money and then move on. Yet serious financial sector firms would prefer to clean up their acts and work with properly informed customers. These firms are making a bad mistake in opposing the CFPA.
If the CFPA does not make it through Congress – and right now it seems a toss-up – this will just feed the backlash against finance more generally, e.g., in the 2010 midterm elections and beyond. There is no way that is good for overall confidence. It just doesn’t make sense for well-run financial firms to go down this road.
Industry thought leaders, the American Bankers’ Association, the Financial Services Roundtable, and other interest groups should switch their positions and support the CFPA – if they really want consumer confidence in financial products and more generally to return.
The Fed, it seems, just wants to defend its turf. This is unfortunate, particularly given its ambition to become even more responsible for the safety and soundness of the entire financial system. How can our financial system ever be sound when so many elements prey on so many consumers’ confidence?