The Oldest Trick in the Book

Once again, conservatives are banking on faux-populism. Over the past few weeks, Republican senators and their brain trust have attempted to shift public opinion on consumer financial protection proposals by deriding them as elitist. This week on bigthink.com—a popular education website—Peter J. Wallison, a Financial Policy Fellow at the American Enterprise Institute, argued that the Democrats’ proposal for a Consumer Financial Protection Agency is condescending because it implies that Americans are incapable of understanding complex financial products on their own. Wallison used this same rhetoric in a Washington Post editorial last summer, and unfortunately the idea has found its way onto the GOP congressional website, as well as political consultant Frank Luntz’s notorious February memo to Republicans on how to fight financial reform in general.

It’s the oldest trick in the book. When progressives argue that conservatives defend a dangerous status quo, conservatives counter that progressives condescend to Americans who are perfectly capable of watching out for themselves. Because they have difficulty attacking the content of reform, they portray the tone of the legislation as demeaning and thus culturally repulsive. They eschew meaningful debate by realigning themselves with a shallow conception of the American Dream.

In reality, Wallison and company’s arguments are nothing but smokescreens for fleecing consumers. A consumer financial protection entity, such as Senator Chris Dodd’s Consumer Financial Protection Bureau—or the even more robust CFPA proposed by Representative Barney Frank—would do much to defend American families and small businesses from financial ruin. The proposal is anything but elitist—and it’s supported by an overwhelming majority of the American public: A Monday poll by the Consumer Federation of America found that 62 percent of Americans support the creation of a "new federal agency to protect consumers who purchase banking and other financial services."

There is currently minimal regulation on the consumer credit market. What regulation does exist is rarely enforced. Several federal agencies—including the Federal Reserve and the Federal Trade Commission—are charged with the task of consumer protection, yet they have little accountability. Elizabeth Warren, chair of the Congressional Oversight Panel of the Troubled Assets Relief Program and former Dean of Harvard Law School, notes that under the status quo regulators compete for clients and thus inevitably form cozy relationships with the firms they regulate. Among other problems, many firms house their operations in individual states, thus evading federal regulation entirely.

One result of lax oversight is that many financial products are loosely uninspected—this makes American households more prone to fall into bankruptcy and more subject to financial abuse. A consumer financial protections institution would have the authority to regulate new products, terminate abusive lending practices, and pursue financial fraud. This would not only defend consumers and small businesses but also help the financial sector accomplish what it is meant to do: connect borrowers and lenders in order to increase the productivity of the real economy.

Although conservatives argue that we shouldn’t be regulating financial products merely because they’re complicated, we already have and we already do, for good reason. The notion that we should have more regulations on products that are more complicated and potentially harmful isn’t novel. As Mike Konczal at the Roosevelt Institute notes, most of the financial instruments products that played a major role in the sub-prime mortgage crisis were illegal before 1982. Despite what folks like Wallison may claim, this will not be the first time the government ensure that a large sector of the economy “den[ies] products and services to a large proportion of the population.” For example, most consumers quietly depend on the FDA to regulate food and medicine. Most Americans agree that the “freedom” to consume something that is likely to harm them isn’t always valuable in and of itself.

Over the coming months, conservatives will try to take advantage of the anti-elitist anger burning through America. They’ll vilify bureaucratic elites while turning a blind eye to the dangerous deeds of financial elites. So far, the U.S. Chamber of Commerce, among other groups, has spent $3 million on fighting consumer financial protection. The White House, along with heroines like Elizabeth Warren, is responding appropriately by accusing conservatives of defending Wall Street interests. Given the overwhelming number of Americans who just want a fair handshake, one would think Republican senators and their intellectual associates would stop siding with Big Finance. Yet conservatives, perhaps cleverly so, seem more interested in securing funds from Wall Street than representing the interests of their constituents.  As the fight continues we can expect them to disingenuously portray most pieces of financial reform as  recipes for further bailouts and elitist government expansion. After all, sometimes you just can’t teach the Grand Old Party new tricks.

Raúl A. Carrillo ’10 is a social studies concentrator in Lowell House. His column appears on alternate Fridays.