Democratic Fundamentalism

Tim Fernholtz, over at TAPPED, has a column criticizing Matthew Yglesias for his whimsical attitude toward the prospect of the Consumer Financial Protection Agency not being part of the new wave of “financial regulation” that probably won’t become law. He claims that increasing the quality of consumer finance cannot be improved by legislation:

But if the CFPA isn’t included in financial regulatory reform, then — this is important — consumer lending will not improve. This is not a problem that can be solved by legislation, and ineffectual federal regulators preempting state authorities isn’t going to go away. If real consumer protection isn’t in this bill, it will be a major loss.

This is, of course, democratic fundamentalism. And not only that, it is wrong. Of course consumer finance can be improved through simple legislation — require a 20% down payment on all mortgages, with no loopholes, to start. Further, why did we pass the CARD bill? Not that the CARD bill is “improving” anything. Even Mike Konczal (who is for the CFPA, I presume) has spent numerous hours blogging about “Vanilla options” in both consumer and industry finance that could be easily legislated.

What is the problem with the blunt force of legislation? Well, besides the fact that we have to deal with messy democracy (integral to fundamentalism!); it allows no wiggle room that favors leftist-liberal constituencies. Democrats like the idea of low-income home ownership, however, they don’t like to swallow the reality that their preferred methods of achievement often result in the exact opposite of their intended goal.

I have as little faith in the CFPA as an effective regulatory body as I have in the SEC…or DOEd…but blunt, effective solutions could be easily legislated (and need to be).


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