The last thing consumers need: a new agency
Obama's plan to guard against devious lenders would launch a new bureaucracy to enforce the law, but we've already had one for 95 years. It's called the FTC
The FixersWASHINGTON (Fortune) -- In his latest astutely staged gesture as grand economic reformer, President Obama this week directed his Treasury Department to deliver to Congress a 153-page bill creating a new agency to protect unwitting consumers against devious lenders.
A senior Treasury official assured reporters in a briefing this week that the propose Consumer Financial Protection Agency is a top priority for the President, that the agency will be "well funded," and that families deserve rigorous bureaucratic protection from the greed of Wall Street (and Wall Street pretenders).
Hard to argue with that -- except to point out the flawed underlying logic: Since the current government cops were asleep at the switch, allowing today's financial crisis to unfold right under their noses, this activist White House wants to deputize a whole new squad.
"A disaster," says retired federal Judge Stanley Sporkin, formerly longtime enforcement chief at the Securities and Exchange Commission. "You don't need another agency! Assign the jobs to agencies that are there now and make them operate."
Well said -- and this from a judge with a reputation of siding with the little guy against powerful corporate interests. The Obama bill would take consumer protection powers away from existing banking regulators and give them to a new agency that banking lobbyists fear will have dangerously broad authority to impose burdensome new regulations.
But the proposal also suggests that rather than tackling the underlying problem -- which is that we need a financial regulatory system that is modernized, smarter and more efficient -- this administration is going for a tired Washington path that equates big bureaucracy with better bureaucracy.
And among the hundreds of federal bureaucracies that taxpayers already fund, there is actually one that's already dedicated to "the issues the touch the economic life of every American." It's called the Federal Trade Commission, created in 1914 to help busts the trusts -- and 24 years later charged with enforcing a new congressional prohibition against "unfair and deceptive acts or practices." The FTC even has a Bureau of Economics specifically charged with providing economic analysis and support to "consumer protection" investigations and rule-makings.
That mission should make the FTC an ideal home for the Obama administration's stated goal of coordinating a patchwork of state and federal laws governing consumer financial products like mortgages and credit cards. But simply expanding the FTC's role isn't politically juicy -- the administration doesn't get bonus points in its legacy to provide "consumer financial protection." Imagine trying to stage a White House event around expanding the duties of a 95-year-old agency.
From policing how companies pay their executives to guarding against risky corporate investments, Obama officials see themselves as the stewards of the great progressive era -- not just FDR's bold market interventions, but also the trust-busting of Teddy Roosevelt.
One problem with that immodest sensibility is the complexity of the roots of today financial crisis. The administration has forwarded an ambitious plan to strengthen oversight of financial institutions, but plenty of consumers played a role in this dangerous credit bubble, too -- overextending themselves on homes and credit lines they couldn't realistically afford.
While consumers who bought those lead-painted toys the Consumer Product Safety Commission is charged with keeping off the market didn't know what they were getting, consumers who bought no-money-down, adjustable subprime mortgages often did. Is there a bureaucrat charged with protecting consumers from themselves? And what bureaucrat is going to be charged with preventing lawmakers in Congress from pressuring banks to lend to disadvantaged families trying to buy homes -- another piece of this complex financial crisis?
Obama is hardly the first president to add a new government bureaucracy as a way to solve a problem. George W. Bush tried to solve flaws in national-security intelligence collection with another bureaucratic layer, the Director of National Intelligence. As Reagan famously said, "No government ever voluntarily reduces itself in size."
Reagan's words were especially evident more recently, with the proposal to merge two agencies already charged with protecting individual investors --the SEC and the Commodity Futures Trading Commission, a double-ground zero for failed regulatory oversight ranging from Bernie Madoff's Ponzi scheme to the dangers of derivatives. But when a merger to provide better coordination overseeing the securities and futures markets proved politically untenable with turf-conscious lawmakers, the White House dropped the idea. So now we get to keep those two agencies -- and get a whole new one to boot.
President Obama, with a Democratic activist's sensibility, has exhibited more faith in the efficacy of government -- from running auto manufacturers to providing public health insurance -- than any president since FDR. Which is interesting, because in the same week his Treasury Department sent its proposal for a new consumer protection agency to Congress, the President told a group of nonprofit leaders at the White House House: "Government can't do everything and be everywhere, and it shouldn't. Folks who are struggling don't simply need more government bureaucracy. People don't need somebody in Washington to tell them how to solve their problems." 
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