Financial Reform with an Independent Consumer Protection Agency

March 6, 2010

By Padmini Arhant

The Wall Street bailout season commenced in 2008 and continued into 2009. Those corporations allied with the oligarchs not only survived but their CEO’s are thriving amid difficult economic times and some states experiencing a double-digit unemployment.

As stated earlier in numerous articles on the economy and the financial sector, the speculators’ reckless conduct together with greed led to the status quo. The sub-prime mortgage and credit card lending practices targeting the vulnerable population contributed to the housing market decline and the alarming bankruptcies.

In addition, the credit crunch has forced many small businesses to lay off employees and left the self-employed in a dire situation. The private sector have also been affected in the liquidity crisis triggering the 9.7 percent national unemployment rate and much higher when consolidated with the under employed statistics.

Evidently, a rigorous financial reform is necessary to revive the economy and avert future meltdown.

Although, an international consensus was reached during the G-20 meetings in 2009 at London and Pittsburgh to implement strong financial regulations, the domestic agenda in the United States is faltering due to the usual Senate gridlock and the lack of enthusiasm to push the issue forward.

However, the House of Congress is way ahead of Senate in passing legislations on many issues, reflecting the Speaker Nancy Pelosi and the House of Representatives’ commitment.

On the other hand, the Senate majority leader Harry Reid has a tough battle convincing the opposition, sworn to filibuster the legislations on any reform.

The Republican Senators and the democrat opponents believe in the market economy free of regulations and refuse to acknowledge the economic adversity brought upon by deregulations in the recent decades.

Failure to act now would be catastrophic for the global financial market and the economy.

There is no guarantee that the U.S economy and the rest of the world would not be subject to a similar scenario in the future with the hedge fund managers and the investment banks such as the Goldman Sachs…

Having set a precedence in wild speculations, high-risk exposure and fast track profiteering at the expense of millions of borrowers, investors and national economies like P.I.G.S, an acronym for Portugal, Iceland/Ireland, Greece and Spain, all of whom are currently dealing with insolvency.

Finance sector being the cradle of the economy, the benign symptoms would prompt the government bailouts of the default institutions. Thus, history repeating itself with the exponentially rising national debt remaining the constant factor in the non-regulatory environment.

Another attention worthy issue in this context is the establishment of an Independent Consumer Protection Agency.

Agency’s function would be fairly common and that being,

Protecting the consumer rights as the borrowers,

Creating awareness on the industry’s unethical practices apart from,

Preventing the banks in the systemic abuse of customers through inflated finance charges and interest rates on personal loans, credit card etc.

Further, it could also provide arbitration service to the borrower and the lender on financial disputes, thereby mitigating legal expenses for both parties.

Not surprisingly, there is resistance to the Independent Consumer Protection Agency.

As witnessed in the health care bill, the lobbyists are relentlessly engaged in ensuring the demise of the financial reform and the consumer protection agency.

The White House being suggested to nominate the Treasury Department in handling the Consumer Protection Agency affairs as opposed to a non-partisan and an independent committee, poses a conflict of interest stemming from the Treasury Department’s liaison with the financial institutions.

Likewise, the Federal Reserve maintaining control over the Consumer Protection Agency against the banking sector is an unrealistic expectation based on the Federal Reserve’s performance in the sub-prime mortgage debacle and the executives’ close ties with the finance sector.

Therefore, the consumer protection agency ought to be independent and focused on safeguarding consumer interest.

Financial reform cannot be delayed or relinquished especially with the Wall Street’s compulsive disorder to indulge in short term gains by acquiring toxic assets only to be transformed into a burgeoning liability.

Alternatively, the watered down legislation could fulfill a formality and not serve the purpose.

Hence, the requirement for a meaningful financial reform is absolutely vital to rein in on predatory traditions.

Finally, the U.S. economic recovery could be expedited through a robust financial regulation that would instantaneously restore the investor and consumer confidence.

Thank you.

Padmini Arhant

Written by Padmini Arhant · Filed Under Business 

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