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Back to Fundamentals, Not Faux Fixes

In the movie Back to the Future, Marty McFly had to change the past in order to improve his future. We don’t have movie magic to change the past but we sure can re-evaluate the past and learn from it. And we do have the power right now to change our present to ensure that we have a future as the greatest economy and country in the world. We can right the economic wrongs in our system, but only if we disregard the smoke and mirror fixes, that are the stock and trade of the political establishment on both sides of the aisle.

Let’s take the CFPB (Consumer Finance Protection Bureau) as an example. The CFPB and other such faux fixes are not a panacea to our financial problems. To date what has the CFPB done to reign in the criminal and reckless behavior of the financial giants? Nothing. And it never will because it has no prosecution power and does nothing to change the fundamental system of politically protected corporate monopolism.

The thesis of the CFPB is that if consumers simply understood the process, that if the document were boiled down to two pages, then they would not have signed the mortgages or obtained the credit cards they did.  This thesis is dead wrong and paints consumers as dimwitted dupes. Consumers are not dumb.  Whether a financial document is two pages or twenty pages, the problem in this case is with regulating want versus can. Americans want to own homes, they want their piece of the American dream, they want things, frankly, that they cannot afford. They want it so bad that if a bank or credit card can give them a loan or easy credit that they cannot afford, they will take it even if they know it is risky because they want it. We cannot legislate away this want.

The only thing we can legislate is the “can” part. The mortgage and financial mess and subsequent meltdown of our economy was created by the fact that the banks and mortgage companies had free reign on the “can” part. They could sell any product—0% down, interest-only loans, no-doc loans, and loans with no correlation to someone’s income. The rule that someone could not borrow more than 2 ½ times their income that served us well for over 60 years was abandoned. We do not need the CFPB to re-implement the rules that pre-existed its creation. The absurdity of 0% down, interest-only loans and no-doc loans speaks for itself.

Also, the CFPB and any future “brainchild” of the faux-fixit club have no prosecutorial power, which leaves them severely hindered. Civil oversight is not going to cut it—banks engage in criminal fraud, and the only thing these giants understand is big penalties, real jail time and real monetary penalties (not the pathetic $22 million penalty settlement Angelo Mozilo got when he had cashed in $500 million in stock options over the years).

As for payday loans, again the CFBP misses the mark. Let’s ask ourselves why we want to spend federal dollars trying to oversee what is basically a usurious enterprise. You don’t fix things by making them slightly less usurious. Put them out of business by enforcing laws against usury and by investing in community banks that will truly service the community. If we address these fundamental issues, then things like payday loans and check cashing agencies become moot. That’s how you deal with them, not with a band-aid to make them slightly less criminal.

The true solution is to implement the rebuilding of a fundamentally sound financial structure—something the CFPB and bromides of its ilk will not do.

We must outlaw mortgage-backed derivatives and credit default swaps (invented at JP Morgan in 1994) and collateralized debt obligation. There is no law or bureau that could magically turn on gambling whether someone will pay their mortgage or not, into a sound investment. Bring back the Bucket Laws that the Commodities Futures Modernization Act of 2000 gutted. Where is our leadership on any of these ideas?  Nowhere, because having an idea and a real solution instead of a faux fix would require political independence and courage.

Dodd-Frank calls for the SEC to regulate hedge funds, derivatives, private equity and the like and some pretend that if we just throw more money at the SEC that it will take care of the problem. That is the legislative equivalent of a pat on the hand. It is patronizing and insulting to the people. It is dangerous to believe that Dodd-Frank fixes the problem and will prevent the next meltdown.  Dodd-Frank does not address the fundamental flaws that the banks and financial industry were allowed to exploit.

We are treading water only to be drowned again by the next wave of Wall Street criminality.

Here’s a novel idea — our stock market should be a place where we invest in companies that do things like produce goods and services, create new products that push competitors to new innovations, invent consumer products that make life easier and more enjoyable and discover cures for diseases. The list is endless and real.

Let’s take strong action now, by supporting those listed companies that produce, create, invent and discover. Many of those listed companies were once our local small businesses.

© Marisa DeFranco 2014



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