Obama Unveils Plans for New Agency to Fight Abuses in Financial Sector
Jun 22nd, 2009 • Posted in: NewsCritics say proposal would concentrate too much power in the Fed and overreach government’s authority; backers argue such protections could have prevented current economic meltdown
WASHINGTON
President Obama’s plan to more closely regulate financial risk last week prompted ethical debate over how large a role the government should assume in protecting consumers.
Obama framed the issue in moral terms, saying enhanced regulation was called for because “a culture of irresponsibility took root from Wall Street to Washington to Main Street, ” reports the New York Times. “A regulatory regime basically crafted in the wake of a 20th century economic crisis — the Great Depression — was overwhelmed by the speed, scope, and sophistication of a 21st century global economy,” Obama said.
But critics say Obama’s plan, which essentially consolidates regulatory power in the Federal Reserve, gives too much power to the Fed — an agency that has been blamed for past recessions after detractors say it missed early warnings of looming problems.
Sen. Christopher Dodd (D-Conn.), who chairs the Banking Committee, said consolidating power in the Fed “is like a parent giving his son a bigger, faster car right after he crashed the family station wagon,” UPI reports.
The proposed super-agency residing in the Fed would be called the Consumer Financial Protection Agency and would have broad authority over consumer-oriented financial products, such as mortgages and credit cards. Obama’s blueprint for the agency says it will play a “leading role” in educating consumers about finance and ensure that financial products such as mortgages are offered in simplified, “plain vanilla” forms, according to Consumer Reports.
Executives of banks and other financial institutions characterized the proposal as overreaching. But proponents, such as Dean Baker of the Center for Economic and Policy Research, counter with the claim that such an agency could have prevented the most damaging abuses in the subprime real estate market and consumer lending.
“It is not hard for an expert in finance to devise financial instruments that most people cannot understand,” Baker told PBS’s “NewsHour.” “By blocking this path to profitability, these reforms, if effectively applied, will lead to a more efficient financial industry. The country does not benefit from having people at Goldman Sachs and Morgan Stanley spending their time devising ways to rip off small city school districts with auction rate securities.”
Sources: New York Times, June 19 — UPI, June 19 — Consumer Reports, June 18 — PBS’s “NewsHour,” June 18.
For more information, see: Related Newsline story, June 15 — Related Newsline story, June 15 — Related Newsline story, May 25 — Related Newsline story, May 4.
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