July/August 2012 Too Important to Fail

Predatory lending still poses a systemic risk to the economy. Will Obama's new Consumer Financial Protection Bureau succeed in taming it, or will the agency be strangled in its crib?

By John Gravois

The only problem is that, in all likelihood, such a world would be one where banks only get more sophisticated, powerful, and centralized. And herein lies the main philosophical shadow lurking over the bureau. By setting out to match the analytical prowess of the financial industry, the CFPB is implicitly giving its assent to a world where finance is governed by complicated models, big data, and the statistical masters of the universe who command them—as opposed to an older world where finance was governed by the personal relationship between a borrower and a lender. It’s just that now the public has a few statistical masters of the universe on its side. “The hubris of finance is now being matched by the hubris of the regulator,” says Amar Bhidé, an economist at Tufts University. “Wonderful.” Throughout the debate over financial reform—and for much longer than that, really—there have been people who believe we should craft sophisticated regulations tailored to the heavily engineered financial system we have; and then there have been those who believe we need to break up that system, shatter the behemoths into smaller pieces, and bring finance back down to human scale. The CFPB does little to satisfy those in the second camp.

That said, for as long as that system exists, the CFPB is our best hope. For the past generation, financial institutions have gotten a few things—burying revenue streams, extracting wealth, and juking consumer behavior—down to a science. Now, assuming the bureau survives and can fulfill its mission, the most important question facing them will be whether they can figure out profitable ways of helping Americans build wealth. This also happens to be one of the most important questions facing the rest of us as well.

[Return to The Future of Success in America]

John Gravois is an editor of the Washington Monthly.


  • paul on July 09, 2012 1:30 PM:

    The other week I was reading some century-old novel from Gutenberg, in which the hero, a munitions manufacturer (!) decides that he's not going to gouge the government for a huge set of emergency war orders. Instead, he's going to take "only a banker's profit."

    That's what commodity businesses where customers know exactly what they're buying ultimately come down to: small, consistent profits. Exactly the opposite of the financial industry today.

  • kay sieverding on July 14, 2012 11:29 AM:

    I don't understand why no one is talking about modifying the 1948 McCarran Ferguson Act. It prohibits federal regulation of insurance.

    Even if the McCarran Ferguson is allowed to stand, the feds should step in when the states fail to regulate insurance.

    Look at this insurance company. It claims to be a Bermuda company and claims to sell insurance across the U.S. It's not listed on the website of the National Association of Insurance Commissioners


    Look at Colorado Intergovernmental Risksharing Agency. Here's a blog I wrote about CIRSA


    Now the State of Colorado links to the NAIC. Previously they listed TIG as active and selling health insurance. The phone number listed was a residential cell phone and the address listed was a private home.

    There are other examples. If you look at state insurance websites you will see that they list out of state insurers. But the states where they are listed as being based in won't have records of them. Often the names are changed slightly too indicating that legally they aren't the same company.

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