James Surowiecki at the New Yorker offers a different defense of Elizabeth Warren:
… Given the intensely partisan nature of Washington these days, the demonization of Warren and the C.F.P.B. is all too predictable. But it’s profoundly misguided, because Warren is far from the anti-capitalist radical that her critics (and some of her supporters) suppose. Indeed, an empowered C.F.P.B. could actually be a boon to business.
The core principle of Warren’s work is also a cornerstone of economic theory: well-informed consumers make for vigorous competition and efficient markets. That idea is embodied in the design of the new agency, which focusses on improving the information that consumers get from banks and other financial institutions, so that they can do the kind of comparison shopping that makes the markets for other consumer products work so well. As things stand, many Americans are ill informed about financial products. The typical mortgage or credit-card agreement features page after page of legalese—what bankers call “mice type”—in which the numbers that really matter are obscured by a welter of irrelevant data. There’s plenty of misinformation, too: surveys find that a sizable percentage of mortgage borrowers believe that their lenders are legally obliged to offer them the best possible rate. Since borrowers are often unaware of how much they’re actually paying and why, the market for financial products doesn’t work as well as most markets do. And the consequences of this are not trivial…
The C.F.P.B. hopes to change this, largely by insuring that consumers will be told the true terms of a deal, in a simple and clear fashion. (As an example, it recently released two possible mortgage disclosure forms, and both were two pages long.) This would obviously be good for borrowers. But it would help most lenders, too. For all the talk of the financial industry’s power, its performance over the past decade has actually been dismal. Countless lenders have gone out of business, and many of those still standing saw their stock price decimated after they loaned immense amounts of money to people who couldn’t repay it. The banks thought they were taking advantage of uninformed consumers, but they ended up playing themselves. In a more transparent credit market, almost everyone would have been better off.
There’s also a link to an excellent 18-minute video of Surowiecki and Warren discussing TARP and the reasons why CFBP would be (is!) so necessary.
humans as a species spend so much brain power trying to deceive each other but so little brain power in looking out for deception.
Here’s the crux of the matter: purveyors of financial products (and their minions in Congress) do not want well-informed consumers.
And just why would the financial firms want more efficient markets? They make more money from the inefficiencies.
The demonization of Mrs. Warren is not misguided, it’s doing exactly what is desired: keeping information away from the consumer and distorting the market to the benefit of the financial industry that finances the Republican Party.
There is long term-profit in underwriting sound loans, but little short-term profit. Or at least not as much short-term profit as churning the whole economy into the shitter. And I am too fatigued to unmix that unfortunate metaphor.
Culture of Truth
Countless lenders have gone out of business, and many of those still standing saw their stock price decimated after they loaned immense amounts of money to people who couldn’t repay it.
The ones still in business think they’e geniuses who don’t need some regulator to tell them how to do their job.
Villago Delenda Est
Yes, and there’s a reason for this: they’re focused on the short term.
Too bad a mortgage is a long term sort of thing…but if you can sell it off to some other financial institution, who cares about the long term? You’ll make your pile and you’ll be GONE!
Yet another of so many examples where the most fervent worshipers of “free markets” demonstrate they have no idea how they actually work (or they’re using it as just another buzzword to fleece the rubes.)
A relative of mine expressed his vociferous opposition to Elizabeth Warren on the ground that he didn’t like that folks on Wall St. were saying that she was an overbearing regulator. I pointed out that she’d never been a regulator.
Similarly, another relative once claimed that DOE had never produced a watt of energy. Where do people hear these things?
It’s a good thing he put in that warning about how some of Elizabeth Warren’s supporters think she’s an “anti-capitalist radical”!
None of them do – that’d be pretty fucking impossible – but it makes Surowiecki here look nice and above it all.
The banks remind me of the story of the old guy who would rather climb a tree to lie to you than to stand on the ground and tell you the truth.
It’s a plausible argument that appeals to the bankers’ interests. Handing customers a raw deal might mean a quick profit up front; but ultimately it discourages them, and what discourages customers is bad for business.
On the other hand, ensuring that customers understand financial products better helps them pick the right one, and then keep up with their obligations. This is good for both customer satisfaction and the likelihood of repeat business — a win-win for customer and bank.
It’s precisely the kind of argument that needs to be pushed to bring the bankers around, and with them their hirelings in the Republican party.
Villago Delenda Est
These assholes are only interested in short term looting, not in repeat business.
They make their individual piles, and they’re gone.
Only after posting that comment did I realize how Pollyanna-ish it sounds.
Culture of Truth
To the extent this is true, there’s nothing stopping banks right now from making sure their customers are well informed.
@Villago Delenda Est: “These assholes are only interested in short term looting, not in repeat business.”
I’d be really interested to see some study of the amount of wealth accumulated by folks who went straight from undergrad to Wall St. between 2002 and 2006 or so. You’d think a fair market would result in people who made that decision losing their shirts since the recession literally wiped out all of the gains of the preceding five years.
@AAA Bonds: this!
That was a blatant bit of “both sides do it,” “view from nowhere,” “church of the savvy” ass-covering bullshit.
In fact I challenge Surowiecki to locate a single supporter of Warren who is on the record anywhere or will state for the record that they support her because they believe she is an anti-capitalist radical.
Villago Delenda Est
@Culture of Truth:
Nothing but their own all consuming greed.
@Culture of Truth: Hmm, but in some sense it’s like the problem of preventive care in health insurance. All the insurance companies know that preventive care more than pays for itself, but the problem is that some other company is likely to benefit if they pay for it, so market competition perversely pushes them not to pay for it. This is why government regulation is so essential to countering the problem of short-term thinking. We can moan all we like about how companies should focus on the long term, but as long as the market is set up to reward short-term success, it’s really difficult to go against it.
Villago Delenda Est
The First Rule of Acquisition:
“Once you have their money, never give it back!”
Villago Delenda Est
A friendly amendment.
“In fact I challenge Surowiecki to locate a single supporter of Warren who is on the record anywhere or will state for the record that they support her because they believe she is an anti-capitalist radical.”
I assume he was thinking of Michael Moore, who made Warren the hero of “Capitalism: A Love Story,” which is pretty explicitly an anticapitalist film.
Culture of Truth
It’s different from health insurance, since it boils down to, “hey stupid, don’t lend money to people who can’t pay it back.”
Efficient markets are nowhere near as profitable as inefficient markets. In fact, inefficiency equals profits in many ways.
They’re afraid of Warren because they don’t want the free markets they claim to want.
Hadn’t thought of it that way, but free market theology has always required perfect knowledge by all participants. Warren is a fucking libertarian!
Everyone here has hit the problem with this article: efficient markets maximize total economic value (consumer surplus + producer surplus/profits), which is very different than maximizing producer surplus/profits (the goal of the financial industry). If the financial industry can make more money arbitraging information asymmetry, they’re happy to do so – economic efficiency of more transparent markets be damned. Is it possible that the asymmetry gets so bad that the market tanks, wiping out the surplus from the information asymmetry? I’d say the last few years are pretty clear evidence of “yes.” But that doesn’t imply the financial industry wants to get rid of asymmetry all together. “Can we keep the parts where we screw our customers but get rid of the risk of a meltdown?”
Surowiecki thinks the American business community wants a free and open marketplace, operating within free and open rules, and does no look at the country as big, dumb cow to be milked dry and then slaughtered for the meat.
“Surowiecki thinks the American business community wants a free and open marketplace, operating within free and open rules, and does no look at the country as big, dumb cow to be milked dry and then slaughtered for the meat.”
No, I think the piece is saying that they should want this, because the alternative, at least in the case of finance, is often worse. The financial industry can’t look at the past decade and say that its milking of the country was a success — it was a complete disaster for the industry (not to mention, of course, for the country).
Of course good, strong, fair regulations, consumer protection, social programs designed for basic justice and equity, and all such things are good for business.
It’s why so many of the richest plutocrats backed the New Deal. Clearly not all, and especially not the companies with few international dealings.
But such things aren’t good for smash & grab profits.
Things like the S&L collapse via fraud & theft (and then on) would have been terrible for business had we not realized that government does have a purpose in helping our troubled citizens — especially the bank owners and investors. (Though at least at that time both the laws and law enforcement could and did follow up with hundreds of arrests.)
There’s a hidden assumption here; J. Grady @28 makes a similar one. The bankers’ interest is not necessarily the same as the business interest. A person working for a bank (or investment company) could very well make tens of millions of dollars, if not more, by engaging in practices that weaken or destroy the business. Sure, the company may collapse three years later because of this; but the employee already has the money, so why should he or she worry?
There were several instances of this in the recent mess. I remember one (I think at Lehman, but I’m not sure) where the other company employees pointed out that one of the trading divisions was taking really risky positions, but the traders and more importantly their managers were making huge bonuses from these trades so had no incentive to stop.
This sort of thing can (and given human nature, will) happen any time employee incentives aren’t aligned with the company. In that regard I find it interesting to note the context of Adam Smith’s famous “Invisible Hand” metaphor – his examples were from a time when a merchant was not distinct from his company, and if it failed he would be personally bankrupted as well.
@Amir_Khalid: That’s the best admission I’ve heard all day. And I’ve heard a few. :-)
Surowiecki is so cute, believing that banksters and their congressional minions want “vigorous competition and efficient markets.” I don’t want to be the one to tell him there’s no pony in there, but, gosh, SOMEbody should.