When grown-ups don’t step up, government steps in
If you’ve read anything about post-recession financial regulation, you’ve probably seen the wry comments regarding the Dodd-Frank Act, and the deluge of regulations flowing from it.
Often the raft of regs is compared to “War and Peace,” because that’s the longest book most of us can think of, whether we’ve read it or not. Now we’ve got a definitive marker: The Consumer Financial Protection Bureau just came out with the regs pertaining to just residential mortgage origination and servicing. It runs to 900 pages, and this area of enforcement is just one of many that the bureau oversees. “War and Peace,” depending on the edition, is just over 1,000 pages.
Financial industry executives, commentators, bankers and just about anybody involved in moving money have bemoaned, with good reason, overregulation in the new world of finance that often actually limits, rather than expands, credit for deserving consumers.
If you don’t want the law in the living room, don’t leave the door open. The million megaton pop of the housing bubble that triggered the Great Meltdown was the result of investment bankers — like Bear-Stearns, Merrill Lynch, AIG, Lehman Brothers, Countrywide and IndyMac, to name just a very few — that structured mortgage loan programs that gave away billions of dollars in home loans to just about anybody that could sign their name.
It’s like the parents who stage a party for their kids and their friends, supply a keg or three, and hand out pints to the partygoers. Eventually, the neighbors drop a dime and the cops show up. People get arrested, including the adults, and it’s not pretty.
Quite simply, the financial crisis happened because money center adults, people with prestigious MBAs and Ph.Ds, were delivering unlimited kegs to millions of crazy teenagers.
And there were a lot of other grown-ups that chipped in to make certain the party was a national event. Like big banks and small that made speculative construction and land development loans to entrepreneurs planning to ride the wave of appreciation to financial nirvana.
It’s no wonder that everybody else — builders, Realtors, appraisers, mortgage brokers, mortgage bankers and, finally, borrowers — lined up to join the carnival.
Government, and the law, will always move to fill a vacuum, or to act in response to abuse in any sector of national life. They’ll walk in that open door every time.
I once had a partner, a street smart lawyer, who counseled, “Be very careful before you call in the law. The law is not your friend.” Meaning that it’s not the law’s job, the government’s responsibility, to collect your debt, or to punish your adversary. It’s objective has nothing to do with you.
Private enterprise, to work, must have grown-ups in charge at some stage in the food chain. Otherwise, the government will take over and set the rules for adult behavior, which isn’t a heck of a lot of fun.
Where were the adults? Not in the room, and now bankers, and the rest of us, have to live with the CFPB and thousands of pages of regulations.
Pat Dalrymple is a western Colorado native and has spent almost 50 years in mortgage lending and banking in the Roaring Fork Valley. He’ll be happy to answer your questions or hear your comments. His e-mail is firstname.lastname@example.org.
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